We have significant financial challenges ahead of us, and there are some who believe it’s better to pay for them as they come, via special assessments, rather than increasing our transfers to the Reserve Fund, which would raise our HOA fees. I’m strongly in favor of adequately funding the Reserve rather than levying special assessments, for the following reasons:
Easier personal financial planning
We owners can plan ahead for HOA increases, while special assessments can catch many by surprise, leaving them unable to make the payments because they didn’t budget for them.
- An unpaid special assessment would make it harder to sell our units if we needed to. The amount due would have to be divulged to any buyers, who would be on the hook for it.
Avoiding expensive shortcuts
If you set aside money for a given need ahead of time, you’re more likely to pay for the whole job. If you’e having to levy special assessments, you’re more likely to delay or skimp on needed work in order to avoid the big financial hit, and that can cause the total work to be even more expensive in the long run.
- This is partly what happened with the balcony maintenance project. Even though it was a Limited Common Element project, and so not a Reserve Fund expense, it still illustrated how all kinds of maintenance work can go: Waiting so long to finally look at the balconies led to surprises about just how much work some of them needed–repairs that could have been avoided had maintenance been done in a more timely manner in the past.
- In response to sticker shock over the total cost, we cut $60k from the balcony maintenance project for independent project management, but that came back to bite us, because a project manager might have detected the need to seal the balcony posts while the scaffolding was still up, and we would not be faced with the need to get the work done on an individual basis now.
Our actual history
An argument was made at an Owners Group meeting that once we raise HOA fees, it’s harder to lower them later, but there’s an opposite risk: if we keep HOA fees artificially low for too long (and we did this) people will start thinking of the too-low fees as the norm, and it will be harder than ever to raise the money we need to keep the building standing.
Which is the greater risk? Based on our history for the past dozen years, it’s far more likely that we won’t do the work unless we commit the money for it ahead of time.
- For the ten years after the 2014 Reserve Study, we only put 53% of the amounts it recommended into the Reserve Fund, leading to the difficult place we find ourselves in today. (i.e. we have a history of avoiding required expenses.)
- We did no comprehensive maintenance on the balconies for the entire history of the building until 2024. (Just one small repair project in 2015.)
Because the false narratives are false
There’s a narrative floating around the building that the previous board wasted extravagant amounts of Reserve Fund money on frivolous luxuries, and I suspect this framing is the reason for much of the preference for assessments, but the problem is that this narrative is FALSE.
- The combined cost of the Fitness Room and Party Room renovations were a drop in the bucket compared to our total Reserve Fund deficit.
- The renovations to those rooms (as with the balcony repairs) were the first major work done on them in the 40+ year history of the building.
- The updating of the fire alarm system was not optional. The only alternative was to not having a working alarm system, a state of affairs that could easily lead to loss of life (and major legal liabilities for the ownership).
Rationality and Responsibility
I believe the preference for assessments is in large part a form of wishful thinking. You’re hoping that they’ll never come, but it’s an irrational hope. The costs will come, and they’ll only grow bigger the longer we delay them.
In every other area of our lives, we understand the importance of saving up for future costs: Social Security, IRAs, pension funds, college funds for our kids. And we all know how cataclysmic it can be to be hit by unexpected expenses. Whenever we can, we try to predict future costs and provide for them in advance.
We should do no less for this building that’s our home and, for most of us, our biggest financial asset.