Condo Media - September 2014 - 58

SELF-MANAGED

by Patricia Brawley, CMCA, AMS, PCAM

ASSOCIATION BOARDS

Meeting the Challenge
How to Best Handle a Funding Crisis

I

t was very simple. All the self-managed board of ABC Condominium
needed was $3 million.
The facts were indisputable. The
structures had been built in the urban
renewal boom of the mid-'60s, and
the common elements had more than
come of age. The board members had
suspected as much. They had dragged
their feet for the last few years, unwilling
to come face to face with the reality of
the deteriorating infrastructure of their
community. They had patched holes
in the parking lots and roofs, replaced
main drain lines and water supply risers,
and painted the peeling trim.

Budgeting

The board had prudently included a reserve fund contribution of 10 percent of
the operating budget for replacements
every year. They had explained the state
of the condo's reserve fund and concern
about capital replacements at the annual
meeting for the past two years. Unfortunately, they had barely achieved the
33.3 percent quorum by relying largely
on proxies, so less than one-third of the
unit owners were in attendance to hear
about the challenges they faced.
This year, when it became apparent
that the operating budget was being
badly impacted by the cost of major
repairs to pipes and mechanical systems, they could delay no longer. They
reluctantly contracted for a replacement
reserve study to determine the projects
that needed to be undertaken as priorities. They had not expected that $3
million of the work would be scheduled
as a priority in year one. Of course, these
were budgetary numbers, and it was possible that in the actual bidding on the
projects a few hundred thousand dollars
58

Condo Media * September 2014

might be saved, but in the reality of
project cost-overruns and unforeseen circumstances, this self-managed board felt
any savings would be quickly absorbed.
Now that they had the capital replacement plan, where was the funding
going to come from and how were they
going to accomplish the work?

Communicating

The board was committed to communication. They distributed a quarterly
newsletter, regularly held open board
meetings to invite input from unit owners, and maintained updated information on the website. In spite of their
efforts, they knew community members
were largely unaware of the huge expenses looming on the horizon. Call it
apathy or denial. Ignorance was bliss.

Controlling Costs

There was a lot of pressure on this
self-managed board to keep dues low.
Their next-door neighbors, the other
unit owners, lobbied for increases to
the condo fee that were minimal or
non-existent. Without a management
company to take the flack, the board
would have to stand alone against the
entire community when budget shortfalls arose or replacement projects were
necessary.

Doing the Right Thing

Every board of trustees is charged with
maintaining, preserving, and enhancing the common elements by virtue of
its agency to the trust and its beneficiaries, the unit owners. That means
that replacements and updates must
be scheduled and done when needed.
Some state condominium laws even
make the board of trustees responsible

for maintaining an "adequate" reserve
fund to make these replacements and
updates when due.
Commissioning or updating a replacement reserve study plays an important
part in helping the board to meet its responsibility in understanding what these
needs are and how much money will be
required. Utilizing an outside expert to
establish an inventory and expected useful life for common elements and systems
provides legitimacy to a replacement
program. Making sure that day-to-day
operations are framed by the bigger picture of preserving the common elements
is essential to the self-managed board in
governing and operating the community.

Adhering to the Plan

Knowing what needs to be done or
what has to be done is just the beginning for the self-managed board. The
real challenge is to implement the plan
and set a schedule for undertaking the
projects. Often the scope of the project
can be so daunting that the board becomes paralyzed. Especially when faced
with an overwhelming funding crisis,
the ball can get dropped, or rather, it
rolls into the corner. The self-managed
board fails to take action feeling that
they cannot possibly get the unit owners
to come out of pocket to meet the challenge of such an enormous expense.
Following through by embracing the
task, adhering to the plan, and figuring
out how to implement the replacement
program is the board's responsibility.
Typically, members of self-managed
boards are not financial analysts, engineers, or construction project managers. How can they make these difficult
decisions and ensure they are serving the
best interest of the community?



Condo Media - September 2014

Table of Contents for the Digital Edition of Condo Media - September 2014

Condo Media - September 2014
From the CED’s Desk
Editorial Board
CAI News
CAI Regional News
Asked & Answered
Homeowner’s Corner
Insurance
Finance
Homeowner Column
2014 CAI-NE Annual Condo Conference & Expo
Vendor Spotlight
Volunteer Spotlight
Self-Managed Association Boards
Legislative Update
Classifi ed Service Directory
Advertisers Index
Condo Media - September 2014 - Condo Media - September 2014
Condo Media - September 2014 - Cover2
Condo Media - September 2014 - 1
Condo Media - September 2014 - From the CED’s Desk
Condo Media - September 2014 - 3
Condo Media - September 2014 - Editorial Board
Condo Media - September 2014 - 5
Condo Media - September 2014 - CAI News
Condo Media - September 2014 - 7
Condo Media - September 2014 - 8
Condo Media - September 2014 - 9
Condo Media - September 2014 - 10
Condo Media - September 2014 - 11
Condo Media - September 2014 - 12
Condo Media - September 2014 - 13
Condo Media - September 2014 - CAI Regional News
Condo Media - September 2014 - 15
Condo Media - September 2014 - 16
Condo Media - September 2014 - 17
Condo Media - September 2014 - 18
Condo Media - September 2014 - 19
Condo Media - September 2014 - Asked & Answered
Condo Media - September 2014 - 21
Condo Media - September 2014 - Homeowner’s Corner
Condo Media - September 2014 - 23
Condo Media - September 2014 - Insurance
Condo Media - September 2014 - 25
Condo Media - September 2014 - 26
Condo Media - September 2014 - 27
Condo Media - September 2014 - 28
Condo Media - September 2014 - 29
Condo Media - September 2014 - Finance
Condo Media - September 2014 - 31
Condo Media - September 2014 - 32
Condo Media - September 2014 - 33
Condo Media - September 2014 - Homeowner Column
Condo Media - September 2014 - 35
Condo Media - September 2014 - 36
Condo Media - September 2014 - 2014 CAI-NE Annual Condo Conference & Expo
Condo Media - September 2014 - 38
Condo Media - September 2014 - 39
Condo Media - September 2014 - 40
Condo Media - September 2014 - 41
Condo Media - September 2014 - 42
Condo Media - September 2014 - 43
Condo Media - September 2014 - 44
Condo Media - September 2014 - 45
Condo Media - September 2014 - 46
Condo Media - September 2014 - 47
Condo Media - September 2014 - 48
Condo Media - September 2014 - 49
Condo Media - September 2014 - Vendor Spotlight
Condo Media - September 2014 - 51
Condo Media - September 2014 - Volunteer Spotlight
Condo Media - September 2014 - 53
Condo Media - September 2014 - 54
Condo Media - September 2014 - 55
Condo Media - September 2014 - 56
Condo Media - September 2014 - 57
Condo Media - September 2014 - Self-Managed Association Boards
Condo Media - September 2014 - 59
Condo Media - September 2014 - Legislative Update
Condo Media - September 2014 - 61
Condo Media - September 2014 - 62
Condo Media - September 2014 - 63
Condo Media - September 2014 - 64
Condo Media - September 2014 - Classifi ed Service Directory
Condo Media - September 2014 - Advertisers Index
Condo Media - September 2014 - 67
Condo Media - September 2014 - 68
Condo Media - September 2014 - 69
Condo Media - September 2014 - 70
Condo Media - September 2014 - 71
Condo Media - September 2014 - 72
Condo Media - September 2014 - Cover3
Condo Media - September 2014 - Cover4
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