By Chris Majerle
Why does management keep raising our assessments?
We don’t. Management has no control over your assessments. Management is an administrative service assisting the board of directors. You elected your board, and that board makes all the decisions—what contractors to hire, what repairs to do, what insurance to buy, and how much members need to be charged to pay for all that.
Every year, one of the most important jobs a board has is to approve a budget. Often, the budget starts with certain recommendations from management. After all, management has a lot of experience with a wide range of contracts, vendors, projects, and financial matters. But the board takes those recommendations into consideration and ultimately decides to use them, discard them, or accept them.
Subject to, any limitations that may be contained in your governing documents, the board determines the amount of the next year’s assessments. The process goes like this: In a condominium in Maryland, the board approves a proposed budget, sends it to the owners, and, after 30 days, holds a meeting to hear owner comments. Then, the board adopts the final budget. In a homeowners association (HOA), the board is not required to circulate the proposed budget.
This may seem unfair, but community associations operate just like your local, state, and federal governments. You elect people and delegate the decisions to them, and you live with them until the next election.
So does an assessment increase mean you have an incompetent or uncaring board of directors? No! Nothing could be further from the truth. In fact, holding assessments level is likely to be more indicative of incompetence. Costs go up. Instinctively, you know this. You go to the grocery store, the gas station, Home Depot. You have property insurance and car insurance. In fact, if you are working, you expect a raise every year. Well, your association purchases labor and materials from vendors who employ workers, buy supplies and fuel their vehicles. All costs go up. You may have heard of the Consumer Price Index (CPI). This is a report produced by the US Department of Commerce indicating how much these costs go up. As this is being written, the CPI is 7.4%. This means, on average, you are paying 7.4% more for goods and services than you paid last year for the same. Not increasing assessments by 7.4% means you cannot buy the same services you bought last year.
Budget preparation means evaluating costs, budget line by budget line. The objective is to minimize increases by managing these costs while maintaining quality and property values.
In 2020 and 2021, bills were passed in Maryland (Prince George’s and Montgomery Counties) to require reserve studies every 5 years and to fully fund the reserves. This ensures that your community has the money to replace very costly items when—not if—they wear out. Concrete, asphalt, roofing, lighting, carpet, windows, and virtually every component of the common areas will need to be replaced. The reserve study forecasts when and how much it will cost to make those replacements. After the collapse of the Surfside Condominium in Florida, the Maryland legislature has revived the discussions for 2022 to go statewide with the reserve requirements.