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."
   
   and
   
   
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.

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.]
  

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.

Unauthorized expenditures

During the past few months, it has come to my attention that our board president and/or other board members have been expending association funds without the approval of the association's board of directors. This first came to my attention back in March when the president admitted that he had consulted an attorney regarding the special meeting that was requested to veto the rules. This action (the consultation with an attorney) was never authorized by the board. I wrote at the time, and still believe, that this constitutes an ultra vires act by the board's president. In light of this evidence, I combed March's financial statements prior to April's open board meeting. If you follow that previous link or review April's meeting minutes, you'll see that the approval of March's financial statements was tabled by the board until "internal board matters could be discussed during executive session". (The board's president was notably and unfortunately absent from April's meeting.) The motion to table the approval was made by me, and the "internal board matters" concerned the issue of association funds being expended without the authority of the board.

In March, I noted the following expenses that were not approved by the board and of which there are no records in the association's meeting minutes:

• $1,614.00 to Artistic Maintenance: $382.00 went to "plants at belflora park" and $1,232.00 went to "CLEAN UP BACK LOT 40" (I believe this refers to the brush behind the homes, to the North of Milano Way.)
• $2,205.60 to QPM: $1,440.00 went to "RMV & RPLC FENCE POSTS" and $765.60 went to "RPR FENCE ABV POCKET PARK". All of this money was charged to our reserve account(s).
• $247.50 to Epsten, Grinnell, & Howell: I'm not at liberty to divulge the purpose of this expenditure; however, no board member has been able to justify its necessity, and it was never approved by the board.
  

Both regular and reserve funds totaling at least $4,067.10 were expended without board approval in the month of March. In April's financial statement, I find the following unapproved expenses:

• $1091.41 to Artistic Maintenance: The entire amount went to "IRRIGATION REPAIR".
• $562.95 to Access Professional Systems (APS): $181.00 went to "ENTRY SYSTEM SVC/RPR" and $381.95 to "QTRLY MAINT SVC". I believe this second charge is probably part of a service contract; however, I don't have the minutes (since they would likely be part of an executive session) or contract to verify that.
• $797.50 to Epsten, Grinnell, & Howell: This is mostly the cost of the aforementioned consultation with legal counsel regarding the rules veto.
• $3,716.95 to QPM: $731.91 for "FENCE RPRS 220&500VENETIA", $1,570.00 for "FENCE RPR BACK 4620MILANO", and $1,494.24 for "FENCE RPRS VENTIA&BELFLRA". This entire amount was taken from the association's reserve account(s).

Unapproved regular and reserve spending for the month of April totals at least $5,866.06, excluding the $381.95 that is likely part of a contract with APS. That means that in March and April, alone, the association has paid out nearly $10,000 in unauthorized expenditures. As I alluded to earlier, I brought the issue of unauthorized expenses up to the other board members during April's executive session. As is evident from April's financial statements, though, nothing has changed.

Park Lane's bylaws, in section 4.13(e), grant the board of directors the authority to "Contract for goods and/or services in accordance with the provisions of the Planned Development Documents". Furthermore, Corporations Code 7211(a)(8) states that "...an act or decision done or made by a majority of the directors present at a meeting duly held at which a quorum is present is the act of the board. The articles or bylaws may not provide that a lesser vote than a majority of the directors present at a meeting is the act of the board". In light of these two statutes, it is my opinion that every one of the previously described expenditures constitutes an ultra vires act on the part(s) of the signer(s) of the checks to the vendors providing the services as they were not approved by the board of directors.

[For reference (and completeness), Corporations Code 7214 states that "any [...] instrument in writing [...] executed or entered into between any corporation and any other person, when signed by any one of the chairman of the board, the president or any vice president and by any one of the secretary, any assistant secretary, the chief financial officer or any assistant treasurer of such corporation, is not invalidated as to the corporation by any lack of authority of the signing officers in the absence of actual knowledge on the part of the other person that the signing officers had no authority to execute the same."

While this would appear to allow two board members (in the proper configuration) to execute a contract on behalf of the association (without approval of the board), what it is actually saying is that if the third party does not know that the two board members are acting beyond their authority, the contract cannot be invalidated due to that lack of authority. Essentially, this statute protects the third party in the absence of knowledge of the ulta vires act. In fact, this statute implies that the authority to execute contracts does not lie solely with the two signers.]

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). Given that two of our board members have expressed unequivocal support for Park Lane's board president, our board president has a majority to push through whatever items he so desires. One has to ask the question, then, why not follow the legally prescribed methods for spending the association's money?

Us vs. Them

At March's open board meeting, the open forum portion of the meeting was dominated by discussion of the budget discussion of cuts to the budget overwhelming demand not to cut items from the budget... Well, that and a desire not to raise assessments.

I'm reminded of a post I wrote back when I left the board in 2007. Specifically, I'm referring to the need to find solutions, not more problems. In my opinion, the association has severely mismanaged its reserves and really, its finances in general, over the past few years. Currently, the association's reserves are just over 20% funded; it has "borrowed" approximately $30,000 from its reserves with no plan to pay it back; and its expenses exceed its revenue by almost $15,000 per year. In the face of all of this, homeowners are still demanding that no services be cut and dues not be raised. It's grotesque in its absurdity, and the disconnect would be hilarious if it weren't leading directly to the bankruptcy of this association.

As if this isn't bad enough, anger at the situation is being directed at the current board and the belt-tightening we all now face as if these problems merely appeared out of thin air and were not a direct result of financial mismanagement by previous boards of directors and the lackadaisical attitude the rest of the homeowners took toward the matter.

To paraphrase Walt Kelly: I have seen the problem, and it is us.

So, let me reiterate a couple of points from that previous post:

A homeowners association is exactly what its name implies. It is an association of owners of a given set of homes. All homeowners have an equal right (and in my opinion, responsibility) to participate. The board merely acts to handle the day to day business of the association and see that business gets done in the event that homeowners do not participate (usually the result of apathy, of which there appears to be a great amount). Homeowners who don't speak up should not be surprised when the board acts in a manner inconsistent with what they might have done.

and

The board of directors of an association has a fiduciary duty to the association, not its individual members. Decisions are made in the interests of the association. While the board should make an effort to be as accommodating as possible, eventually unpopular action may become necessary. This can have a disproportionately negative effect on individual homeowners, but that does not automatically make the decision a product of malice.

Let me also make a related point, explicitly. With regard to this problem, prior to now there was no "us", and there was no "them". There was only "we", and by "we", I mean every homeowner in this association. We are responsible for the situation in which we find ourselves. The board of directors may have made the decisions that brought us to this point, but none of the rest of us tried to stop them. We are now responsible for and bear the burden of rectifying this situation. The board of directors consists solely of homeowners within this association, and decisions that it makes to cut services and/or raise dues affect its members just as much as they do other homeowners.

We were the problem, and now we must solve it. There will certainly be disagreements about how to go about finding the solution(s), but the only "us" and "them" distinction that now exists is between those who are working toward the solution and those who are not.

Accounting and Finances

The board's treasurer and I finally met with our property manager and a representative from our property management company's accounting department last week. Our treasurer, as always, was on the ball with a number of questions. I didn't say/ask much since he had already prepared to cover the issues I had raised at previous meetings. Here is a summary of what we learned:

• The association is currently about $26,000 in arrears with regard to homeowner assessments.
  
• The reserve account(s) is/are approximately $30,000 in arrears with regard to budgeted funding.
  
  This point requires some explanation. I've written at length about our reserves being underfunded. The term "underfunded" in those contexts refers to the deficit between the amount of money the association has in reserve and the amount of money required to repair/replace association assets that have reached the end of useful life. For example, if $346,000 were required to repair assets that had reached the end of useful life, and the association had only $100,000, the reserves would be underfunded by $246,000. Alternatively, in this situation, the reserves would be at 30% funding.
  
  Now, saying that the reserve account(s) is/are in arrears by about $30,000 with regard to budgeted funding, using the previous example, means that instead of having $100,000 in the reserve account(s), there would only be about $70,000. Not coincidentally, this example is that of Park Lane's reserves.
  
  I've mentioned before that the 2009 board borrowed $10,000 from the reserves.
  
  The solution to the mystery of the remaining $20,000 was finally revealed during the course of the meeting. Bruner & Rosi (our property management company) has a policy of not funding an association's reserves each month unless that association's operating account contains at least 1 month's worth of assessments. Since our operating account does not contain the requisite amount of money, the management company has not been transferring money each month to the reserve account(s). Furthermore, this money is not explicitly accounted for anywhere and likely would not have been noticed save for the vigilance of our treasurer.
  
  It is my belief that this money represents a loan from our reserves in violation of Civil Code 1365.5(c)(2); however, the rest of the board (only one of the other members has explicitly expressed his opinion) does not.
  
• The management company reports assessments and reserves on what is known as an "accrual" basis. This means that when finances are reported to the board by the management company, the records show that all assessments are being paid and the reserves funded each month. It is not until one tries to reconcile these records with others that are provided that one realizes that this isn't the case. Furthermore, without extra work to reconcile these two reports, it is very difficult (if not impossible) to determine exactly how much variance in income the association has each month.
  
• Our property management company charges upwards of $.50/sheet of paper (it may be $.25/sheet; I don't recall exactly, now) for copies and, in addition, also charges the association for all outgoing phone calls made on its behalf.

In short, Park Lane's finances are an unmitigated disaster and seem to get worse with every layer of the onion that gets peeled back.

Filling in the blanks

As I mentioned here, I've been trying for awhile to obtain a number of documents from our property management company. I finally picked them up this morning and have scanned and uploaded them.

• 2008 Reserve Study
• 2008 Reserve Accounting
• 2008 Minutes
• 2009 Budget
• 2009 Reserve Accounting
• 2009 Minutes

I have no further requests outstanding for any documents. If my collection is somehow incomplete, let me know.

Closer look at finances

This past Tuesday, I sat down with our association's treasurer to review the association's finances. Fortunately, our treasurer is a pretty smart guy. Before I had even arrived, he had really done his homework, and here are the highlights of what we discussed:

• The 2010 budget was drawn up assuming assessments were being paid by 159 households. Unfortunately all households are not keeping current on their assessments, and the budget should have assumed about a $15,000 shortfall for the year.
• Given this shortfall, the only way for the association to maintain its current level of services would be to completely stop funding the reserves.
• There are about $22,000 worth of immediate cuts that can be made to the budget, but it will require a fairly deep level of cuts to services. Possibilities include reduced security patrols, reduced watering of common areas, shortening heating times at the pool (or not heating it at all), putting tree trimming on hold, etc.
• Because it is already [late] February, the $22,000 above has to be reduced by 1/6 to approximately $18,000. This number reduces by approximately $2,000 for every month that the budget is not amended.
• The utility costs were extremely high for the first month of the year.
• The "Printing" line item in the 2010 budget is already at 95%, and a number of other items are already projected to be over budget for the year.
  
• The association was significantly over budget in fiscal year 2009.
• The 2009 reserve study, conducted in September of 2009, shows the association starting fiscal year 2010 with approximately $177,000 in reserves; however, January's reconciliation statement shows just over $100,000.
• The association transferred $10,000 from its reserves to its operating account in November of 2009 to cover day-to-day operating costs. (I don't believe that the association met its notification requirements under Civil Code 1365.5(c)(2) for this transfer.The board approved this transfer early in 2009.)

I'm still working on getting an accounting of the association's reserves beginning in January 2008 and the remainder of 2008/9's minutes. We (the association's treasurer and I) are in the process of trying to find out more information about the discrepancy between the reserve study and January's bank reconciliation and the loan out of the reserves.

2008/2010 budget comparison

For tonight's open board meeting, I've obtained time on the agenda to discuss the state of Park Lane's reserves. In preparation for the meeting, I've prepared a comparison of the 2008 budget, the last budget for which I have a readily available copy, and the current budget. (In the interest of full disclosure, I helped create the 2008 budget.)

The comparison I've prepared has five columns. The first two are the unaltered budgets from 2008 and 2010, respectively. The third and fourth columns are modified versions of the 2008 and 2010 budgets, respectively. For the 2008 budget, the special assessment was removed from the income section, and the associated contribution to the reserves was removed from the expense section. For the 2010 budget, the collection reimbursement was removed from the income section, and the collection costs were removed from the expense section. The final column shows the difference between the modified 2008 and 2010 budgets (the best "apples to apples" comparison I could come up with). Each comparison is broken down annually, monthly, and monthly per unit.

(In performing this analysis, it came to my attention that the 2007 reserve study took into account the association's plans for a special assessment at the start of the 2008 calendar year. Basically, maintaining the level of reserve funding in 2008's budget beyond 2008 would have required another special assessment of $70 per unit in perpetuity or a cutting of approximately $11,000 from the budget.)

Within each breakdown, I've highlighted, in red, the contributions to the reserves. The yellow highlighted items represent either significant or questionable, in my opinion, increases in the budget. These yellow line items, if cut back to their 2008 levels, add up to just over $20,000, which is enough to return reserve funding to 2008 levels minus the special assessment. In my opinion, these are the first places to look for cuts.

Finally, I would like to draw attention to the subtotals. First, note that income has decreased since 2008. This is due largely to the lack of interest that the association earns on any reserve funds (due to lack of reserve funds as well as interest rate declines in recent years). Despite sagging income, however, costs have increased. Utilities have increased approximately $6,000 since 2008, a 20% increase. Maintenance and administrative costs have increased as well, but these are marginal increases especially when one accounts for the bad debt that the association writes off in its budget.

The $20,000 deficit in reserve funding between the 2008 and 2010 budgets is entirely accounted for by the increases in costs, amounting to approximately $13,000, and a decrease in income of approximately $7,000. In short, the board is robbing the association's future (its reserve savings) to cover the costs of maintaining and even increasing services.

I've explained the problems associated with underfunded reserves before, but crushing special assessments are also a very real possibility. Currently, the special assessment required to fully fund the reserves stands at just over $1,000 per unit or about $85 per unit per month for 12 months (imagine your monthly assessment doubling!), and it will only increase with time. Creative cost cutting and outright cutting of services are still viable alternatives to special assessments, but the time is fast approaching when these options will no longer be available.

2009 Reserve Study

The 2009 reserve study has been posted in its entirety. In addition to the executive summary that was mailed to all homeowners with the annual budget this past November, this document contains funding options including one to fully fund the reserves and one to ensure that there is at least enough money to pay for repairs/replacements as they become necessary. Note that this second option will require increasing the reserve funding to 3 times its current level (coincidentally, back to where it was at the start of the 2008 fiscal year).

Budget/Reserve Problems

What's the problem with Park Lane's budget/reserves?

Park Lane's reserve funding is currently at approximately 50% (according to the most recent reserve study put out in November of 2009). Furthermore, according to the 2010 budget (put in place by the 2009 board), the association is currently contributing $15,384/year ($1,282/month) to its reserves. (This is approximately equal to 7.1% of the association's budget, a figure that will become important shortly). More importantly, though, at this rate, according to the most recent reserve study, the reserves will be completely depleted in just ten year's time.

The problems with insufficient reserves [funding] are not limited to deferred or even possibly discontinued maintenance. Many people are not aware that the government, via quasi-public entities like Fannie Mae/Freddie Mac (who buy mortgage loans from primary lenders like Countrywide or Wells Fargo) and its own agencies like FHA and HUD, imposes requirements on reserves [funding] before it will allow a mortgage to be bought or underwritten. In the past, this requirement dictated that associations maintain reserves at a minimum of 60%. This requirement has been relaxed, requiring instead that associations contribute a minimum of 10% of their operating budgets to the reserves. These requirements can be found here, here, and here. A summary of the HUD/FHA requirements can be found here.

What does all this mean?

Recall that Park Lane currently allocates just 7% of its operating budget to its reserves. This means, as stated here, that "[...] potential buyers cannot get Fannie Mae backed loans. Financing will still be available but the costs will be higher and fewer buyers will qualify. This may have the effect of driving down property values in the development." In short, if Park Lane does not properly fund its reserves, property values will be negatively impacted. (Simply increasing the association's contribution to its reserves will not solve the underfunding problem, however. I will address this in a later posting.)

What can be done?

In the most simple terms, the association needs to either reduce costs or increase income. An increase in income would almost certainly come from a special assessment or an increase in monthly dues. Since no one wants to pay more, that leaves reducing costs. First, though, either course of action is going to require the association to alter its budget. Based on my admittedly limited legal understanding and research, it appears that Davis-Stirling (the portion of the law largely responsible for the operation of homeowners' associations) is quiet, if not silent, on the subject of a mid-year budget change. A tangentially related question of the ability of an association to raise its dues mid-year is addressed by Adam Kessler's law firm on davis-stirling.com. In the end, the author reasons that "[...] boards can revise the budget, provided (i) the original budget was properly implemented, (ii) boards stay within their 20% increase limitation, and (iii) they give a minimum 30-days notice of the change." Since no one is [yet] proposing an increase in dues, (ii) is irrelevant. I believe that (i) has been met, and (iii) would be met upon making the change.

Assuming that the budget can be legally changed, here are some suggestions about where the budget can be trimmed:

• Security Patrol
  
  During my previous time on the board, the lack of effectiveness of North Coast Patrol (NCP) was a regular complaint. In general, NCP drives through the community a contractually obligated number of times each day. One of the complaints received was that they drove too fast through the community to even see anything that might be going on. Furthermore, whenever they were called out to address a specific problem (kids skateboarding or climbing fences), the problem had usually rectified itself or abated by the time NCP arrived. In the past, NCP provided ticketing of vehicles parked in violation of Park Lane's rules, but I believe that even this duty has been taken on by a current board member.
  
  NCP charges the same as they did back in 2006, 7, and 8, but they provide less service than they did then. Furthermore, the effectiveness of the service that they do provide is questionable. In my opinion, this service could be replaced by homeowners taking responsibility for policing their own cul-de-sacs and the implementation of an effective neighborhood watch.
  
  Savings: $7,200/year ($600/month)
  
  
• Street Sweeping
  
  When I last served on the board, the community did without a street sweeping service. Consider that our streets are not open to regular traffic, and can only be entered/exited via two well defined points. This means that we don't suffer from litter from passers-by (either by car or by pedestrian) or debris from another neighborhood being blown into ours. Most, if not all, of the trash and debris that ends up on our streets is generated internally.
  
  This problem can be addressed simply by picking up after ourselves and sweeping the areas in front of our own homes. Much like a neighborhood watch, a group can be formed to care for common areas that need sweeping like the storm drain near the picnic benches.
  
  Savings: $5,400/year ($450/month)

These two items alone, if funds were diverted instead to the reserves, would raise the association's reserve contributions to 12.9% of its operating budget. This would put the association on the right side of government housing regulations and make houses within the community more salable. It still does not solve the long-term problem of our underfunded reserves, however.

The most important step in correcting the immediate problem, though, requires that homeowners become involved. Getting this matter before the board is easy, but this argument, coming from a single homeowner (even a board member) will not hold much sway considering that a majority of the board is comprised of the very same people whose actions have directly contributed to the very problems that now face the association. Getting the board to take this matter seriously is going to take a concerted effort by homeowners to make their voices heard either by showing up at monthly board meetings (generally held on the third Thursday of each month) and/or by emailing the board.

What ideas do you have for cutting costs? What about creative ways to increase income?