Echo Journal - July 2019

SAVE THE DATE

CARING COMMUNITIES

SELF-MANAGED HOAs

BUDGETING KNOW-HOW

November 9 – New Southern California Event

Looking out for our neighbors in need

Jumpstart your budget prep now

Successful communities plan ahead

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SERVING HOA BOARD MEMBERS & HOMEOWNERS

JULY / AUGUST 2019

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Mental Health Issues in HOAs

ECHO journal | July/August 2019

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MISSION STATEMENT Fostering a better quality of life in community associations through education, advocacy and networking.

ECHO 1671 The Alameda, Suite 205 San Jose, CA 95126 408.297.3246 | info@echo-ca.org www.echo-ca.org

BOARD OF DIRECTORS & OFFICERS PRESIDENT

DIRECTORS

David Hughes

Jerry L. Bowles Rolf Crocker Sarah Dunia John Gill David Levy Diane Rossi Katrina Solomatina Wanden Treanor

VICE PRESIDENT

Adam Haney TREASURER

Karl Lofthouse SECRETARY

Sandra Long

NEW SOUTHERN CALIFORNIA EVENT!!

November 9, 2019

EXECUTIVE DIRECTOR

David Zepponi MARKETING COMMUNICATIONS SPECIALIST

Priscilla Ann Ornido SALES ADMINISTRATOR

Jacqueline Price The ECHO Journal is published bi-monthly by the Executive Council of Homeowners (ECHO). The views of authors expressed in the articles herein do not necessarily reflect the views of ECHO. We assume no responsibility for the statements and opinions advanced by the contributors to the magazine. It is released with the understanding that the publisher is not engaged in rendering legal, accounting or other professional service.

If legal advice or other expert assistance is required, the services of a competent professional should be sought.

Acceptance of advertising does not constitute any endorsement or recommendation, expressed or implied, of the advertiser or any goods or services offered. We reserve the right to reject any advertising copy. © 2019 Executive Council of Homeowners (ECHO) All rights reserved. Reproduction except by written permission of ECHO is prohibited.

ECHO member information is never released to any outside individual or organization.

Southern California HOA Board Education & Management Seminar Sea Country Community Center Laguna Niguel More details coming soon!

HOA PROFESSIONALS: RESERVE YOUR TABLETOP DISPLAY TODAY! SPACE IS LIMITED.

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ECHO journal | July/August 2019

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1. Type the above link into your browser and select “Register” located in the top right.

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July/August 2019 | ECHO journal

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FREE for Pre-Registered ECHO HOA Members & Guests $50 Non-members and Walk-ins EMAIL REQUIRED You must provide a valid email address in order to register and receive updates, session materials and handouts. If you are a manager registering a board member, please use their information when registering.

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Features 8

Mental Health Issues in HOAs

MELISSA BAUMAN WARD, ESQ.

10

Mental Health Community Resources

MELISSA BAUMAN WARD, ESQ.

11

Caring for One Another

MELISSA BAUMAN WARD, ESQ.

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Strategic HOA Capital Budgeting

MARC TAMRES, HOA BOARD PRESIDENT

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23 The Basics of Running a Successful HOA

MELANIE MALIK, CCAM, AMS, PCAM

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Measuring Success with a Properly Prepared Budget

TANI CLIGNY, CCAM, CMCA

31

Budget Review & Analysis Checklist

TANI CLIGNY, CCAM, CMCA

13

Happenings 3

Southern California HOA Board Education & Management Seminar

4

Wine Country Educational Seminar Rohnert Park

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Executive Director’s Message: To Educate an HOA Republic

BY DAVID ZEPPONI

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Monterey Educational Seminar – Seaside

18

HOA University & Expo Photo Gallery

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The Self-Managed HOA: Get a Jumpstart on Your Annual Budget

JOHN CLIGNY, CAMEX, CCAM-HR, AMS

25

Echo Bookstore Offerings

27

Welcome to Our New Professional Members

32

Resource Panel Calendar

33

Catch Up On the 2019-2020 Legislative Session!

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ECHO journal | July/August 2019

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EXECUTIVE DIRECTOR’S MESSAGE

Raison d’Etre – The Reason for Boards

What a beautiful phrase, raison d’etre (reason for being). It is a poetic way to express w every memberan should consider and collectively agree.

To board Educate HOA Republic

The phrase engenders humanity. The words roll from one’s tongue. By doing so, it rounds According to oursenses forefathers, cornerstone of the republic is an educated constituency. stark business anda adds the element of humanity to the clear-cut responsibilitie So much so, individual states have constitutionally enacted education as a basic right. a board: Strategic planning, execution and evaluation; mission and goals; budgets and Thomas Jefferson wrote, management. The business realities should be reflective of community values which are common“An values of individuals in the community. enlightened citizenry is indispensable for the proper functioning of a republic. Self-government is not possible unless the citizens are

Communities are imperfect – because they are made of humans. Humans interacting. Hum educated sufficiently to enable them to exercise oversight.” relating. Humans using. Human living. Basically, humans being human. So, in the cours Echo has embraced this principle of governance protected by anmanagement informed and educated being human, communities sometimes forget that and rules are in plac populace.

These lofty ideals are tangible in our programming.

The recent Echo HOA establish norms for a successful community. In a sense, the board is like the conducto University & Expo registered 335 HOA board members and homeowners. The event the community. Its purpose is to establish order and elevate or diminish energy. It me was a huge success with most survey respondents rating it 5 out of 5 possible points. progress by establishing norms and constraints to balance the individual n The Echo and HOA pace University & Expo is a great place for everyone to learn about HOA tomanagement benefit all. and community engagement.

ItThroughout seems apparent that continues board leadership understand and reflect the values of ho the year, Echo its educationmust with several Regional Resource owners in order to orchestrate a sense community and generate tangible actions to se Panel meetings.

These intimate events include of boards, homeowners and professionals discussing topics of the day and exchanging knowledge and experiences.

The Panels and protect community values. The purpose of a board, therefore, is to listen to the voices allow homeowners and professionals to learn, in a comfortable setting, about HOA build community based on common values for the good of all. laws and management practices helping to raise the level of HOA knowledge among and providing a comfortable venue for time cross-learning Itcommunity takes timeleaders to orchestrate a community.

It takes to knowbetween your community. vendors and HOA members.

And, it ta time to listen to the voices and build a vision reflective of community values. Take the t and will be to more effective as a board member and satisfied knowing Ouryou commitment education also follows the more traditional path of the written word. you have achie your reason forpublication being on– Echo the board.

Echo’s flagship Journal – is evolving. This year we redesigned it and focused the editorial direction to better connect as well as educate HOA boards. The

ECHO committed to helping homeowner and residents through education, netw articleis authors – often board members themselves –boards tailor their articles for practical ing advocacy – this(Continued is our on “raison useand by board members. page 34) d’etre”.

Sincerely,

Sincerely,

ECHO EXECUTIVE DIRECTOR

David Zepponi Executive Director 6

July/August 2019 | ECHO journal

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T

he definition of the role of a homeowners’ association is deceptively limited: to manage and maintain the association corporation and the community’s common area property. It seems simple enough to follow the community’s governing documents to carry out these directives. However, these limited roles necessarily require people to carry out this mandate and therefore the management of property involves the management of the people who live and work there. Because human beings consist of indivisible physical and mental components, it is impossible to limit actions only to the physical realm. Indeed, as society becomes seemingly more mean-spirited, competitive, and stressful, managing the emotional side often takes center stage and issues related to mental health increasingly affect the day-to-day management of communities.

This article discusses the ways mental health challenges present in HOA communities and suggests strategies to handle those challenges. The article explores available resources to help concerned members and others deal with the situations.

Mental Health Challenges in Our Communities The most common external evidence of mental illness comes in the form of violations of the community’s rules and use restrictions. For example, calls received asking for help in enforcing nuisance restrictions because community members are bothering or threatening other people; are harassing managers, staff, and vendors; are creating disturbances in public; or are damaging common area property (e.g., hoarding behaviors lead to pest infestation of adjoining units, diminished capacity leads to fire or water damage when stoves or faucets are left on and unattended, drunk driving causes personal injury and property damage).

The good news is that an established system is in place to enforce violations of the governing documents and it begins with notice and a hearing. Some boards are reluctant to give notice of disciplinary hearings, particularly in response to “personal” or “private” issues, but once behaviors have risen to the level where they damage common area property and harm others, it is arguably a breach of the board’s fiduciary duty to the community to ignore the situation.

Holding a properly noticed hearing serves many functions. Such action fulfills the board’s duty to investigate. It affords members their right to due process. And it may even result in actually solving the problem at hand.

Rather than avoiding hearings, boards are encouraged to recognize the value of hearings as a powerful and effective problem-solving tool. A hearing should be considered a fact-finding opportunity and a collaborative effort to meet and resolve the issue presented. Accordingly, the hearing process is transformed from something negative and punitive into something that can be cooperative and community-building.

In a recent example, an association held a disciplinary hearing regarding an adult grandson living in a senior community with his grandmother. The Continued on page 10

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Mental Health Issues in HOAs

BY MELISSA BAUMAN WARD, ESQ.

ECHO journal | July/August 2019

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Mental Health Issues in HOAs Continued from page 8

grandson was harassing the neighbors, sneaking onto patios, making noise late at night, and generally behaving in an erratic and frightening manner. The entire family and their attorney were summoned to meet with the board and the legal counsel for the association. It was discovered that the grandson had a previously undiagnosed and severe substance abuse problem. The family was able to get the grandson help and placed him into treatment. This benefitted him, his grandmother, and the larger community.

The grandmother admitted during the meeting that they sought help for their grandson because of the harsh disciplinary notice which outlined many of the unacceptable behaviors, previously unknown to her, and the consequences for continued

violations. The family appreciated the intervention.

Of course, it is unusual to have such an immediate positive effect on a person and family as a result of a hearing notice, but in this case, it resulted in a constructive solution to a very difficult and long-standing problem.

At times though, the board must pursue more aggressive actions to facilitate resolution.

Unfortunately, this is often needed when mentally ill people are “warehoused” in residential communities by families unable or unwilling to provide needed medical care and housing for the individual. Sometimes a “Request for Resolution” demanding mediation is needed, or legal action must be filed in superior court to forcefully motivate the family to make better care choices. It is unfortunate that this more aggressive action may be necessary to resolve the situation.

Another way that mental health issues affect communities is when those in HOA management roles – particularly volunteer directors – suffer from diminished capacity (often due to age, injury, or substance abuse) and are unable to fulfill their duties to the association. Unacceptable behaviors may manifest in belligerent and volatile conduct at meetings and elsewhere, monopolization of meetings by talking excessively and refusing to let others talk, inappropriately demanding actions which may be far in excess of what the association can or should do, or by threatening others if the person doesn’t get their way.

One way to try to contain these inappropriate behaviors is by relying on the corporate mechanisms already in place for conduct of meetings. For example, members are limited to a reasonable time in addressing

Mental Health Community Resources Seeking the assistance of someone who is trained, licensed, and experienced in dealing with mental health issues is both smart and necessary. The following resources are found in most California counties: County Mental Health Services Your county’s mental health department provides a wide range of mental health services.

Contra Costa Behavioral Health Services • 24-hour Behavioral Health Access Line (1-888-678-7277) • Crisis and Suicide Hotline (1-800833-2900 and 211) • Short-notice/same-day behavioral health appointments Mental Health Wellness & Education Resources • Workforce Education and Training 10

July/August 2019 | ECHO journal

Child Protective Services/Adult Protective Services: (Suspected abuse of children or adults, reports can be anonymous) • Contra Costa County Child Protective Services 24/7 Hotline: 1-877-881-1116 • Contra Costa County Adult Protective Services: 1-877-839-4347

rather than criminal prosecution can be effective and efficient • Law enforcement officers are trained to handle mental health crises

Local Law Enforcement Services • 911 for emergencies • Many law enforcement agencies have special programs for low level criminal conduct resulting from mental health and substance abuse issues. Referral to other agencies

National Suicide Prevention Hotline • 1-800-273-TALK (8255) • Text 741741

AA, Al-Anon & Other 12-Step Programs • www.aa.org • www.al-anon.org

the board and may only do so during the member comment period of the meeting. Directors should only discuss items which are on the agenda. Anyone who cannot control themselves and express themselves clearly and politely during a meeting should be asked to leave. In some cases, increased security should be present to deter bad behavior and to assist with escorting people out of meetings if necessary. Finally, in cases where there are threats of violence, the association should contact the local police department for their assistance in handling the threat.

If a director is unable to fulfill his or her duties and is being actively obstructive, the board president (or another director if the president is the problem) may need to discuss the issue with the director. If doing this, the offending director’s duties should be clarified, and, in some cases, the director should be encouraged to resign and serve the community in a different manner. In extreme cases, a recall petition may be necessary.

It is painful and difficult to face these situations, but someone who is preventing the board from carrying out its necessary corporate duties cannot be allowed to continue such obstructive behavior which damages the entire community.

Mental health issues in HOA communities can take a lot of forms. A breakdown in mental health can be just as devastating, or more so, than physical damage to a property. Although less tangible, mental health is a very important aspect of a community.

Mechanisms such as violation procedures and the legal system

Caring for One Another

BY MELISSA BAUMAN WARD, ESQ.

In the past year alone, the community association industry has suffered profound losses through the suicide of several community association managers. In addition, there have been multiple instances of self-harm and suicide among residents in our communities. I personally have lost friends to suicide.

Those of us who work in this industry and who live in community associations are by nature community minded.

Connectivity – “association” – is in both our name and our fiber.

Rather than suppressing our

helping instincts, I encourage each of you to reach out to others and express the care and concern you are feeling.

I think we all feel embarrassed or ill-equipped to address mental health crises, but better to ask unnecessarily than to stay silent. The worst that can happen is that you have shown genuine care and concern for another person, which is a good thing. You are not responsible for fixing the problem, and in fact should call 911 if you think someone is truly suicidal or at risk of self-harm.

If you sense that someone is in crisis, don’t hesitate to ask: • How are you feeling? Are you OK? • Do you have someone you can talk to?

If someone is really struggling and you sense they may be contemplating self-harm, ask them: • Are you thinking of hurting yourself?

• Do you have a plan for how you would kill yourself?

• Will you call the Suicide Prevention Hotline (1-800-273-TALK) right now?

Continued on page 12 ECHO journal | July/August 2019

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Mental Health Issues in HOAs

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can help resolve issues, but it is incumbent upon the board and others in the community to watch for signs of mental illness. It is just as important to carefully pay attention to the mental health in communities as it is to physically and aesthetically maintain common areas and the integrity of the HOA corporation.

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July/August 2019 | ECHO journal

APRA

Monterey Educational Seminar Saturday | October 19 7:30 am -12:30 pm

TOPICS Understanding Reserve Studies as an HOA Board Member Capital Budgeting and Reserve Studies: The Importance to a Community’s Appreciation A Community of Caring Addressing Mental Health Issues in HOAs New HOA Case Law That Impacts Your Community

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www.echo-ca.org ECHO journal | July/August 2019

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Strategic HOA Capital Budgeting HOW TO APPROACH LONG TERM FINANCIAL OBLIGATIONS AS A FIDUCIARY

BY MARC TAMRES HOA BOARD PRESIDENT

Often, the most unglamorous activities are the ones that have the deepest significance. Capital budgeting is one. Left unaddressed, these critical items create many of the biggest challenges HOAs face. They can result in outcomes ranging from special assessments and diminished property values to peaceful, enviable communities enjoying home values which exceed similar homes in less well-managed communities.

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Planning helps determine and maximize the benefit to the community. Budgeting puts the plan into action by better managing the investment to ensure the community wins financially and value is accumulated. The process of proactive community management creates long term wealth for owners. It also demonstrates outstanding management, financial expertise and homeowner confidence.

What is Long Term Capital Budgeting?

Why Capital Planning and Budgeting Matters A home is a significant prized possession and often the largest investment in a lifetime. HOA capital planning can determine how to add value to a community protecting and enhancing durable assets of the HOA. When a homeowner makes a significant capital investment in their home, the neighborhood and every home on the block benefits.

The same is true when the HOA invests in maintaining an existing amenity or decides to add an amenity, such as a fitness center, which then benefits the entire community.

During the budgeting process, operational items usually capture the focus of board members and managers because of the immediacy of the need. Operational expenses are important and can often use most annual funds from HOA assessments. Operational items are usually immediate and shortterm in nature.

Capital expenses are generally large in amount, more permanent and long-range in nature. Boards should recognize the financial equation should have a balance between operational and capital expenditures. The funds set aside to cover these non-annual items are called Reserves. It is

OPERATING Costs During the Year (i.e., utilities, services, vendors...)

& CAPITAL Long Term Obligations & Assets (i.e.,roof, elevator, funds...)

usual for HOA boards to limit capital planning to a single financial decision of the ‘reserves contribution’ with the total reserve fund captured as an asset on the balance sheet. Note reserves accounts have both ‘repair’ and ‘capital’ items.

Understand the Long Term Needs To build a long term plan, the board will assess community needs, engage in community dialogue about the needed investment and create an actionable plan. Reserves studies are helpful. They provide foundational information about maintaining current shared common areas.

Determine Long Term Needs – Reserves, Infrastructure, and Improvements Yet reserves studies have limits. They focus on existing components that can be seen.

Often, they do not include hidden infrastructure, such as plumbing and sewer systems, which can be expensive to repair and replace. Furthermore, reserve studies do not include future investment in new amenities for the community – such as the fitness center mentioned above.

The result is that a reserve study, per se, is limited in its scope and may not address all future needs of the community. This results in the need for more community investment than expected.

Boards usually only consider that which is presented in the reserve study. But what about those items outside of the defined scope of the reserve study? This can be notably large, long term assets requiring Continued on page 18 ECHO journal | July/August 2019

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Strategic HOA Capital Budgeting Continued from page 15

significant funds for repairs and replacement, let alone new community enhancement projects.

Often overlooked, the board should identify and consider these projects, record them, then develop a prudent management plan which anticipates project timeframes and costs.

Create a Capital Needs Forecast The reserve study is further limited in scope because it is not a financial or fiduciary plan. What the reserve study does provide is a good baseline for dues estimates. It is not a comprehensive, long term capital plan and budget.

Creating a capital plan and budget requires a disciplined financial approach including financial modeling to bring in economic information, including the correct inflation forecasts. Costs in real estate are accelerating significantly faster than daily expenses.

Even with reasonable current cost estimates, future projections are often inaccurate and currently asset replacement costs are growing much faster than inflation.

REPLACEMENT COST INCREASE

INFLATION

2005

2010

2015

2015

HOA replacement costs are growing 2.5x faster than headline inflation

Funding Long Term Needs To fund capital budget, the options are: Pay ahead with reserves, do special assessments, obtain loans, or some combination of these. Each of which has its own set of considerations.

PAY AHEAD OF TIME: When saving for reserve funds, the key is not to fall behind long term cost growth.

Funds held conservatively to meet inflation may increase in value. However, the funds are still losing 16

July/August 2019 | ECHO journal

Reserves Ahead

Special Assessments

Loan After

Fund Investment Liquidity vs. Growth Time Frames

Overall Sizes Ability to Pay Frequency

Size and Duration Ability to Get Cost of Interest

value in relation to needs because replacement costs are growing faster than inflation. Depending on the length of time the funds are held, the difference between need and funding can diverge and be shockingly inadequate.

PAY WITH SPECIAL ASSESSMENTS: A key consideration is the anticipated size(s) and frequency of the need.

A critical consideration is the homeowner’s ability to handle the financial burden of lump sum payments.

Special assessments often raise the ire of the community because the “ask” may be unexpected and poorly communicated in advance. This furthers the challenge of the passage of the required community vote.

It is important to have a plan to communicate expected large financial obligations of the community. To ensure all capital decisions are accurate and transparent, a capital planning discussion and budget is an important step. Keep them informed. Listening to the community, it may be better to propose lower monthly assessments and accumulate funds rather than ask for one large, lump sum.

PAY AFTER WITH LOANS: With loan financing, the key consideration is the total cost. The interest rate and the repayment time are critical. Lender specific requirements will determine the ability to secure financing and from whom. It is important to prepare in order to anticipate the need and explore options early.

Scenarios for Planning and Continuity Financial modeling helps boards think through the various scenarios. It is important to identify what could happen and consider responses to these scenarios. For example, replacement cost estimates come in higher or sooner than expected.

How will the HOA deal with this situation? Would an assessment be needed, how much and would it be tolerated by homeowners? Is a loan an option?

It is important to think through scenarios, revisit them often and evaluate how to overcome any financial impacts.

Multiple scenarios will allow the HOA to consider long term ramifications to an unexpected need before it arises. The board will be able to consider and structure association finances to deal with unexpected capital events. It also allows the board to consider and plan for communication strategies and political responses by members. During the process, communication with members is important; get input and address questions.

Finally, scenario planning and retention of the plans provides a powerful tool for future boards and owners. Long term continuity is often overlooked especially when a new board takes over a long term project and continuity is lost. The project will be stalled and the HOA board may pursue a wrong path.

Address Fiduciary Responsibilities Even as volunteers, board members have legal fiduciary responsibility. The ramifications can be daunting considering the total property value and long term obligations.

Often, limited understanding narrows the evaluation of financial options by the board. State and corporate requirements provide guidelines within which boards can operate. CC&Rs may be where the ultimate restrictions apply. The key strategy is to find the ‘right tool for the right job’. As a fiduciary, the obligation is to use good judgement to responsibly meet long term needs.

Execute the Plan and Update as Necessary Once the plan and approach has been determined, it is critical to put it into operation. Planning helps prepare for what may happen. The planning process and ultimately the plan itself will represent due diligence in major asset management and ensure projects have a solid roadmap for successful completion.

No plan can predict everything correctly. The world is changing, commodity and labor markets are changing. The capital plan is only a best estimation of what will be and not a crystal ball defining timelines and costs. Accordingly, frequently revisit timelines and plan to adjust. Build in milestones and benchmarks for progress and quality. This is appropriate management and will minimize the potential for surprises.

Doing It Right Matters!

Though unglamorous, proactive capital planning and budgeting can prevent many problems. Like any long term goals, it requires consistency and on-going follow through. With the basics of capital planning in place, surprises can be avoided and help to safeguard our homes and community.

Marc Tamres is Founder and CEO of HomeRun IQ. HomeRun IQ provides expert long term HOA financial planning and management modernized with technology. Marc is an investment advisor representative, with degrees in engineering and business from MIT. He continues to serve as president of his HOA.

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July/August 2019 | ECHO journal

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ECHO journal | July/August 2019

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THE SELF-MANAGED HOA

Get a Jumpstart on You For self-managed community association boards of directors, often the process of preparing, deliberating, approving and disclosing the annual budget and policy disclosures as required by California Civil Code can be challenging and lead to disagreements, arguments and bad feelings among board members. Never fear! Proper planning early in the budget process can ensure the completion of a well thought out budget with plenty of time left to make member notification deadlines. Here are five tips for budget preparation guaranteed to make your board effective, efficient and provide for timely and compliant member notice.

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1. Start the budget planning process early!

Work backward from your association’s fiscal yearend. California Civil Code requires that you send the proforma budget and policy packets no less than 30 days and no more than 90 days before the fiscal year-end (Civil Code §5300). For example, if your association has a December 31st fiscal year-end, the board packet may not be sent before October 1st and not later than December 1st of the year. In my experience, boards need at least two or four meetings to review draft budgets, consider options and approve a final budget and reserve funding update. If your board meets monthly, then the budget planning and approval process needs to start no later than July to ensure a November notification of your members. If your board meets less than monthly, you better start NOW!

2. Designate which board member(s) will take the lead.

This is usually the treasurer or CFO, but I would recommend one other board member (as long as the number of board members is less than a quorum of the board) or one or two association members at large. This small group can do the heavy lifting, accumulate data and reports, get vendor recommendations and create the draft budget as well as provide the Reserve Specialist with changes and updates to the reserve study as required.

Suggestion: note the designated board member(s) and any at-large members in the meeting minutes, this will have the added benefit of allowing this committee to meet without regard to the provisions of the “open meeting act”.

3. Schedule at least two board meetings to review, discuss and approve the proposed budget.

Be crystal clear with your membership and be sure to clearly state on the board meeting agenda

BY JOHN CLIGNY, CAMEx, CCAM-HR, AMS

ur Annual Budget what the board’s intent is. For example, under new business, you may want to create the agenda item, “first reading of the proposed 2020 operating budget indicating a __% increase in assessments.” Don’t fall into the trap of trying to “hide” or “minimize” the board review and discussion of the budget. Be clear in the meeting minutes what changes or next steps the board will take to ensure the budget is approved in a timely fashion. When the budget draft is complete and the board is ready to do a final discussion and vote to approve, be VERY clear in your meeting agenda,

Contact ECHO at info@echo-ca.org for more information about the Organizational Meeting of the Board and for a sample meeting agenda.

“final review and board vote to approve the proposed 2020 operating budget with an increase of ___% in assessments.” Don’t sugar coat it, be clear and have your designated board member ready to answer any questions from concerned members.

Continued on page 22

ECHO journal | July/August 2019

21

Get a Jumpstart...

Continued from page 21

4. After the budget is approved close all the loops.

Preparing, drafting, discussing and approving an HOA budget is a time consuming, emotionally charged task the board of directors is required to do annually. Doing it properly, in a well thought out manner conveys

to your members how important the process is and speaks volumes about how much you value your community. However, after the budget is approved, your job is far from over. Designate a board member to let the Reserve Specialist know immediately what the final decision was and send a copy of the approved budget to them. Remind them to prepare a

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final draft of the reserve study and be sure to complete the required annual reserve funding disclosure summary as soon as possible.

5. Review, complete, publish and deliver the final annual budget and policy disclosure packages.

Review the Davis Stirling requirements for these disclosures and be sure to include any changes in the laws and above all, DON’T MESS THIS UP! Failure to properly prepare the disclosures can result in civil penalties and claims against the board of directors. If you are unsure of what’s required or need help putting the packets together, seek out qualified HOA consultants, management companies, CPAs or attorneys.

No matter the size of your community, fulfilling the requirements of the annual budget, policy and reserve study update disclosures are uniquely the fiduciary obligation of the board of directors. Your governing documents probably allow your board of directors to delegate the responsibility of budget preparation and drafting, but the board of directors, in an open meeting must approve the budget and oversee the timely distribution of the required disclosures. Good luck and don’t panic, its only July! Get going!

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July/August 2019 | ECHO journal

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BY MELANIE MALIK, CCAM, AMS, PCAM

The Basics of Running a Successful HOA A

s volunteers, homeowner association (HOA) board members assume financial and governance responsibilities tantamount to any director or officer in a for-profit corporation. The term volunteer is a bit of a misnomer; it belies the consequential fiduciary role of board members to act with due care and undivided loyalty in the interest of all members of a not-for-profit homeowner association. With varied years of business financial and legal experience, board members govern by committee to make financial and governance decisions. With each decision and investment of funds, board members act with the goal of enhancing long term property values while enlivening a sense of community.

Homeowner associations come in all shapes and sizes: small to large, old to new, single-family homes, master-planned communities, active-adult communities, condominiums, Continued on page 24

With each decision

and investment of funds, board members act with the goal of enhancing long term property values while enlivening a sense of community.

ECHO journal | July/August 2019

23

The Basics of Running a Successful HOA...

Continued from page 23

accounting records in accordance with generally accepted accounting principles (GAAP), reconciling accounts and creating accurate monthly financial statements. All accounting should be performed with best practice controls in place to prevent fraud and ensure accuracy.

proposals for work that needs to be done, compare and analyze those proposals and make final decisions to hire third-party contractors.

townhomes, cooperatives, commercial associations, high rise communities and mixed-use commercial entities. Elected board Administration members share an equally broad Regardless of size, all range of responsibilities including associations have administrative strategic planning, financial responsibilities that oversight, physical include, but are not site management, limited to preparing governance, board meeting member relations, agendas, preparing administration materials for annual and record member meetings, retention. preparing meeting California Civil minutes, creating Code (a.k.a. rules and policies Davis-Stirling for the community, Common Interest organizing an Development Act) Progressive boards leverage industry best annual calendar, is the statutory practices and thoughtful forward planning member foundation for to set strategic priorities in a way that best communication HOA governance stewards the resources of the association. and holding regular in tandem with meetings of the the association’s Annually, the board of directors Board.

These meetings include own recorded Covenants, approves an operating budget open board meetings where Conditions and Restrictions and engages a reserve specialist members attend and have an (CC&Rs). Together, these pillars of to create a long-term plan to opportunity to speak, executive association management combine maintain the major common area session meetings where boards to provide the framework for components of the association. can discuss a variety of limited board directors to govern legally On a regular basis, boards review topics privately and annual and competently. Progressive member meetings where new proposals for work that needs to boards leverage industry best officers are often elected. be done in the community and practices and thoughtful forward analyses how those proposals planning to set strategic priorities fit with the financial plan of the Records Retention, Disclosures in a way that best stewards the association before approving. and More resources of the association.

Finally, boards engage third party All associations are required Certified Public Accountants to to have a schedule of records Financial Planning and prepare taxes and legally required available for members of the Oversight annual reviews. association to inspect when Accounting for an association requested. Associations should includes establishing separate Physical Site Management have a record retention policy operating and reserve bank This is the process of that outlines how long records accounts, billing of homeowner maintaining the tangible of the association should be assessments, working with common area components of maintained in accordance with collection companies to manage the association such as roofing, legal requirements. Associations collections for past due owners, asphalt, clubhouses, siding, must disclose certain information handling escrow demands and landscaping, etc. Typically, annually when the budget is changes of ownership, paying the boards will review multiple Continued on page 26 association’s invoices, maintaining 24

July/August 2019 | ECHO journal

MEMBERS: To order, log in for your member pricing through the Online Store at echo-ca.org or call (408) 297-3246

BOOKSTORE

2019

2019 2019 Condominium Condominium Greenbook Greenbook

Member Price: Member Price: $17.00 $17.00 Non-Member Price: Non-Member Price: $25.00 $25.00

This companion to the This companion to the Condominium Bluebook Condominium Bluebook is an in-depth guide to all is an in-depth guide tofinall aspects of association aspects of association finances, including accounting ances, including accounting methods, financial statemethods, financial statements, reserves, audits, ments, reserves,and audits, taxes, investments much taxes, Not investments and much more. for the accounting more. Not accounting novice, thisforisthe a tool for the novice, this is a tool for the treasurer or professional looktreasurer or professional looking for specific information ing forassociation specific information about finances. about association finances.

The ECHO Bookstore is your source for great The ECHO Bookstore is your source for great information on the duties of HOA board information on the duties of HOA board members. members.

Find these and other informative publications, Find theseFREE and other informative including downloads, onlinepublications, at including FREE downloads, online at www.echo-ca.org. www.echo-ca.org.

Board Member Board Member Handbook Handbook

Member Price: $15.00 Member Price: $15.00 Non-Member Price: $25.00 Non-Member Price: $25.00 This publication is the essential guidebookisfor HOA This publication the Board members, dealing essential guidebook for HOA with governance, Board members, finances, dealing insurance and maintenance with governance, finances, issues.

Revised updated insurance and and maintenance in June Revised 2012. and updated issues. in June 2012.

Also available as a FREE download for members at www.echo-ca.org

34 34

echo-ca.org echo-ca.org

2019

Condominium Condominium Bluebook Bluebook 2019 Edition 2019 Edition

Member Price: Member Price: $17.00 $17.00 Non-Member Price: Non-Member Price: $25.00 $25.00

This well-known compact This well-known compact guide for operation of comguide for operation of common interest developments interest developments inmon California now includes a in California now includes comprehensive index of thea comprehensive of the book and a chapterindex containing book than and a200 chapter containing more frequentlymore questions than 200 frequentlyasked about asked questions about associations, along with associations, along with succinct answers. succinct answers.

Construction Defect Claims Construction Defect Claims

Member Price: $19.95 Member Price: $19.95 Non-Member Price: $25.00 Non-Member Price: $25.00faults. It’s New buildings can conceal extensive buildings can conceal extensive damage faults. It’s aNew board’s worst nightmare—rainstorms a board’sand worst nightmare—rainstorms damage buildings bring owner complaints. Is legal buildings and bring complaints. legal action necessary?

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With this new you’ll learn problems, how toprocess handle complex claims. about the and resolution for construction problems, and how to handle complex claims.

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Member Price: $12.95 Non-Member Price: $17.95 Member Price: $12.95 Non-Member Price: Construction defect litigation$17.95 can be confusing, expensive anddefect fraughtlitigation with legal This Construction canpitfalls. be confusing, eye-opening guide, written accomplished expensive and fraught withbylegal pitfalls. This construction-defect attorneys, anaccomplished essential tool eye-opening guide, writtenisby for board members attorneys, who needisto construction-defect anunderstand essential tool the process. forlegal board members who need to understand the legal process.

Robert’s Rules of Order Robert’s Rules of Order

Member Price: $7.50 Non-Member Price: $12.50 Member Price: $7.50 Price: $12.50 ANon-Member step-by-step guide to the rules for meetings ofA your association, current official step-by-step guidethe to the rulesand for meetings manual by most govof youradopted association, theorganizations current andtoofficial ern their meetings.

This guide will provide to many manual adopted by most organizations govmeeting not covered byprovide the associaern theirprocedures meetings. This guide will many tion bylaws or other governing documents. meeting procedures not covered by the associa-

tion bylaws or other governing documents.

ECHO journal | July/August 2019

25

The Basics of Running a Successful HOA...

Continued from page 24

mailed to the membership and when units are purchased, sold or refinanced. In addition, associations must maintain their corporate legal status with the Secretary of State with specific and regular filings.

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SAVE THE DATES! Wine Country Seminar September 14 Monterey Seminar October 19 Southern California HOA Board Education & Seminar November 9

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Find all of ECHO’s Professional Members Online. Visit the Professional’s Directory at www.echo-ca.org ECHO journal | July/August 2019

27

M

By developing a strategy to standardize measurement – and regularly review, an performance throughout the entire year – the budget process becomes a meaning performance.

28

July/August 2019 | ECHO journal

BY TANI CLIGNY, CCAM, CMCA

Measuring Success with a Properly Prepared Budget

April 15th is behind us, tax season is over, and we have a temporary reprieve until budget season, right? Not so!

While September is typically considered budget season, the budget process should happen throughout the entire year.

T

he budget essentially reflects the association’s business plan. Its purpose is to forecast or estimate the association’s objectives to achieve its goals, i.e. property maintenance, enforcement of the governing documents and enhancing value. Because the budget is an estimation, it must be measured and re-evaluated annually.

For some boards and managers, the budget can be daunting – a mystery resulting in the process being given little thought and the budget being disconnected from the goals and objectives of the board. This disconnection results in the budget being no more than an obligatory exercise.

The budget must be connected to the vision and plans of the board. Breaking down the components of the association plan and assigning a cost to each will result in an effective budgeting process connecting the plan with financial activity. By developing a strategy to standardize measurement – and regularly review, analyze and evaluate against actual performance throughout the entire year – the budget process becomes a meaningful management tool to measure performance. A structured, annual approach to the budget process can assist self-managed or professionally managed boards to avoid unpleasant feelings, animosity or distrust.

It provides adequate time to review. It unveils underlying factors driving costs or considerations to proposed increases in assessments, reserve contributions, annual contracts or utility costs. It encourages timely and accurate record-keeping and reporting. It fosters structure to facilitate boards in navigating interpersonal challenges, personality conflicts, perceived conflicts of interest or self-interest.

Emphasizing and establishing a budget process benefits the board and members-at-large by providing financial transparency and collaboration. A paradigm shift to how boards and managers view the budgeting process can break the contentious cycle associated with the “budget season.”

nalyze and evaluate against actual gful management tool to measure

Continued on page 30

ECHO journal | July/August 2019

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Measuring Success...

Continued from page 29

The board, as part of its fiduciary duties and sound governance, needs to allocate adequate time to prepare the annual budget packet. Civil codes §§ 5300, 5500 and 5565 stipulate the annual budget packet contents and deadlines for distribution to the members. It is essential to allow enough time to review, evaluate and analyze the annual budget contents.

Also, time should be allocated to develop a method to track board decisions and actions which have budget implications.

Boards should develop an annual calendar, based on board meeting frequency, to accomplish this.

Open item reports are commonly used as placeholders to track board decisions and

actions with budget implications.

These open items should be recorded and included in the board packet at every meeting.

The report is a useful tool to keep boards on task and it serves as a reminder of past decisions. The open item report will help educate new board members, especially if the change in directors is close to the beginning of the budget season. Using an open item report will help with business continuity and transparency.

A strategic and well-designed budget process is key to producing a budget that is a meaningful management tool for boards. Additionally, the process assists in educating the board and homeowners of the goals and objectives of the association. It gives the board ownership of the budget. It helps

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July/August 2019 | ECHO journal

Tani Cligny, CCAM, CMCA, is an association management executive, proven manager and association finance specialist. Tani is passionate about good governance, accountability and financial integrity. She is a principal at Association Consulting Group and is focused on training board members to evaluate and review key financial reports including tax returns and financial reviews which encourages board of directors’ compliance with all aspects of the Davis Stirling Act for Common Interest Developments. Tani also excels in assisting boards with the development of annual operating budgets and required disclosures.

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convey competence, instills confidence and can mitigate animosity experienced by some boards and managers. Most importantly, it demonstrates sound governance to satisfy the board’s duty to provide a budget and a business plan to meet the association’s regulatory, financial, and future maintenance needs. Peter Drucker’s quote says it best, “what’s measured improves.” A properly prepared budget measures the ongoing performance of the association’s business plan and allows for greater transparency, community and accountability.

Member FDIC Equal Housing Lender

Keeping your contact information updated in our system is an important step to receiving membership benefits including the ECHO Journal, e-newsletters, event announcements and discounts, and much more.

Email changes and updates to update@echo-ca.org

STANDARDIZED PRACTICES FOR

BUDGET REVIEW & ANALYSIS Evaluation of new laws that could have budget implications, i.e. federal and state wage increases, additional reporting requirements, insurance requirements or new policy requirements as examples.

These changes may increase the costs associated with contracts, legal fees, administrative fees or insurance.

Discussion of prior year “review or audited” financial statements and/or tax filings with the board and the Certified Public Accountant (CPA) who prepared the documents. They also should evaluate the financial implication of any year end pre-close entries such as allowance for bad debt, interfund transfers or unfunded reserves. This can foreshadow a potential need for increased assessments or reserve funding.

Consideration of projected reserve study expenditures for the current and next fiscal year.

Any projects that are approved or deferred to future years have budget implication and the decisions should be tracked to ensure the reserve study can be updated appropriately. Boards should determine as early as possible those projects that will be considered, undertaken or deferred to future years.

Discussion of capital improvement proposals or significant expenses not currently in the reserve study and which could be a major component of the budget. Any improvements would have to be funded through the current operating budget, a future budget or a special assessment.

Consistency with association rules, policies and/or other governing documents. The board should review and discuss these annually to ensure compliance of all mandated policies and financial restrictions. Also, the board should consider changes to the operating rules, community guidelines and/or the association’s CC&Rs or bylaws to meet the community needs. Updates, changes or board decisions having budget implications must be communicated to homeowners within member notice requirements.

Seek out approved and scheduled public utility increases for future budgets. Typically, agencies have 1 to 2 year scheduled increases published on their websites. Knowing these is important for future planning.

Evaluation and review of annual contracts. The board should periodically or annually conduct performance evaluations, cost analysis and review of contract language of service providers. This analysis should measure the performance of the vendor to the needs, objectives and expectations of the association.

Over time, expectations can change for service levels and new vendors may approach a project differently affecting the financial performance. Evaluating the contracts well in advance of the draft budget helps eliminate budget discussions digressing to contract language and service level debates or accusatory vendor dissatisfaction sessions.

Evaluation of insurance policy change requirements, renewals and items resulting in cost changes. These are important for future budgets and evaluation of risk tolerance versus the cost of insurances.

Discussion of plans for social events, townhall meetings, special meetings, committee formation or additional board meetings. These may have budget implications and should be included as expected activities within the budget year.

Monthly review of financial reports by directors and review at each board meeting. Any profit and loss statement expenses with variances to budgeted should be evaluated in depth and monitored. If there is a trending deficit variance month over month or year over year, the board should consider a correction to the budget to reflect actual activity. Regular unanticipated financial activities that cause unexpected expenses or “anomalies”, but which occur regularly, are thereby expected and should be budgeted. For these items, it is the responsibility of the board to develop assumptions regarding the amount and frequency of the expenditure and build this into future budgets.

A review of monthly financial statements by the board will provide an ongoing assessment of financial activity by the board and critical knowledge about the execution of the business plan. It will also provide transparency of governance on fiscal matters for homeowners. Regular review provides a valuable educational opportunity which informs board members of the potential need for future assessment increases. It also provides a mechanism to measure progress and keep the board on-track and accountable.

ECHO journal | July/August 2019

31

ECHO EVENT CALENDAR

RESOURCE PANEL CALENDAR ECHO Resource Panels are offered in a casual atmosphere to enable managers, professionals and board members to hear about important topics presented by experts in the industry, and share experiences and issues. The meetings are open to all ECHO members and those interested in learning about ECHO. If you have any general questions please contact events@echo-ca.org

Register Online You must register online to provide ECHO with an accurate headcount.

DATE

ORGANIZERS

REGISTRATION LINK

Maintenance Panel Wednesday August 7 11:45 am to 1:00 pm

Cassidy Rajkovich maintenancepanel@echo-ca.org

bit.ly/mapanel-aug2019

Friday August 9 11:45 am – 1:00 pm

Ann Marquis-Fisher eastbaypanel@echo-ca.org

bit.ly/ebpanel-aug2019

Tuesday Central Coast Panel August 20 11:00 am – 12:30 pm

Laura Yelland centralcoastpanel@echo-ca.org

bit.ly/ccpanel-aug2019

Wednesday North Bay Panel September 9 11:30 am to 1:00 pm

Stephanie Charles, & Diane Kay northbaypanel@echo-ca.org

bit.ly/nbpanel-sep2019

Wine Country Panel Thursday September 19 11:45 am to 1:00 pm

Pam Marsh & Sarah Dunia winecountrypanel@echo-ca.org

bit.ly/wcpanel-sep2019

Maintenance Panel Wednesday October 2 11:45 am to 1:00 pm

Cassidy Rajkovich maintenancepanel@echo-ca.org

bit.ly/mapanel-oct2019

Friday October 11 11:45 am – 1:00 pm

Ann Marquis-Fisher eastbaypanel@echo-ca.org

bit.ly/ebpanel-oct2019

PANEL NAME

East Bay Panel

East Bay Panel

Prices will increase at the door!

Registering online and paying by credit card is the

fastest way to ensure your spot is reserved. If you are paying by check, please continue with online registration and select “Pay by Check” so we can get an accurate headcount. Checks must be payable to ECHO and received two weeks prior to the event date.

ECHO Mailing Address: 1671 The Alameda, Ste. 205, San Jose, CA 95126

32

July/August 2019 | ECHO journal

Catch Up On the 2019-2020 Legislative Session!

The list below features important legislation for California community associations. This list, and the impact of each bill, will change as authors amend the language in their bills. The final day for the Governor to sign or veto bills for the first half of the 2019-2020 Legislative Session is October 13.

Current Legislation AB 670 Friedman SUBJECT: Accessory Dwelling Units STATUS: Amended. Senate Third Reading.

POSITION: Watch SUMMARY: Would void provisions in common interest development governing documents that effectively prohibits or unreasonably restricts the construction or use of an accessory dwelling unit or junior accessory dwelling unit on a lot zoned for single-family residential use that meets the minimum standards established for those units. However, the bill would permit reasonable restrictions that do not unreasonably increase the cost to construct, or effectively prohibit the construction of these units.

AUTHOR:

SB 323 Wieckowski Elections: Felons, Inspectors, Email Disclosure STATUS: Amended. Assembly Second Reading.

POSITION: Oppose SUMMARY: Requires an association to disqualify a person from nomination as a candidate for not being a member of a common interest development at the time of nomination or for being convicted of certain felonies.

Authorizes an association to disqualify a person from being nominated or from serving on the board for specified reasons, including the failure to pay regular assessments. Defines email addresses as association AUTHOR:

SUBJECT:

records for the membership list.

Would not allow the rules of an association to permit association employees or contractors to serve as inspectors of election. Allows members to sue over violations of bill provisions in superior court.

SB 326 Hill SUBJECT: Inspection of Elevated Components STATUS: Assembly Third Reading.

POSITION: Watch SUMMARY: Requires the association to cause a reasonably competent and diligent visual inspection of the load-bearing components and associated waterproofing systems to determine whether the exterior elevated elements are in a generally safe condition and performing in compliance with specified standards. Would require the inspector to issue a report, and the association to take immediate action if the exterior elevated element poses an immediate threat to the safety of the occupants.

AUTHOR:

SB 434 AUTHOR: Archuleta

Managing Agent: Production of Records STATUS: In Senate Inactive File.

POSITION: Watch SUMMARY: Requires a managing agent whose management agreement has been terminated to produce client property and client records within a specified period of time pursuant to a written request by a common interest development association, except as specified.

SUBJECT:

SB 652 AUTHOR: Allen SUBJECT: Right

Items

to Display Religious

To Governor.

Watch SUMMARY: Would prohibit the governing documents of a common interest development from prohibiting the display of religious items, as defined, on the entry door of a common interest development member’s separate interest. The bill would make an exception during the time that maintenance, repair, or replacement work is performed.

STATUS:

POSITION:

SB 754 Moorlach Election by Acclamation STATUS: Assembly Second Reading.

POSITION: Support SUMMARY: Requires, when the number of director nominees at the close of the nomination period is not more than the number of vacant director positions on the board, that the director nominees be considered elected by acclamation if the association includes 6,000 or more units, and the board complies with specified notice requirements, and the board disqualifies a candidate for specified reasons.

AUTHOR:

SUBJECT:

Join the Discussion!

For the most up-to-date information or to read more about HOA legislation, visit our website or our Facebook page and join the discussion. www.echo-ca.org/hoa-advocacy facebook.com/echoorg ECHO journal | July/August 2019

33

Executive Director’s Message Continued from page 6

Education that builds stronger communities.

Sign up online for Echo’s e-newsletter, Echo Insight! It’s free for everyone and the content can be repurposed for your community newsletter!

CONTENT © 2019 ECHO

Sign up at www.echo-ca.org at the bottom of the home page.

34

Education Advocacy Connection www.echo-ca.org July/August 2019 | ECHO journal

Echo Insight was launched as a homeowner focused e-newsletter for members and non-members alike. Insight educates all homeowners about the management of HOAs and, hopefully, helps them to gain the confidence to participate in their community while encouraging effective management and dissuading membership dissonance through better understanding and knowledge of HOA roles and responsibilities. With knowledge there is clarity. Duly educated homeowners are less likely to lead with emotion and will often seek constructive, informed solutions.

To paraphrase Thomas Jefferson, to have a properly functioning republic (HOA), the constituency should be knowledgeable of how decisions are made, the roles of authority and governance, and be well informed of their role and rights as the electorate. Echo’s programming educates and connects its members. It empowers HOA boards by teaching what is necessary to make well-informed and sound decisions.

A community is a democracy. That democracy can be unwieldy when considering the complexities of daily management and governance. The HOA members’ role is one of oversight and not of management. So, we elect representatives to serve our communities, empower them with education and knowledge to run the community, and expect them to look out for the benefit of all in the community – not perfectly but with the best collective judgement.

As we celebrated yet another birthday of our great nation this past 4th of July, we noted that our HOAs are a micro-subset of sorts of the republic we call the United States of America. We elect board members whom we expect to make prudent decisions for the good of the whole. Boards that steer the association and maintain a collegial and cordial community environment while maintaining and perhaps increasing the common property values of the community.

Echo hopes that with an “enlightened” community, the vision for and the management of HOA communities will be pleasurable and effective. It is our hope that an investment in the education of your members – especially those serving on the board of directors – will deliver ever-increasing value and appreciation to those in the community. As Socrates said, “Education is the kindling of a flame, not the filling of a vessel.” Let’s kindle the flame and invest in the future of HOAs through an educated membership.

LEADING WITH EXCEPTIONAL LEGAL TALENT EXTENSIVE RESOURCES AND DECADES OF EXPERIENCE ` Comprehensive Representation for Community Associations ` Complementary Construction Defect Investigation ` Construction Law and Dispute Resolution ` Business and Real Estate Law Our law professionals are highly experienced community association and construction law attorneys, and bring a thorough understanding of our clients’ issues and creative solutions for their legal needs.

In addition to dealing with the legal problems of condominium and homeowners associations, we also defend associations and their boards of directors against third party claims for personal injury and property loss as well as directors’ and officers’ liability, and we assist our clients in maximizing insurance claims for damages to buildings and common area.

Call us for more information on our Free No-Cost Community CheckUp and our Complimentary Construction Defect Investigation.

WALNUT CREEK S AN F RANCIS CO LOS ANGELES COS TA MES A S AN DIEGO 800.838.2090 BERDINGWEIL.C O M