Open Board Meeting - 16 September 2010

September's open board meeting had a little bit of drama but, overall, was very quiet, much like August's meeting. The board's treasurer was absent.

Homeowner Forum

There were only three homeowners present for this portion of the meeting during which only one spoke, and that homeowner directed her comments/questions at me. She was particularly concerned with some of the comments I made in regard to a parking permit that was pending issue. Here is some background:

Prior to the August meeting I met with a homeowner to verify his information in connection with issuing a parking permit. During the course of the visit, the homeowner suggested that the association consider issuing a second parking permit to homes in the community. At first I was reticent since parking is always such a touchy subject. However, the homeowner suggested that the cost of the second permit be much higher than the first, something on the order of 3 to 5 times as high. This would discourage people from buying a second permit just because they could afford it (alleviating my concerns about over-parking) and also provide some much needed revenue to the association. I told the homeowner that the idea sounded good to me and that I would take it up with the rest of the board.

At the August meeting, I raised the idea of issuing a second permit to people who were willing to pay $500 or even $1,000 for a yearly permit. I said that because the association had only issued approximately half of it's allotment of 25 permits, the issuance of (what I expected to be) one or two "secondary" permits was something that should be considered in light of the extra money that could be brought in with minimal impact to the parking situation. The idea was quickly rejected by the remaining board members.

Now, back to September's meeting. The homeowner at the meeting had several concerns about this, but they all seemed to revolve around 2 points:

1. That when I spoke to the homeowner again after the board meeting, I would portray the remaining board members in a bad light, e.g. "I really wanted to do this thing, but those mean, old board members just wouldn't go for it."
   
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2. How could I think that this was a good idea? And more to the point, what qualifies me, as a non-resident member of the association and board, to proclaim this a good idea, e.g. why would I care if parking goes to hell in a hand basket subsequent to the adoption of such a policy.

To the first point I replied that I had not spoken with the homeowner again. Since he had intimated to me that he had raised the idea previously to no avail, I didn't feel it necessary to contact him to tell him that nothing was going to change. I further replied, though, that if I did contact him, I would not hesitate to tell him that I liked the idea, but the rest of the board did not. Furthermore, I cannot control what a homeowner thinks about the association's policies and/or the individual members who vote for or against them. I would have (to the best of my ability) related to the homeowner what happened at the meeting, and he would have been free to draw his own conclusion(s).

(I should add, at this point, that the remaining board members came to my defense, explaining that they would have acted similarly when talking with the homeowner who suggested the idea of issuing a second permit. That is, they, too, would have politely listened to the homeowner and brought the issue to the board, i.e. it is generally the M.O. of board members in such situations not to argue with a homeowner. I thanked them for speaking up but made clear to the homeowner at the meeting that I did think that the idea had merit.)

To the second point, I explained that I do not make decisions for the association; the board does. The very reason that five people sit on the board and not one is to prevent one person from instituting whatever policy he or she deems to be a good idea. Sometimes the members of the board agree; sometimes they don't. There is nothing wrong with that disagreement, though. That is just the way things work. I thought issuing a second permit was a good idea; the rest of the board disagreed; and the issue was dropped. (I wish that I had specifically addressed the canard that being a non-resident member somehow diminishes me or the work I do as a board member, but it didn't seem the place, nor does this. I will likely address it in a future post, though.)

Open Board Meeting

The highlights of the meeting are covered in the bullet points that follow. Some points require further explanation/analysis which I will get into in later posts.

• Minutes from the 19 August 2010 meeting were unanimously approved with one change: the approval of the architectural change requested by a homeowner was unanimously carried. (I do not intend to obtain a new copy of the minutes to reflect this change, so the "draft" minutes posted will have to suffice unless someone else obtains the final minutes and provides them.)
• A number of landscaping proposals totaling $563.00 were approved.
• The issue of the rabbit fencing in the tot lot was raised. During the summer there hadn't been any problems, but now apparently kids are using it to give themselves a boost to jump over the fence. The board is looking into adding curved extensions to the top of the fence that would prevent climbing over the fence.
• The board approved the purchase of a temporary speed bump to be placed just inside the Belflora entrance gate as well as two stop signs to be added at two points within the community. If the temporary speed bump alleviates the speeding at the entrance, it will likely be made permanent.
  
• The board reviewed the association's financial statements and noted that the association is currently running almost $26,000 under budget. This is still less than the amount of outstanding debt that the association is owed by delinquent homeowners, though. Statements for the month of August were approved.
• The board reviewed the delinquency report and found that a number of homeowners have not yet paid the special assessment that was due 1 September. There is optimism that most will pay, though, based on the fact that regular assessments due 1 September were paid.
• The board approved the 2010 reserve study and the budget for 2011. The budget included an increase in the regular assessment of $11 per month. (I will write more about these soon.)
• The board discussed the proposed bylaws amendments. I spoke up saying that I was in favor of all but the change to eliminate cumulative voting. I felt that there is a minority of homeowners who have the best interests of the association in mind but who for one reason or another are unwilling or unable to attend the meetings. I said that I was aware of the possible dangers of cumulative voting but that I felt the probability of those occurring was low. The board president felt that the elimination of cumulative voting would bring us in line with most corporations and every governmental process of holding elections. I reiterated that I understood the rationale, but that I was still not in favor of the amendment.
  
  It was at this point that a "sort of" vote was held. Of the four members present, two voted "aye", I voted "no", and one abstained (admitting to not having read the changes). This should mean that the measure was defeated, having failed to garner a majority of votes. However, at this point, the property manager suggested that the issue be tabled until all five members are present, and the board president agreed to table the issue. I'm not sure of the legality of these actions, but I was not inclined to make a federal case out of it (I expected to be the sole "no" vote against four "ayes").

The meeting was adjourned at approximately 7:50pm.

Analysis/opinion of proposed bylaw amendments

I summarized the proposed bylaw amendments in my previous post, and by and large I agree with them. I would have preferred that the board discuss the amendments prior to involving legal counsel to write said amendments since it would have allowed any changes to be made without incurring a second pass through counsel and thus, a second expense, but that battle was lost a long time ago.

As I said, I agree with all of the proposed changes except two. I understand the rationale for each of them, but neither sits well with me.

Replacement of resigning directors

This isn't actually a change from the way resigning directors are currently replaced within the association. What led me to pick on this amendment, in particular, was the addition of the clause allowing a resigning director to participate in the selection of his/her successor. The addition of that clause made me uneasy. At first reading, it made no sense. Why would a resigning director be allowed to influence future board actions (via participating in the process of selecting a successor)?

As I tried to understand exactly why it is that this amendment makes me uneasy, I realized that my issue isn't so much that the resigning director is participating in the selection of his/her successor as much as that the new director is being elected via a different means than was his/her predecessor. That is, a position, duly filled by the members and now vacated, is being filled by the board.

Ultimately, though, that board, including the resigning director, was elected by the members. Viewed in that light, the board is acting with the membership's (tacit though it may be) approval to replace the resigning director. This course of action actually makes sense, since a full-blown election to fill the vacated position can be both costly and time-consuming, and none of this interferes with the board's ability to consult with the membership or the membership's right to recall any or all of the directors.

In the end, the amendment still doesn't sit well with me, but I don't believe I can articulate any substantive arguments against it.

Use of cumulative voting

This amendment didn't agree with me from the moment I heard the association's president announce it upon presenting the proposed changes to the board. Admittedly, my initial reaction was that this amendment was proposed as a means for the board president to enable himself to exert greater influence over future elections, and while that may not have been his intent, I believe it will be the end result.

The SEC's website has a fairly straightforward explanation of cumulative voting. Using the example from the SEC's website, each member of the association has one share in the association, and when an election occurs, each member has one vote per share per board vacancy. (1 share x 5 vacancies = 5 votes.) Under current association governance, i.e. cumulative voting, a member may cast any number of votes for any number of candidates so long as the total number of votes cast by that member does not exceed the allotted 5 votes. Under the proposed governance, i.e. statutory or straight voting, each member still has five votes; however, a member may not cast more than one vote for any single candidate.

In this newsletter from the Davis-Stirling newsletter archive, the author lists some of the pros and cons of cumulative voting. He describes how cumulative voting is used to give homeowners a voice in association governance while a developer still has control of said association. He further opines that cumulative voting is not necessary once the developer is out of the picture and can even be detrimental to the management of the association. This latter opinion is premised on the idea that cumulative voting can lead to the election of "disruptive, fringe, and single-issue candidates" that can be "almost impossible ... to remove." Furthermore, a "conventional voting system" requires candidates to "seek a broader base of support" which presumably leads to the election of "more moderate, business-like candidates."

While I'm not going to dispute the notion that cumulative voting can lead to the election of dysfunctional candidates, I do not believe that it has been responsible for it, in this association, yet. In fact, while I have no proof, I believe my election this past year to be a positive result of cumulative voting. (By the way, I think that last sentence should serve as proof that the labeling of candidates as "disruptive, fringe, and single-issue" is very subjective. Furthermore, "disruptive" does have its place.)

So, let me bring this home. It is my opinion that the removal of the cumulative voting option is not necessary and may be detrimental in the particular case of Park Lane, and here is why (all of which is entirely my opinion):

1. The majority of the members within Park Lane are largely oblivious or indifferent to the issues surrounding the management of the association beyond their narrow, specific problems/needs/desires (e.g. speeding, parking, landscaping, noise).
2. The majority of those members that do take an interest in association matters are predisposed to vote for the candidates who will cater to those desires.
3. The candidates, and subsequent directors, willing to cater to those desires have done so at the expense of the long-term health of the association, particularly financially.
4. In spite of this decline in the long-term health of the association, the majority of members will continue to vote for those same candidates because of a lack of transparency on the board's part and/or the aforementioned obliviousness and/or indifference on the members' part.

While I will admit to being a disruptive member of the board, I do not believe that my tenure can be described as dysfunctional. If anything, I believe it has had a net positive effect on the association. That is, the board is taking association finances far more seriously and acting to preserve them more vigorously than they have since I last served on the board. Furthermore, there is no specific problem that is currently being created by the use of cumulative voting. At this time and for this particular association, I believe that the move to statutory voting is a "solution" in search of a problem.

Proposed bylaw amendments

I mentioned in my last post that the association's president presented a set of amendments to the association's bylaws following last month's meeting. Here is a synopsis of the proposed changes:

• Section 4.01:
  
  • References to the Declarant have been removed.
  • The requirements for serving on the board are that the candidate be a member of the association and in good standing.
• Section 4.02
  
  • Two directors will be elected in even numbered years, and three directors will be elected in odd numbered years. All will serve two year terms (with the exception of directors elected in the first year after this amendment's adoption).
  • Terms limits are explicitly enjoined.
• Section 4.03
  
  • The need for and job of a Nominating Committee is removed.
  • Any member in good standing may be nominated by him/herself or anyone else.
• Section 4.04
  
  • References to the Declarant have been removed.
  • The use of cumulative voting is forbidden/removed.
• Section 4.05
  
  • Current rules for removal of a director are removed.
  • The board may, by majority vote, remove a director that it has appointed or declare vacant the office of a director who is of unsound mind, convicted of a felony, absent for three consecutive meetings, or no longer a member of the association. The board may replace this director. Members may replace this director if the board fails to do so.
  • Members may remove a board member by simple majority vote of an established quorum. Members may replace this board member.
  • A director may resign at any time, and that vacancy may be filled by the board. If resignation is to take effect in the future, the resigning director may participate in the appointment of the new director. Members may fill the empty board position if the board fails to do so.

Open Board Meeting - 19 August 2010

August's regular board meeting was uneventful, as these meetings go. Here are (some of) the highlights:

• Reserves are headed in a positive direction. The board has been doing its best to spend money out of the association's operating budget where possible to avoid depleting the reserves. The CD which held the bulk of the reserve monies rolled over recently, and the association received approximately $2,000 in interest. The board's vice president was able to secure a 2% rate for the new account.
  
  Reserve contributions continue as budgeted. I suggested that we look into making up January's contribution (which was missed) since we appear to be doing better financially. This will most likely need to be brought up again next month.
  
  
• The board approved a large number of landscaping items including turf replacement, installation of new hedges, and the like.
  
  
• Various items around the pool need work/repair/replacement: tile(s) on the bathroom roof need replacing; bathrooms need new timers for the lights; new drains are being considered in a couple of areas to keep run-off (specifically, the chlorine in it) from killing the landscape.
  
  
• The issue of speeding was raised, and the board is looking into installing a temporary speed bump at or near the Belflora entrance gate. If successful, the speed bump would be replaced with something permanent.
  
  
• The board president presented the other board members with proposed amendments to the bylaws. The reason given for the changes was to remove the possibility of cumulative voting in board elections; however, there are other changes as well. The proposed amendments will be on the September agenda, presumably for a board vote, after which, if successful, the amendments will be presented to the membership where they require a majority vote to be passed.
  
  [I have not had time to review the proposed amendments, yet. I plan to do so in the near future and will write about it once I have, though. Any member who wishes to write about the proposed changes and have their writing posted on this site should submit their writing to me by email. I would prefer not to publish anything anonymously; however I will consider any requests to do so.]
  

Minutes posted

Minutes from May, June, and July's regular board meetings are now posted.

Note that the password has been updated to match the new resident gate code.

Assessments and Dues

At the regular board of directors' meeting in May, the board discussed the state of the association's finances as well as how to resolve the loan from the reserves that was taken by the previous board. (I've previously beaten this subject to death here, here, and here.) The result of this discussion was a decision to raise the monthly assessment from $109 to $120. The intent was to have this increase take effect on July 1 of this year. If implemented by July 1, the increased revenue would have allowed the association to repay the loan from the reserves by February of 2011. However, due to requirements for notification and the need to update our budget to reflect the increased income and other changes like the cancellation of the street sweeper, this change was not implemented in time.

At the June meeting, the board treasurer and I were absent, and it appears that the remainder of the board decided not to pursue the dues increase nor approve the financial statements until our return. At the July meeting (held last week), the board reviewed the association's finances. With the 1 year term of the loan from the reserves coming to an end, the board either needs to repay the loan or extend its term. The board voted unanimously at the July meeting to levy a one-time special assessment of $60 to be due on September 1, subject to the same requirements previously mentioned.

This assessment, if paid by every homeowner, would add up to $9,540 and would pay all but $460 of the loan from the reserves. Based on the delinquency rate in regular dues, though, the association is likely to actually receive between $8,000 and $8,500 of this money. The remainder will have to be made up out of the current year's operating budget, but given the year-to-date expenses and the remaining budget, there is good reason to believe that the loan will be entirely repaid at the end of the year.

For now, there will be no increase in regular monthly dues; however, I believe that it is almost a certainty that monthly dues will be increased to $120 beginning on January 1, 2011. The budget for 2011 will likely be created around the September/October time frame, and I'll know more then.

Ultra Vires: The Revisiting

The association's attorney recently clarified the authority of individual members of the association's board to expend association funds prior to approval of a majority of the members of the board. In response to this clarification, I sent the following email, in response to a previous email that I had sent, to the homeowner who originally inquired as to the status of his/her petition for a veto of the rules.

On the advice of legal counsel, it appears that I was wrong in accusing our board president of an ultra vires act in contacting our attorney and expending association funds without the prior approval of a majority of the board. According to counsel, it is sufficient that the board review and approve expenditures (even after the fact).

I would like to use this opportunity to extend my sincerest apologies to Mr. Crowder for the accusation. My reading and interpretation of our governing documents and the law was incorrect.

For the record, I am sincere in that apology. It was and is still my understanding, as I explained previously, that the expenditure of association funds is the exclusive province of the board of directors. Based on that same research, I further believed that our governing documents and the law precluded any one member (or a minority of the board, for that matter) from expending association funds prior to the approval of a majority of the board. According to counsel, it is this latter belief that is in error. As long as the board conducts reviews and approves of such expenditures, there is no illegality in its or its members actions. I was wrong; I admit it; and I apologized to the affected party for my incorrect accusation.

So, where does this leave what I had said previously:

As such, I will be voting "no" on the approval of the financial statements for the months of March, April, and any other month in which I find such expenses so as not to give credibility to these illegal acts after the fact. Members of the association should be questioning not only why such expenditures are taking place but why other board members are approving them.

Finally, let me be clear that I do not necessarily object to these expenditures but rather the lack of authority with which these expenditures are taking place. The board, in approving expenditures after the fact, would be acting as a "rubber stamp" for one (two, in the case of reserve expenditures) of its board members and would essentially be vesting its fiduciary duties entirely in that member (or members). [...]

In accordance with what I had previously written, I did vote "no" on the approval of March's and April's financial statements. I have mixed feelings about what to do with regard to future votes, however. The method of spending that the board has adopted is not illegal, per the association's attorney. In spite of that, I still feel that it lacks transparency, not only for the remaining board members who are only finding out about expenditures via individual review of the financial statements each month, but also for members of the association who wish to track expenditures and who do not have such ready access to the financial statements. Furthermore, I don't believe it is necessitated by the association's circumstances or in the best interest(s) of the association. With the proper allowances for "emergency" expenditures (which could be accomplished via an "action without meeting" even though probably not legally required), I see no reason that the board cannot at least discuss, if not approve, expenditures prior to their undertaking.

Aside from the lack of transparency, the current procedure has a number of other drawbacks. There is apparently (currently) no limit to the amount of money that can be spent by a board member prior to its (dis)approval by the board. There is no opportunity for discussion about the best use of association funds, e.g. if the cost is truly necessary or if bids should be solicited to find a better price. There is little, if any, opportunity for the board to reverse any expenses of which it disapproves. It is these issues in addition to the lack of transparency that give rise to my ambivalence about how best to vote on the approval of future financial statements.

Voting "no" at the last meeting was easy because I believed that a "yes" vote was aiding an illegal act. Now that that basis is gone, the reason to vote "no" would be because I disagree (in spite of the legal advice) with the method, not the expenditures themselves. (Disagreement with the expenditure(s) themselves would render this ambivalence moot.) There is a good argument to be made, I think, that the method of expenditure is not in the best interest(s) of the association, but a "principled" stand like that is admittedly somewhat pedantic and not likely to be well received. Another option is to vote "yes" when I don't take exception to the expenditures themselves, but this would give tacit approval to the method of expenditure. The final option is to "abstain" from the vote. This would avoid the tacit approval of the method of expenditure but may also open me up to claims of breach of fiduciary duty by refusing to vote on the matter.

Needless to say, I have not yet reached a conclusion.