Washington Metropolitan Chapter Community Associations Institute
SEPTEMBER 2019
A Magazine for Community Association Volunteer Leaders, Professional Managers and Business Partners
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FINANCES ALSO IN THIS ISSUE
____________________________ Budget Preparation: A Way of Life ____________________________ Is There Such a Thing as “Good Debt”? ____________________________ Special Assessments: Navigating the Impact ____________________________ Breaking Budget Bad News
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SEPTEMBER 2019
CONTENTS 12 Understanding and Utilizing Your Reserve Study to Ensure Long-Term Success
BY MICHELLE BALDRY, PE, PRA, RS
16 Reserve Study Requirements: Virginia, Maryland and D.C.
BY WIL WASHINGTON, ESQ. AND LAUREN RITTER, ESQ.
18 Reading Financial Statements 101
BY DON PLANK, PCAM
22 Financials – What Boards Should Look At
BY RICHARD KUZIOMKO, MBA, CMCA, AMS, PCAM
24 You Received the Draft Audit Report – What’s Next?
BY JEREMY POWELL
DEPARTMENTS AND MORE
27 The Haves & The Have Nots…
5 Message from the President 6 Chapter Benefactor: Paul Davis Restoration 7 Welcome New Members 8 Upcoming Events 11 People & Places 36 Classifieds 37 Index to Advertisers 38 Cul-de-sac: Breaking Budget Bad News
29 Budget Preparation: A Way of Life
To optimize the operations of Community Associations and foster value for our business partners.
BY GEORGE J. ELLIS, III, CMCA, AMS, PCAM
30 Is There Such a Thing as “Good Debt”?
BY KIMBERLY MYLES
32 FHA Condominium Certifications
BY WINTA MENGISTEAB, ESQ.
34 Special Assessments: Navigating the Impact
WMCCAI MISSION STATEMENT
BY TRACI CASTROVINCI, CMCA, AMS AND IMAN JACKSON, CMCA, AMS
BY SUSAN MILLER, CMCA, AMS
Reader comments and suggestions are welcome. Address your comments to: Quorum 7600 Leesburg Pike, Suite 100 West Falls Church, VA 22043
We also welcome article submissions from our members. For author guidelines, call (703) 750-3644 or e-mail publications@caidc.org. Articles may be edited for length and clarity. SEPTEMBER 2019
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President Rafael A. Martinez, CTP President-elect Airielle Hansford, CMCA, AMS, PCAM Vice President Michael Gartner, ESQ Secretary Ruth Katz, ESQ. Treasurer Kristen Melson, CMCA, AMS, PCAM Immediate Past President Sarah Gerstein, CMCA, AMS, LSM, PCAM (EX OFFICIO) Executive Director Jaime Barnhart, CMP, CAE (EX OFFICIO)
D IRECTOR S Jennifer Bennett, CMCA, AMS, PCAM, Thomas Burrell, Judyann Lee, ESQ., Sara Ross, ESQ., Gary Simon, CMCA, AMS, PCAM, Todd A. Sinkins, ESQ., Jon Stehle
CO U N C I L C HAI R S Communications Council Leslie Brown, ESQ. Education Council Debra Johnson, CMCA, AMS, PCAM Member Services Council Bernie Guthrie, CMCA, AMS, PCAM
CO MM I T TE E C HAI R S Conference & Expo Donna Aker, CMCA, AMS, PCAM and Chris Goodman D.C. Legislative/LAC Scott Burka, CMCA, AMS, PCAM, and Jane Rogers, ESQ. Education Kevin A. Kernan, ESQ. and Todd El-Taher Golf Adrienne Zaleski and Brian Lord, CMCA, AMS Maryland Legislative Scott Silverman, ESQ. and Aimee Winegar, CMCA, AMS, LSM, PCAM
Public Outreach Elisabeth Kirk and Kim Myles Membership Jeffrey Stepp, CMCA, AMS, and Noni Roan, CMCA Quorum Editorial Susan L. Truskey, ESQ. and Christopher Carlson, PE, SECB Chapter Events Kristen Adams and Jen Ann Santiago, CMCA, AMS, PCAM Virginia Legislative Ronda DeSplinter, LSM, PCAM and William A. Marr Jr., ESQ.
QU O RUM Managing Editor Morgan Wright, mwright@caidc.org Design Six Half Dozen
QU O RUM E DI TORI AL CO M M IT TE E Co-chairs Susan L. Truskey, ESQ. and Christopher Carlson, PE, SECB Members James Anderson, Michelle Baquero, CMCA, AMS, Adrian Blakeney, Mira Brown, CMCA, AMS, Leslie Brown, ESQ., Doug Carroll, Deborah Carter, CMCA, AMS, PCAM, Sara Castle, Sarah Foley, Stephen Grant, Scott Greges, CMCA, AMS, Shannon Junior, Kevin Kelly, Richard Kuziomko, CMCA, AMS, PCAM, Crishana Loritsch, CMCA, AMS, PCAM, Liliana Martinez, CMCA, AMS, Kirby McCleary, Thomas Mugavero, ESQ., Crystal Partin, CMCA, AMS, PCAM, Kara Permisohn, Brandi Ruff, CMCA, AMS, PCAM, Lauri Ryder, CIC, CRM, CMCA, Andrew Schlaffer, Chelsie Throckmorton, Olga Tseliak, ESQ., Lee Ann Weir, CMCA, AMS, Doug White, Nicole Williams, ESQ., Meagan Willis. Aimee Winegar, CMCA, AMS, LSM, PCAM, Jim Wisniewski, Michael Zupan, ESQ. Washington Metropolitan Chapter Community Associations Institute, a 501(c) (6) organization, serves the educational, business and networking needs of the community association industry in 80 cities/counties in Maryland, Virginia and the District of Columbia. Members include community association homeowner volunteer leaders, professional managers, association management companies, and other businesses and professionals who provide products and services to planned communities, cooperatives and condominiums. WMCCAI has more than 3,200 members including 300+ businesses, 1,100 professional managers from 85 management companies, and approximately 1,500 community association homeowners. WMCCAI is the largest of Community Associations Institute’s 62 chapters worldwide. Quorum is the award-winning premiere publication of WMCCAI, dedicated to providing WMCCAI’s membership with information on community association issues. Authors are responsible for developing the logic of their expressed opinions and for the authenticity of all presented facts in articles. WMCCAI does not necessarily endorse or approve statements of fact or opinion made in these pages and assumes no responsibility for those statements. This publication is issued with the understanding that the publisher is not engaged in rendering legal, accounting or other professional services and nothing published in Quorum is intended to constitute legal or other professional advice and should not be relied on as such. If legal advice or other expert assistance is required, the services of a competent professional should be sought directly by the person requiring such advice or services. Articles appearing in Quorum may not be reprinted without first obtaining written approval from the editor of Quorum. In the event that such permission is granted, the following legend must be added to the reprint: Reprinted with permission from Quorum™ magazine. Copyright 2019 Washington Metropolitan Chapter Community Associations Institute. Quorum is a trademark of WMCCAI. Receipt of Quorum is a privilege of WMCCAI membership for which $65 in nonrefundable annual dues is allocated. The subscription price for nonmembers is $75 per year; contact publications@caidc.org or call (703) 750-3644. To advertise in Quorum, e-mail publications@caidc.org. For more information about Quorum or WMCCAI, visit www.caidc.org.
This month marks my “over half-way done” tenure as Chapter President. It’s truly amazing how time flies when you’re having fun and hitting your goals! These past few months have been full of fantastic educational events, engaging networking opportunities and internal development. I have really enjoyed engaging with longtime Chapter members as well as new Chapter members that have expressed their support of our events and want to get involved (and, sometimes re-involved after some time away) in our committees and our other initiatives. At the Riverboat Cruise event, I spent time with a homeowner leader who serves on our Quorum editorial committee and was considering running for the board of directors. We talked about our strategic plan, the time commitment required, and how important it is for homeowners to be represented on the Board due to their unique perspective on our industry. I invited this homeowner to the next Board meeting and after it concluded, he came away intrigued at the prospect of contributing to our organization’s development. From a simple conversation at one of our events, to a possible candidate for the board of directors – truly one of my favorite stories this year!
FROM THE PRESIDENT
O FFICE R S
As we begin to wind down the summer fun, filled with sun, pool-time, and outdoor actives, our focus begins to shift to annual budgets and all of the considerations that are involved in this process. Whether we are community volunteer leaders, managers or business partners, everyone has a budgeting process to ensure that operating expenses are covered, and money is put away for long term savings/reserves. This issue is dedicated to all things finance related, including how to read financials statements, budgeting basics and what happens when your association needs a bank loan. As a community association lender for over ten years, I have had the opportunity to work with many communities and managers to support various financial needs. Those communities and managers that understand their financial position the best and can explain their long-term plan to a lender, are the most apt to receive the loan they are requesting. Check out the great articles in this edition, authored by some of the top experts in community association finances! Oh, and if you haven’t heard, our 2020 Conference & Expo will be expanded, featuring a pre-conference day full of high-level educational classes. More to come on that in future editions of Quorum!
RAFAEL A. MARTINEZ,
CTP
Raf is the community association segment manager with Access National Bank. Rafael brings more than 10 years of industry experience in community association treasury management and lending. He is a Certified Treasury Professional (CTP), a designation earned through the Association for Financial Professional, signifying expertise in capital and risk management. He earned a B.A. in economics at George Mason University, is a U.S. Army veteran, and has been involved in Washington Metropolitan Chapter Community Association Institute for more than eight years, including serving on the board of directors. SEPTEMBER 2019
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CHAPTER NEWS
C H A P T E R
B E N E F A C T O R
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facilities are complex; successful management of these losses needs to be done by a company with significant resources and expertise. That company is Paul Davis Restoration. You can depend on our commercial services division to respond quickly and handle all cleanup and restoration with minimal interruption. To help you prepare for the future, we also provide disaster planning services. Whether it’s water, fire, smoke, or mold damage, Paul Davis Restoration offers 24/7 restoration and reconstruction services for your business. If your business has experienced damage and you don’t know what to do, you can always trust Paul Davis. Why Paul Davis? Paul Davis is the one property restoration company in the DC Metro area that offers one point of contact for everything that pertains to your commercial restoration, including disaster planning, training, emergency services mitigation, restoration, contents cleaning, reconstruction and insurance claims assistance. With Paul Davis you will experience cost savings, streamlined catastrophe response, and minimized disruption. Contacts: Max Lee, Max.Lee@pauldavis.com
Article Submissions:
Are you interested in sharing your experiences and expertise with our readers? Quorum magazine is always seeking new article ideas, submissions, and content. If you have an idea or would like to submit an article for consideration, please make sure you contact us before you begin writing to see what our upcoming themes are. Questions and interests should be directed to Morgan Wright at publications@caidc.org or by phone at 703.750.3644. Advertising:
For advertising, availability, rates, and specifications, please contact Morgan Wright at publications@caidc.org. Targeted advertising in WMCCAI’s Quorum, opens the door to thousands of prospective customers and contacts in the community association industry. 6 | QUORUM
CHAPTER NEWS
Welcome New Members WMCCAI proudly welcomes the following members who joined the chapter in July 2019. Homeowner Leaders from the Following Associations 4600 Connecticut Avenue Condominium Cardinal Forest Condominium Unit Owners Association Chelsea Heights Homeowners Association Daventry Community Association Four Seasons at Historic Virginia Kensington Crossing Homeowners Association Midtown Alexandria Station Mosby’s Landing Providence Square Condominium Salem Fields Community Association Skyline House Owners Association, Inc. Southbridge Community Association The Nelson Condominium The Parks at Piedmont Homeowners Association Windsor Green Homeowners Association Individual Managers Brittany Byrd, Community Management Corporation, AAMC Morgan A. Carper, Community Management Corporation, AAMC Vanessa M. Castillo Celine C. Collaguazo, Community Management Corporation, AAMC Tanya M. Eldridge, Community Management Corporation, AAMC Eida Keshani, SL Hinson Associates, LLLP Alysha Lustre, Jeffrey Charles & Associates, Inc. Stefany Medrano, Community Management Corporation, AAMC Carmen C. Menendez, Legum & Norman, Inc., AAMC Kenny Nguyen, Gates Hudson Community Management, AAMC Joseph Perry, Jr., Greenbelt Homes, Inc. Ron Rector, Ashburn Village Community Association Steve Shaw, Community Management Corporation, AAMC Angela L. Weed Brooke Wilkins, Community Management Corporation, AAMC Management Company WTS International, Inc. Business Partner Consolidated Waterproofing Contractors Multi-Chapter Business Partners Connie Phillips Insurance/Financial Louisiana Pacific Corp Xfinity Communities
Prince George’s County Commission on Common Ownership Communities presents
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Join the Commission on Common Ownership Communities for the homeowners conference of the year! You’ll discover residential life in a common ownership community. Register online at http://bit.ly/COCB2B2019. For more information, call (301) 952-4729.
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SEPTEMBER 2019
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UPCOMING EVENTS
SEPTEMBER 5
WEBINAR: Transparency, Respect & Organization 10 – 11 a.m. ONLINE
Managers: Are you looking for ways to assist your board members with holding successful Board meetings? Get expert advice from a seasoned manager and an attorney to help your board be more productive and efficient in this interactive session. This session is worth (1) one credit hour. Visit www.caidc.org to register.
SEPTEMBER 6
CMCA Exam Study Group 10 a.m. – 2 p.m. CAI National Office 6402 Arlington Blvd.,7th Floor, Falls Church, VA 22042
Back by popular demand! Take the fear and anxiety out of taking the CMCA exam. Become familiar with the structure and content of the test in this interactive study session tailor made for managers and administrators pursuing the CMCA designation. Participants will be guided by a panel of professionals representing each of the knowledge areas covered in the exam. Visit www.caidc.org for full details or to register online.
SEPTEMBER 17
Manager Brunch & Business Showcase: Strategies for Curing Dysfunctional Boards 10 a.m. – 1 p.m. Marriott Fairview Park 3111 Fairview Park Drive, Falls Church, VA 22042
Do your board meetings last well into the night? Are action items tabled month after month? Are board members argumentative and disrespectful to each other? Are they looking to you for help? Find out how to help your dysfunctional board get back on track. Join Brendan Bunn, ESQ., Chadwick, Washington, Moriarty, Elmore & Bunn, P.C. for an interactive session that will enable you to identify the causes for the dysfunction and develop corresponding strategies to effectively address them. The seminar with be preceded by breakfast and a business showcase. Visit www.caidc.org to register.
SEPTEMBER 25
Member Benefits Orientation 4 – 6 p.m. WMCCAI Chapter Office 7600 Leesburg Pike, Suite 100 West, Falls Church, VA 22043
Are you a new or existing member? Or, are you considering joining Washington Metropolitan Chapter Community Associations Institute? Please join us as we discuss the benefits of CAI membership, available education sessions, marketing and networking opportunities to successfully grow your business, and more. The orientation is free, but registration is required. Please visit www.caidc.org for more information or to register online.
OCTOBER 11
2019 Golf Classic & Cornhole Tournament 8:30 a.m. – 6 p.m. Westfields Golf Club 13940 Balmoral Greens Ave, Clifton, VA 20124
Grab your clubs and join your WMCCAI colleagues for a day of golf at Westfields Golf Club. Spend the day on this popular and challenging course, win door prizes and enjoy food and festivities. Not a golfer? Join us for the cornhole tournament and the awards networking reception! Visit www.caidc.org to register. Sponsorship opportunities available.
OCTOBER 18
WEBINAR: How Safe Is Your Building’s Electrical System? 10 – 11 a.m. ONLINE
Aging Electrical Systems must be addressed by the Association regardless of who is responsible for the wiring. Associations should plan for the replacement/upgrading of obsolete wiring and electric panels not only for the common areas but the individual units. Join Staci Gelfound, AMS, PCAM, with Association Integrated Management Services, LLC as she walks you through the steps to make sure your building’s electrical system is up to date. This session is worth (1) one credit hour. Visit www.caidc.org to register.
NOVEMBER 16
Annual Awards Celebration – Fire & Ice 6 – 11 p.m. Marriott Fairview Park 3111 Fairview Park Drive, Falls Church, VA 22042
Join us for an evening of fiery fun and cool appreciation for the Chapter’s 2019 volunteer achievements. Our Annual Awards Celebration is Fire & Ice, bringing together elements of hot and cold. Enjoy the extremes as they tantalize your senses. Do you sizzle or are you cool? Visit www.caidc.org for more details, or to register online. Sponsorship opportunities available.
For more information on WMCCAI meetings or upcoming events, contact the chapter office at (703) 750-3644, email info@caidc.org or visit www.caidc.org.
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PEOPLE & PLACES
FirstService Residential Announces Executive Level Reorganization, Promotion of Trent Harrison FirstService Residential has announced their most recent changes in executive leadership structure in its East region. They are happy to share Trent Harrison’s promotion to President of the MidAtlantic region. The following markets now fall under Harrison’s purview: Washington and West Virginia. “This announcement is what I consider to be the capstone in accomplishing our long-term goal of bringing together these markets and solidifying a true ‘one team’ mentality,” said Michael Mendillo, president of FirstService Residential. “Trent’s entrepreneurial spirit, as well as his knowledge and ability to live the culture of FirstService Residential, will serve him well as he unifies our teams to achieve common goals. They will deliver increased alignment, streamlined decision making and continued execution of best practices.” Harrison started with FirstService Residential in 2009 when they acquired his company, Trenton Property Services, Inc. of Bel Air, Maryland. He brings over 25 years of experience in all facets of residential and commercial real estate management to this role. Trent Harrison will report directly to Michael Mendillo. Bob Teeling, senior vice president, and Arthur Dubin, president, Silver Spring, Maryland will now report to Harrison.
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SEPTEMBER 2019
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By Michelle Baldry, PE, PRA, RS Michelle is the regional executive director of Reserve Advisors, Inc. with more than nine years of experience in serving community associations with comprehensive reserves studies. She is responsible for the implementation of corporate objectives related to business development, client services, development of staff and maintaining operations throughout the Northeast region. Michelle holds her RS and PRA designations and is a professional engineer. Responsible for developing client relationships and identifying new business opportunities, she is a frequent speaker at various Community Associations Institute events and other industry related seminars.
UNDERSTANDING AND UTILIZING YOUR
RESERVE STUDY TO ENSURE LONG-TERM SUCCESS
I
t is estimated that more than 3.1 million residents in Maryland, the District of Columbia and Virginia reside in community associations. According to Community Associations Institute’s latest statistical review, these residents are represented by roughly 17,000 community associations. As the community association living space continues to evolve so does the way they are managed.
Professional services are continually enhanced, offering association stakeholders the most effective tools to proactively manage their property for years to come.
What is a Reserve Study? A reserve study determines how much to collect in annual reserve contributions so a
Board of Directors can afford capital projects when they are needed. The reserve study is made up of two parts, as defined by Community Associations Institute (CAI) and the Association of Professional Reserve Analysts (APRA): the Physical Analysis and the Financial Analysis of common elements. The Physical Analysis comprises three elements: 1. Component Inventory (identification of the common elements and their quantities); 2. Condition Assessment (evaluation of the current condition of each component based on the observation of the engineer or reported characteristics); 3. Life and Valuation Estimates (the engineer’s team determines a finite useful life, the remaining useful life, or better stated, how much longer it will last before needing replacement, and the anticipated future cost of repair or replacement for each component). The Financial Analysis has two components: 1. Fund Status. That’s the current amount of money in reserves when the engineer conducts the reserve study. It will be as of a specific date, often times the beginning of the fiscal year for the association. This is the starting point for the engineer as he or she develops the funding plan. 2. Funding Plan. This is the plan that assesses the unit or homeowners monies that go
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Annual Contributors Fund Status
Reserve Funding Plan
Recommended Contributors
Cash Flow Analysis
Scenic Ridge Association • Madison, USA Reserves at Beginning of Year (Note 1) Total Recommended Reserve Contributions (Note 2) Plus Estimated Interest Earned, During Year (Note 3) Less Anticipated Expenditures, By Year Anticipated Reserves and Year End
into the association’s reserve account to offset the anticipated future expenditures, allowing the community to pay for those capital projects as they become necessary. The funding plan goes out a minimum of 20 years into the future, and more commonly, are developed as 30-year forecasts.
What Do You Receive with Your Reserve Study? A standard reserve study comprises two deliverables; the report (including executive summary, expenditures table, funding plan and component specific narratives) and excel spreadsheets; each of which serve different purposes. The Executive Summary contains high level details, or better put, a 10,000 ft view of the association’s current reserve fund status and long-term funding needs. It commonly includes a table of annual contributions along with anticipated expenditures and year-end reserve balances. Furthermore, it highlights near-term major projects. Distribution of this document typically includes homeowners, realtors and prospective buyers as it communicates the association’s path to maintaining the owners’ largest investment...their homes.
FY2019 467,289 92,000 6,159 0 $565,448
2020 565,448 95,500 7,051 (51,250) $616,749
2021 616,749 99,000 7,680 (52,531) $670,898
2022 670,898 102,500 8,323 (57,075) $724,646
The Expenditure Table provides a detailed component inventory with a prioritized replacement schedule including itemized costs. Having the entire component inventory and future events all in one place provides stakeholders with a complete picture of both nearand-long-term capital expenditures. The Funding Plan serves as the financial roadmap to offset the capital expenditures outlined in the expenditures table. The Reserve Specialist recommends annual reserve contributions that provide a path to adequately funded reserves. The Narratives comprise component specific details geared towards educating stakeholders on the condition of and best practices for maintaining and replacing each element, empowering the Board of Directors to make the most informed decisions in the future (repair vs replace, implementation of maintenance practices, use of alternate materials, photographic documentation of conditions that justify professional recommendations, etc.). Excel™ Spreadsheets is a dynamic tool that offers the ability to manage replacement schedules and related costs, as well as annual reserve contributions as they occur. Have projects been accelerated or deferred over time? Was a project completed under or over budget as a result of a variance in unit price? Excel allows stakeholders to keep replacement schedules current over time. Continued on page 14
Reserve Expenditures Scenic Ridge Association
Quantities
Line Item
Total Quantity
Per Phase Quantity
Madison, USA
Units
Component Inventory
Reserve Component Inventory
1st Year of Replacement Estimated 1st Year of Events
4,500 75 975 130 9,000 37,500 75,000 75
1,500 75 488 65 4,500 37,500 25,000 25
Square Feet Each Squares Squares Linear Feet Square Feet Square Feet Units
Balconies, Composite Light Fixtures Roofs, Asphalt Shingles, Phased Roofs, Flat, Phased Sealants, Windows and Doors, Phased Walls, Masonry, Inspection and Repairs Walls, Stucco, Paint Finishes and Capital Repairs Walls, Trim Soffits and Fascia, Paint Finishes
Life Analysis Years Useful
Exterior Building Elements 1.040 1.260 1.280 1.400 1.540 1.820 1.860 1.910
Life and Valuation Estimates
2025 2031 2023 2023 2023 2025 2020 2020
20 to 25 to 20 15 to 20 15 to 20 to 20 8 to 12 8 to 10 4 to 6
Remaining 6 to 8 12 4 to 5 4 to 5 4 to 14 6 1 to 3 1 to 3
Cost, $ Unit (2019) 30.00 100.00 425.00 1,000.00 2.50 0.80 1.50 500.00
Per Phase (2019) 52,500 7,500 207,188 65,000 11,250 30,000 37,500 12,500
Total (2019) 157,500 7,500 414,375 130,000 22,500 30,000 112,500 37,500
30-Year Total (Inflated) 509,630 10,087 1,221,969 383,363 48,662 136,335 463,265 329,137 SEPTEMBER 2019
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• A properly funded association can generally expect consistent annual reserve contributions with inflationary adjustments over time.
The reserve study report and excel spreadsheets provide the tools necessary to understand an association’s current physical and financial condition. Furthermore, it provides a roadmap to properly maintain the property through properly funded reserves, while allowing stakeholders to enhance future projected expenditures and subsequent funding needs.
• Overfunded associations likely experience annual reserve contributions that are relatively flat, or in extreme cases, decreased for several years. • Underfunded associations generally experience stepped increases (i.e. $15,000 annual increases for x years, which are designed to get funding back on track) followed by inflationary adjustments thereafter. In extreme cases associations may see contributions double (or more) than that of their current budgeted amounts.
Understanding a Reserve Study’s Financial Story
To comprehend current fund status and to effectively communicate the recommended funding plan, one must understand the purpose of reserve funds. As previously stated, the purpose of establishing and maintaining adequate reserve funds is to ensure an association can afford Recommended Reserve Funding Table capital projects when they are needed. Reserve Reserve Reserve Year Year Furthermore, the reserve study aims to Contributions ($) Balances ($) Contributions ($) minimize the risk of additional financial 2020 95,000 616,749 2030 126,900 2021 99,000 670,898 2031 130,100 assessments as the community ages. This 2022 102,500 724,646 2032 133,400 understanding is also critical to develop2023 106,000 515,245 2033 136,700 ing a comprehensive annual budget and 2024 109,500 275,912 2034 140,100 maintaining the physical condition of 2025 112,200 166,436 2035 143,600 2026 115,000 64,302 2036 147,200 common property. It is critical to review the reserve study’s funding plan as the recommendations for the next several years speaks to an association’s financial status.
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2027 2028 2029
117,900 120,800 123,800
104,010 67,853 88,431
2037 2038 2039
150,900 154,700 158,600
Reserve Balances ($)
Year
Reserve Contributions ($)
Reserve Balances ($)
151,156 206,055 273,390 314,698 318,143 466,709 601,259 735,959 763,718 928,536
2040 2041 2042 2043 2044 2045 2046 2047 2048 2049
162,600 166,700 170,900 175,200 179,600 184,100 188,700 193,400 198,200 203,200
1,018,771 1,112,101 1,208,611 853,607 461,718 383,057 320,156 388,008 295,603 236,920
Critical Year - 2026 Reserve Balance $64,302
6/15/19 2:00 AM
The above scenario can only be properly assessed with the assistance of a current reserve study. Without one, the association does not know what truly awaits around the corner in terms of replacement projects and associated costs. Furthermore, the lack of a current reserve study marginalizes one’s ability to sufficiently address potential shortfalls to ensure the association has a clearly defined path to achieve long-term success. Associations that lack long-term planning and those that do not execute on an appropriate funding strategy (one that is in line with the reserve study) will almost certainly end up short on reserve funds at some point in time. Without sufficient reserves, associations are faced with two decisions; 1) Defer replacement, some of which may be critical, or 2) Increase cash-flow to cover the cost of a particular project. 1. Deferred replacement is a common choice amongst those facing a shortage of reserve funds. If the funding gap is small, the deferred project is non-critical (aesthetic items such as pool furniture, common area carpeting, etc.) and the association has a short-term plan to improve funding levels, then the deferral is likely not a critical issue. However, time and time again, many associations in this position often face significant reserve shortages during years of relatively significant expenses, often times leading to postponement of critical projects, and resulting in accelerated deterioration and potential safety concerns. 2. Special assessments are very burdensome to homeowners. This option puts financial strain on residents, especially those with fixed incomes. Depending on the volume of assessments needed, it is likely that the additional assessments will span across several years. 3. Bank loans do not require immediate contributions from homeowners. However, they have the added expense of interest. Homeowners certainly have more time to assess and adjust their personal finances unlike that of special assessments, but that convenience comes at a cost. The above options simply address near-term funding shortages. However, these ‘band-aid’ type fixes only address the symptoms of insufficient reserves, not the real problem….. a lack of establishing adequate reserves moving forward. A reserve study is an essential tool to guide the Board of Directors has a clearly defined path to establishing adequate reserve funds well into the future.
1400 1200 1000
Recommended Reserve Contributions
Near-Term Peak Reserve Balance $724,645
Reserve Expenditures Year-End Reserve Balances
800 600 $ Thousands
A common scenario amongst associations is assuming their funding status is “healthy” due to its high balance. For example, “we have $600,000 in the bank and minimal expenditures. As such we do not need to increase annual reserve contributions for several years”. Without a current reserve study, the reserve balance is not necessarily a clear indication of overall financial health. Are critical projects being deferred? Does the association have a clear understanding of both near-and-long-term replacement needs? In the chart below, year-end reserve balances are projected to peak at $724,646 followed by more than $1,350,000 of major projects over the next six years. Ignoring inflationary increases would result in a $120,000 reserve shortage by 2028.
Critical Year - 2026 Reserve Balance $64,302
400 200 0 -200 -400 -600 -800 019 FY2
2
202
5
202
8
202
1
203
4
203
4
203
7 203
204
0
3
204
3
204
204
6
204
9
Years
Utilizing your Reserve Study to Achieve Long-Term Success Long-term success of a community association is measured by its ability to operate much like a successful business. The association must be fiscally responsible, able to invest in itself (maintain common elements) and improve the value of the organization as a whole. Although the reserve study is a professional recommendation, it is a snapshot in time. Over time, priorities and project needs change but one thing remains constant: the need to have adequately funded reserves. The most successful associations utilize their reserve studies as a starting point and continually assess changing needs to attain continued and long-term success. But what does this process look like? In short it means keeping the schedule of expenditures and funding plan current and addressing any potential financial shortcomings in their infancy. What might seem challenging is actually quite simple with the right tools. Engagement is key. Prior to budget season the reserve study should be updated. Minor adjustments can easily be handled internally via excel spreadsheets (whereas complex changes might indicate the need for an updated reserve study). Begin with updating the current year’s expenditures and reserve contributions. Next, review each deferred project and determine if it needs to be completed in the upcoming year. Update the timing of any deferred expenditures accordingly. Once this is complete the updated expenditure tables and funding plan can guide next year’s budget process. Furthermore, updated numbers enable one to evaluate changing needs over time and address potential year-end reserve shortages years in advance. Keeping the schedule of expenditures and funding plan current provides management and the Board of Directors with the most complete picture of the association’s near-term project needs and long-term financial status. Surely most associations will, at some point in the future, find themselves deferring projects and/ or not meeting their reserve studies recommended level of reserve contributions. Ultimately, their success is measured by the ability to weather such differences while adjusting the long-term funding strategy to ensure reserves are adequately funded and common property is maintained in excellent condition for decades to come. SEPTEMBER 2019
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By Wil Washington, ESQ.
By Lauren Ritter, ESQ.
Wil Washington is a principal and founding member the law firm of Chadwick, Washington, Moriarty, Elmore & Bunn, P.C. He is a past president of the Washington Metropolitan Chapter of the Community Associations Institute and a member of the College of Community Association Lawyers.
Lauren is an associate attorney at Chadwick, Washington, Moriarty, Elmore & Bunn, P.C. Her practice is devoted to community association representation, particularly matters involving covenant interpretation and enforcement and collections. She is an active member of the WMCCAI Public Outreach and Membership Committees.
Virginia, Maryland and D.C.
M
ost associations are required to accumulate reasonable reserves to fund capital repairs. All associations should ensure that they are devoting enough resources to fund needed reserves. Community associations can determine what amount is required to properly fund their reserves by conducting what is known as a “reserve study.”
A reserve study will analyze the community’s capital components, as well as its reserve fund status, to determine the amount of cash the association should have in its reserves.
studies. The Condominium Act1 and Property Owners’ Association Act2 require associations to have a reserve study conducted at least once every five years “to determine the necessity and amount of reserves required to repair, replace and restore the capital components.” Both Acts require the Board to review the results of their most recent study at least once each year to determine whether the reserves are sufficient. Virginia reserve laws also require Boards to make any adjustments
they deem necessary to maintain adequate reserve funds. Virginia also requires condominium and homeowners associations to include information from the reserve study in their budgets so that owners are aware of the state of the association’s reserve funding relative to the condition of its capital components. Virginia requires information to be included in an association’s budget regarding the
Below, we will address the reserve study laws in Virginia, Maryland, and the District of Columbia.
Virginia In Virginia, condominiums and homeowners associations generally must have reserve 1 Virginia Code § 55-79.83:1 (2019). 2 Virginia Code § 55-514.1 (2019).
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current estimated replacement cost, estimated remaining life, and estimated useful life of the capital components. Both Acts also require the amount of accumulated cash reserves currently set aside and the amount of the expected contribution to the reserves fund for that fiscal year to be included as line items in the annual budget. Additional required information includes a statement describing the procedure for estimating the reserve amounts. This year the Virginia legislature also requires associations to include a statement of the amount of reserves recommended in its reserve study, as well as the amount of current cash for replacement reserves in its budget. Effective October 1, 2019, Virginia expressly defines “capital components” to mean “those items, whether or not a part of the common area [or common elements], for which the association has the obligation for repair, replacement, or restoration and for which the board of directors determines funding is necessary.” In addition, new legislation effective as of July 1, 2019 requires the Virginia Common Interest Community Board (“CICB”) to establish guidelines for the development of reserve studies for capital components, including creating a list of capital components that should typically be addressed in a reserve study. Virginia law also requires that a copy of an association’s most recent reserve study be in the association’s disclosure packet.
to do so by Maryland’s associations will generate greater demand for legislation requiring reserve studies.
District of Columbia Like many other states, the District of Columbia has not adopted any specific statutes related to reserve studies. The District of Columbia Condominium Act5 states that a condominium association may adopt and amend budgets for reserves and assess and impose funds for common expenses; however, there is no requirement that the budget include a reserve study informing an appropriate amount for reserves. Nonetheless, DC does require condominium associations to include a statement of the status and amount of reserves on hand in its resale certificates. For Maryland, the District of Columbia, and many other states without specific statutes requiring reserve studies, it is the common industry practice to perform periodic reserve studies so that the association’s board can establish an appropriate capital replacement budget to ensure that the association is devoting sufficient resources to provide for major repairs and replacements over the long haul. Associations should not wait for the law to require them to do what is ultimately in the best interest of the association’s future.
Maryland Although replacement reserves were among the condominium and homeowners association topics considered by the Maryland legislature during the 2019 legislative session and it is expected to be a topic that will be introduced again in 2020, Maryland has not yet adopted any specific statutes related to reserve studies. Currently, the Maryland Homeowners Association Act and Maryland Condominium Act4 both require that reserves be included in an association’s annual budget. Although the annual budget is required to provide for reserves, there is no statutory guidance requiring a specific level of reserve funding. There are no other statutory reserve requirements or mandated timeframes to conduct reserve studies. However, the MD Condominium Act does require associations to provide “the current reserve study report or a summary of the report, a statement of the status and amount of any reserve or replacement fund, or a statement that there is no reserve fund” with resale disclosure certificates. Prudence dictates that associations should plan and budget for needed maintenance, repair and replacement of its capital components, which usually entails having a reserve study to inform the association’s budgeting decisions. Failure 3
3 MD Real Prop Code § 11B-112.2 (2015). 4 MD Real Prop Code § 11-109.2 (2015). 5 D.C. Code Ann. § 42-1903.08 (2014).
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| 17
By Don Plank, PCAM Don holds a PCAM® designation from CAI and managed community associations for 9 years before assuming his current position as Vice President of Association Banking Services at National Cooperative Bank. Don is involved in multiple CAI chapters in DC, MD and VA.
READING
101
FINANCIAL STATEMENTS
S
o, you’ve been emailed that packet of financial information for your association containing pages upon pages of numbers, abbreviations, codes, columns and heart-stopping terms such as liabilities, debit and credit. The thought crosses your mind that the only real liability might just be the fact you volunteered to be on your board. If this describes you, read on. You won’t leave understanding all things financial, but you will have a much better idea of what to review and pay attention to in that thick packet of information.
First, understand there are five main sections in a typical financial report. They are: • Balance Sheet • Profit & Loss Statement (you may see other names such as Income Statement) • General Ledger (also known as Trial Balance) • Delinquency Report (also called Aging or Arrears report) • Bank Reconciliation
Below is a very basic review of each of the sections.
Balance Sheet The balance sheet gives a snapshot of the financial condition of your community at any one time. Most times, that is month-end. The numbers on this report are cumulative in most cases meaning they don’t go back to just the beginning of your fiscal year but represent balances since the beginning of the association. You will see some version of the following on this report: Assets Represents things owned by the association. Main items to review are: • Cash & Cash Equivalents section. This is all the cash you have and includes your checking account, money market(s) and CD’s. • Accounts Receivable. This is what members owe to the association (delinquent owners) and will match the total on the delinquency report. Monitor closely.
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Liabilities and Equity This section of the balance sheet shows things the association owes to others as well as the association’s equity (net worth). You will likely see the following: • Prepaid Assessments. This shows assessments paid before they are due. Big number? Great! It means owners are paying early. • Accrued Expenses. If you have this line item, it just means there is an expense that has not yet been paid. If it is a large number or it keeps going up (meaning more
expenses haven’t been paid), ask your manager about it. There could be a good reason for it such as insurance premiums, utilities that are not paid on a monthly basis or a large project payment is pending. • Reserve Funds/Retained Earnings/Etc. This represents the association’s net worth but often shows up on different line items. This can be very confusing. Regardless of the amount shown under reserves, you can never have more in actual reserves than the cash balance shown on the asset side of the balance sheet. The main thing to check is what should be in your reserve fund and the amount you actually have in cash. If the cash total shown under Assets is less than the reserve fund total, that simply means the association didn’t actually place cash into the reserve account. Maybe it was due to that huge snow removal bill a couple of years ago. Bills have to be paid and boards sometimes forget to make up for “robbing” the cash intended for the reserve accounts. Also of note here, you will often see Retained Earnings or Capital/Current Income. The difference between these is that Retained Earnings will show you your net surplus or deficit over the life of the association while the Capital/Current Income will be your surplus or deficit for the current fiscal year,
Profit & Loss Statement This report shows you how your association is doing for the current period as well as year to date. Don’t let all the columns on this report confuse you. Most reports have some version of the following: Current Period Actual – Shows income and expenses for the current period (usually the current month).
General Repairs & Expenses are way over the monthly budgeted amount. Maybe there is a legitimate reason – unplanned boiler expenses, etc. Variances are a check to see if the numbers make sense. Ask questions if they don’t. Net Income • The line item at the bottom of this report will show either a positive or negative number. Positive = good. Negative? Why? Maybe there’s a good reason but maybe it means tightening the association’s belt on discretionary spending items.
General Ledger Think of the general ledger as your checkbook register. Every financial transaction the association has is recorded somewhere in the general ledger. It is a great report to use when you have questions about something you see on the balance sheet or profit and loss statement. Here is a quick example. General Repairs & Maintenance • This is a very common expense category on a profit and loss statement. Find it on one of your recent reports. The number shown on the profit and loss statement doesn’t give any detail on what the expenses were. It just gives a total. Now go digging in the General Ledger report and find the General Repairs and Maintenance line item. Under that title, you will see all the individual invoice amounts that went into that one number shown on the Profit & Continued on page 20
Budget – Shows what income and expenses should have been for the current period. Often this is calculated by dividing the annual budget by 12. Variance – Simply shows the difference between Actual and Budgeted amounts. Year to Date This section repeats the exact same thing as the Current Period. It just shows it on a year to date basis. Annual Budget On the far right of the report, there is usually a column which shows the annual budget. This is very helpful to review throughout the year. Things to Check Variances • Check both the Current Period and Year-to-Date variance columns.
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• Large numbers (“large” means different things depending on your budget size) deserve scrutiny as this means the amount varies from what the budget projected. • Remember, variances can be good or bad. For example, maybe SEPTEMBER 2019
| 19
Loss Statement. Quick tip: Use the GL account numbers to the side of the line items to find things faster. Accounting software assigns an account code to each balance sheet and income/expense line item and you can use these numbers to quickly find a particular line item in the general ledger.
Delinquency Report The delinquency report is a must review item and shows a listing of all owners who have not paid their assessments. The grand total matches the Accounts Receivable line item on the balance sheet. Most accounting reports will break the assessments into Current, Over 30, Over 60, Over 90 columns. Watch these columns closely as they reflect the age of an owner’s delinquent assessments. The older a delinquency, the harder it is to collect. Follow your collection policy, make sure you are sending out late notices and turn accounts over for collection in a timely manner. Your management company will likely report delinquencies as a percentage. You
can do the calculation on your own as well. Simply take the total assessment delinquency amount and divide by the annual assessments. The total annual assessment amount can be found in the Annual Budget column on the Profit and Loss Statement. Auditors often prefer this amount to be in the 3%-5% range or less. Review monthly. Assessments are the lifeblood of your association.
Bank Reconciliation Report This report simply “balances” the checkbook. Reconciliation reports are typically done for any checking and money market accounts. The report should accompany a copy of the actual bank statement. If you don’t see the report or relevant bank statement, ask for it. As a board member, you are ultimately responsible for all funds so be sure to do your due diligence. Just as in your personal life, the bank statement balance is unlikely to match the balance shown on the balance sheet. This is due to outstanding deposits or checks. The reconciliation report simply takes the bank
statement balance and then adds or subtracts any outstanding deposits or checks recorded in the accounting software to arrive at an “adjusted balance.” That number should match what is shown on the asset side of the balance sheet. If not, ask why.
Summary So, there you have it. The non-scary version of your monthly financial packet. Obviously, as any seasoned Treasurer already knows, this is a very, very basic presentation of reading financial statements. We didn’t even talk about accounting methods – cash versus modified accrual, etc. That’s perfectly fine. You don’t have to understand everything in order to check the basics of your financial statements. Doing a little is better than nothing. Start small and build from there. Search for an in-person class to attend (www.caidc.org) or ask your management company to do a board session on reading financial statements. It will be well worth your time. Understanding association financials is key to guiding and keeping your association on a solid financial footing.
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| 21
By Richard Kuziomko, MBA, CMCA, AMS, PCAM Richard is the General Manager of The Kenwood Condominium in Bethesda, Maryland and the President of the River Creek Owners Association in Loudoun County, Virginia. He has been an active writer, speaker and lecturer at various WMCCAI forums and member of both the Education and Quorum Committees.
Financials
What Boards Should Look At
A
ssociation financials often seem to be or are presented as complex. Yet from a board perspective there are only a few things that need to be monitored closely from month-to-month. If anyone has the inclination or time they can dig into the details, but they may want to concentrate on just the relevant items. The financial package as prepared by the treasurer or the financial management company is typically 50 pages long. It includes the balance sheet, statement of in-
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come, general ledger, bank reconciliations, check register and maybe other statements. Only the balance sheet and statement of income need be looked at closely. The other information is backup and can be referred to for more information if desired.
Boards want to know how much money is available. Generally, cash accounts and reserves should be about the same or increased from the month before. If there is a significant change in either of these, this will indicate something happened and an explanation is necessary.
The balance sheet is by far the most important. It is a snapshot in time and tells you the financial status of the association. The balance sheet should show the last month and the current month for comparison.
15/07/19 1:54 PM
Next, is the accounts receivable. Again, this should be about the same from month-to-month. If there is an increase of more than a few percent, the question is why. Ask the financial provider to give you a table of what the trends in receivables are doing over the last year. This will indicate whether the accounts receivables are satisfactory or something to be concerned about.
ACCOUNTS RECEIVABLE ANNUAL TREND Mar
Feb
Jan
Dec
Nov
Oct
20,340
21,459
21,378
21,789
21,839
21,987
Sep
Aug
Jul
Jun
May
Apr
20,890
21,340
20,798
21,210
22,870
22,560
Then, glance at the rest of the balance sheet. From month- to-month most of the items should be roughly the same. The one exception will be income from operations. This should be increasing or constant. If it goes down, you will want to understand why. Look at the statement of income which describes why the income from operations went up or down. The income portion is generally static. On the expenses, you want to look at the difference between the cost for that month and the budget. A significant difference (variance) is something to question. Some costs like utilities (water, gas and electricity) can have large swings. Keep an eye on the yearto-date number and the annual budget which is usually the last column on the right. This is more relevant than any one month large movement of any one category. While verifying expenses, someone on the board should look at a printout of checks or a copy of the checks. This does not have to be in detail but a quick glance will point out payments which may be questioned. Most will be routine, but if you see payments for several dinners at Morton’s Steak House, the board should know why.
Finally, the board should be presented with two tables of information. The first is a listing of expenditures that the board has authorized and not yet paid. This will allow the board to know what is still outstanding and to judge whether other expenditures should be considered. The second table is what was paid in the current month for approved operating capital expenses or more importantly reserves. This will ensure the board knows that capital or reserve expenditures are properly accounted for.
SAMPLE EXPENDITURES FOR MONTH AND COMMITMENTS Payments
March Operating
Exhaust Fans1,6,9 Garage Sealing
15,000 3,000
Replace Fire Doors Total
Capital
12,000 3,000
27,000
Operating
Capital
Fund Commitments Leaks on South Wall Garage Cleaning
25,000 5,000
Security System Cameras
15,000
Roof Anchor Inspection
3,000
Total Approved
8,000
40,000
In summary, boards want to know or should know, how much cash is available, the level of receivables, how much of a surplus or deficit there is every month and year-to-date, and finally what projects were authorized and the balance remaining. The entire process should only take a few minutes. This will ensure that all board members are engaged in oversight and the result will be a well-functioning association.
SEPTEMBER 2019
| 23
By Jeremy Powell Jeremy Powell is a principal with Goldklang Group CPAs, P.C. Jeremy joined the firm in 1998 and is currently licensed in Virginia, Maryland and the District of Columbia.
You Received the Draft Audit Report –
What’s Next? B
eing a member of an association’s board of directors can be a rewarding experience of serving your community and making the association a better place to live for all members. As a volunteer, each board member brings their own knowledge and expertise to the association. Not all board members have financial backgrounds and the financial decisions that board members must handle can be daunting. Some of those decisions include: • Adopting budgets • Deciding whether to raise assessments • Developing a long-term replacement reserve savings program • Taking collection actions to resolve delinquent homeowner balances
Fortunately, the annual audit report is a resource which can be invaluable in assisting the board of directors in making appropriate and favorable decisions to ensure the financial stability and health of the association. The association’s independent auditor completes an examination of the financial statements and underlying supporting documentation for the purpose of expressing an opinion on whether or not there are any 24 | QUORUM
material misstatements in the association’s financial statements. Essentially, the auditors are opining that the amounts in the financial statements are reasonable and accurate, in all material respects. Once the auditor completes their examination, a draft audit report is issued for the board of directors to review and accept. Once the board receives the draft audit, all board members should read the report in its entirety. It is important to have all board members engaged in the process, because the board members have different backgrounds and points of view and this will lead to a more meaningful review process. Reviewing and understanding the audit report can be intimidating. It is important to ask questions if you do not understand something in the draft audit report. The audit report includes a significant amount of information, the terminology is very technical and unless you are specifically trained or have previous experience, accounting and auditing standards may seem like a foreign language. We created the following list of key areas that will assist the board of directors in reviewing the draft audit report: 1. Opinion Page: The board of directors should make sure there is an unmodified opinion which means that the financial statements are fairly presented. The phrase “the financial statements referred to above present fairly” should be included in the auditor’s opinion. This is good news for the association. If the opinion is modified,
make sure you understand the reason for the modification. If there is an emphasis of matter paragraph, make sure you understand the reason for this also. 2. Balance Sheet: a. Are the association’s funds maintained in FDIC insured accounts and/or are they backed by the full faith and credit of the U.S. Government? If they are not, the funds should be immediately transferred to other insured institutions. b. Does the association have adequate cash on hand to fully fund the designated replacement reserve balance and meet existing operating obligations? If not, resolve these cash flow shortages during the next budget cycle, or if a crisis exists, consider a special assessment. c. What are the association’s delinquent owner balances? Is an allowance for doubtful assessments recorded? If delinquencies are over 3% of annual assessments, this indicates that the association may be having problems with collections. The association should be reviewing the monthly delinquent account listing and working closely with legal counsel to resolve any delinquencies. The association’s ability to raise and collect sufficient funds from its members is one of the primary functions of any association.
d. Is the association’s designated replacement reserve balance sufficient to meet future expected needs? Is the association’s reserve program based on a comprehensive replacement reserve study and are the reserve study’s recommendations being followed? The association should compare its designated replacement reserve balance to the recommendations provided in the reserve study. If a deficit exists, the association should take immediate action to correct the funding shortage. This may require an increase in the general assessment and future reserve contributions or a special assessment if the shortage is too significant to make up in a relatively short period of time. Maintaining an adequate replacement reserve program is essential to the financial stability of the association. Also, the association should update the reserve study periodically, but at least every five years. e. Does the association have excess operating funds? Typically, the association should look at unappropriated members’ equity and/or the operating reserve balance, if applicable. The combined amount should not be a deficit and should be equal to 10% - 20% of annual assessments. This funding level should provide a reasonable operating cushion should the association experience an unexpected budget overage or contingency in the future. Also, these funds may be available to supplement replacement reserve funding as needed. If a deficit exists, the association should add a deficit funding expense line item in next years’ budget. 3. Statement of Income: Did the association end the year with net income or a loss? Any net income may be retained by the association and added to excess operating funds for use in subsequent years or transferred to replacement reserves. A net loss should be evaluated and the reasons for the net loss identified. This will help to ensure proper budgeting techniques moving forward and should be considered when approving next years’ assessment rates. An increase in assessment income may be necessary if the association does not have adequate excess operating funds accumulated. 4. Statement of Members’ Equity: This statement shows the replacement reserve contributions and expenditures for the year as well as any net income or loss from operations. This is a good summary page of what happened in replacement reserves and in excess operating funds for the year. Any unusual transactions should be investigated. 5. Notes to the Financial Statements: These disclosures are meant to support and further explain the association’s audited financial statements and provides relevant information about the association not contained in the financial statements themselves. The auditor drafts the notes for the association, but the board of directors can revise the notes as they are the responsibility of the association. 6. Representation Letter: This is a letter from the association to the auditors and contains certain standard wording. The representation letter needs to be reviewed by the board of directors. This letter needs to be signed by the president or treasurer and the management agent, if applicable, and returned to the auditor in order
to receive the final, signed audit report. The final audit report may be distributed to the membership, to potential owners, lending institutions, insurance underwriters or agents, etc. 7. Management Letter: The management letter is not a required communication, but rather a by-product of the audit process. This letter provides general comments as well as specific comments and recommendations about the association’s financial status and operations. Typical comments may include an analysis of the association’s key financial areas found in the audited financial statements, areas where operational improvements can be made, details about pending financial items, action items, and certain internal control matters. Often, the management letter can be looked at as a “to do list” of items that need to be followed up on as a result of the audit. The board of directors should review this letter in detail, discuss and resolve any pending items and implement changes as appropriate. 8. AU-C §260 Letter: This letter describes the audit process and lets the board of directors know if there were any disagreements with management, difficulties in conducting the audit, significant disclosures to the financial statements, significant estimates in the financial statements, or if material adjustments were proposed to the association’s financial statements. There should not be any surprises in this letter and generally there are no action items presented. 9. AU-C §265 Letter: The auditor is only required to issue this letter if control deficiencies that rise to the level of a material weakness or significant deficiency are found. The board of directors should review this letter in detail, in connection with its management company, and discuss ways to implement changes to avoid future findings and improve control procedures. The board treasurer and/or the management agent will typically take the lead during the discussion of the draft audit report at the board meeting. One individual should be designated to work closely with the auditor to address any questions or concerns and resolve any open items. The board should determine if there are any pending recommendations that the auditor has suggested and should evaluate the merits of those recommendations and develop a plan for implementation. Finally, once all pending items are resolved, board questions answered, the president or treasurer and the management agent should sign and return the representation letter to the auditor so that the final audit report can be issued. Also, at this time, the board of directors should ensure that the auditor’s proposed adjusting journal entries are recorded in the accounting records. This will ensure that the association’s financial statements are up-to-date and accurate. It is important for the board of directors to have an annual audit conducted by a firm with experience and knowledge of condominiums, homeowners associations and housing cooperatives. It is also important for the board of directors to read the audit report and understand the professional financial advice from the auditors and determine if any changes in the association’s operations need to be made. SEPTEMBER 2019
| 25
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By Iman Jackson, CMCA, AMS
Traci currently works for Gates Hudson Community Management as a portfolio manager out of their Ashburn, Virginia office. She has been in the industry for fourteen years, six years as an on-site manager and nine years as a portfolio manager. She currently holds a CMCA and AMS designation and is actively working towards her PCAM.
Iman Jackson is an advocate for integrity in all things related to real estate. Beginning her career as a real estate salesperson, she progressed to serve as Sales Manager at Prince George’s County’s only equine community. Iman moved on to work in association management starting with a condominium in D.C. Now a Community Manager for SFMC, Inc., Iman is an active member of the Washington Metropolitan Chapter Community Associations Institute serving on the Quorum Editorial and Maryland Legislative Committees.
The Haves
I
n a perfect world, every community has enough funds to cover their day-to-day operating expenses and the reserves for major projects or unexpected equipment failure. But what’s a community manager to do when an association is struggling to meet financial obligations or has too much money? Here are some ideas to get you back on track. Imagine this…you find a great house in a great neighborhood and while looking over the resale package you find out their fully funded. Say, what? How is this possible? Is it even possible? So often these days you hear about communities that aren’t fully funded or are severely underfunded, that to find the opposite is rare. What do you do when your association has a surplus of funds? The reserve study is a great tool in determining where an Association stands in terms of being funded – whether underfunded or overfunded. The study can help guide the Board and Management in determining the yearly excess of funds. This most often translates into not increasing the assessments but how do you use the funds without reducing the assessment rate? One avenue might be to add in amenities where there were none, such as a playground, irrigation system or an outdoor entertainment area. Adding amenities allows for the use of excess funds while not increasing the dues and adding hardships onto the homeowners. Communities with large areas of woodlands could benefit from having an
& The Have Nots… Arborist on retainer, allowing for quicker resolution of tree problems. Associations with existing amenities might consider expanding on them. For mid-rise or high-rise buildings, the board could consider adding in more personalized porter services, part time or full-time staff, or complementary afterhours lock out service. In contrast, there are ways to trim the fat without significantly impacting residents. Consider cutting back on office supplies, limiting overtime for staff members and contact your phone service provider to determine if the association qualifies for a cost-saving bundle package. Be sure to identify all phone lines dedicated to the life safety system and elevators prior to disconnection. Your vendors want to keep your business. You might be able to negotiate a modification to the janitorial or waste management contract to curtail costs until the association’s financial situation stabilizes. There are plenty of creative ways to bring additional revenue to your association. Laundry income is by far the most popular. Many laundry contracts provide the association with monthly revenue based on usage. If your community does not have shared laundry, vending machines, cell phone towers and billboard space rentals are possible alternatives to add to your income. Comparison shop these services and present the options to the Board in a comprehensive table or spreadsheet to aid in the decision-making process.
Special assessments are often perceived with a negative connotation. Many boards shy away from using the words “special” and “assessment” in the same sentence for fear of a mutiny. Remember this tool is included in your governing documents to safeguard the association’s assets. Consult with your management team and legal counsel on how to properly approve a special assessment. It is likely that payments can be spread out over several months to lessen the blow to unsuspecting homeowners. Communicate to owners why the special assessment is necessary. In addition, provide an action plan to prevent future fiscal instability to neutralize the critics. There are several lending institutions that specialize in community association funding. Typically, financial reports, audits and governing documents will be requested while the loan is in consideration. Obtaining a loan is a great way to defer the financial impact of a big-ticket replacement item such as a cooling tower. The Association can make incremental loan payments over the course of a few years and can build the payment into the upcoming budget. When you envision yourself addressing the Board and owners with the tough news of “We have to spend the money,” or “So we’re broke,” be prepared with solutions. To correct these problems, investigate your ideas thoroughly. Remember that the Community Associations Institute provides a plethora of resources for managers and community leaders! SEPTEMBER 2019
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SATURDAY, NOVEMBER 16, 2019 | 6:00 - 11:00 PM FAIRVIEW PARK MARRIOTT |
Schedule 6:00 p.m. 6:30 p.m. 7:00 p.m. 11:00 p.m.
Registration Opens Awards Begin Reception Begins Event Ends
How to Register
Visit www.caidc.org to register and for hotel accommodations.
3111 Fairview Park Drive, Falls Church, VA 22042
Sponsors Platinum
Awards Power Systems Electric Corporation Ceremony FirstService Residential Drink Tickets USI Insurance
Sponsorships still available! Please contact events@caidc.org for more information, or visit www.caidc.org.
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7600 Leesburg Pike, Suite 100, West, Falls Church, VA 22043 P: (703) 750-3644 | F: (703) 941-1740 | email: events@caidc.org | www.caidc.org
By George J. Ellis, III, CMCA, AMS, PCAM George is the majority owner of SFMC, Inc., an AAMC. Based in Northern Virginia, SFMC, Inc. has been providing management services to clients in the greater Washington metropolitan area since 1996. Involved in community associations since 1988, George has experience in all areas of physical and financial management of community associations, recreation associations and active adult communities.
BUDGET PREPARATION:
A Way of Life
L
ast year, soon after a manager finalized the draft budget for a mid-sized HOA, it was adopted uneventfully and put into play for this current 2019 fiscal year. The budget plan came together rather easily because the manager was prepared. Maintaining an organized assembly of documents is important to support each and every line item in the preparation of a budget. To prepare for this budget, the manager assembled and reviewed the financial reports, invoices and expense histories, the reserve study, contracts, insurance policies, changes in the state law and how the governing documents played a role in the budget. A regular review of the documents, contracts and professional studies help bring clarity to the common area maintenance needs and the consequences of inaction, so the annual exercise is certainly worthy. This routine has been repeated annually and helps the decision makers get support for current, and future, budgets. It is important to note here that this manager always seems to know what’s going on and this board of directors always seems to be proud of their community! Using Excel, it took very little time for the manager to put together the draft budget presentation. More on that later. The time committed thoughtfully going over the contracts, the professional studies, the financial condition of the association and maintaining good relationships with fellow professionals,
owners and decision makers is much more, in fact a lifetime. The ever-mindful community association manager is strongly familiar with the community and remains so by providing insight to the ongoing ebbs and flows of the business. A business tends to flourish when the decision makers compare actual results to the budget plan in a timely manner. When you tell the board why particular budget line items are way-on or way-off, you help maintain familiarity with the current budget and the budgets overall purpose. Are the grounds contract invoices matching up with the amount the decision makers planned to spend? Is actual assessment income the amount the decision makers thought it would be? Did changes in state statutes affect the budget plan? To help the decision makers reconcile homeowner wanna-haves and the gotta-haves and to gain support for the budget plan, the manager scheduled a meeting to present the draft budget in a relatively informal, yet business like setting. This gave the members a sense of ownership in the decisions.
The habit of staying in budget preparation mode can be invaluable to the process of planning for the future of the community.
When it comes time to take stock of the physical and financial conditions of the property, literally, reforecasting results and comparing those predictions with trends and expectations help the decision makers remain confident in their budget planning. Routine reporting of material budget variances helps assimilate reality into the budget, helping keep the balance sheet pointed into the wind with a stable and predictable member assessment. Speaking of Excel and similar spreadsheet software, and before you walk towards that incredibly sparkly shiny duel monitor display at your desk, remember, Excel does not do the budget. You do the budget. You do it by intuitively knowing the desired results and what information you will need to help you get those results. By staying with your timeline of document assembly and review, Excel can then help you transmit your thoughts and good work in understandable and business-like form. By the way, learning the basics of budget preparation and Excel take a couple of hours, maybe a day. Learning to print the spreadsheet is something few have mastered but is also surprisingly easy and requires only that you join CAI and encourage others to join CAI, and then I’ll show you how!
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By Kimberly Myles Kim is an Educated Business Partner (EBP) member of WMCCAI representing WINTRUST Community Advantage Bank as vice president of business development for Maryland, Virginia, and Washington, D.C. delivering banking and lending solutions to community associations. Her experience in property management and decades of experience in finance, working both in lending and financial services technology, are vital to her success delivering solutions to property managers, and community associations’ board of directors. Kim serves as co-chair of the public outreach committee and is a member of 3 other committees at WMCCAI. She was recognized as the 2018 WMCCAI Volunteer of the Year.
Is There Such
a Thing as
T
“Good Debt”
he 1970’s Fram Oil Filter commercial used the phrase: “Pay me now or pay me later”. It was a vivid message that paying for quality preventive care is worth it. In the case of the ad, it was about the car’s oil filter. In a community association it is about the infrastructure and maintaining the common areas. Association boards have the fiduciary responsibility to protect and
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enhance the property values of the community. Boards focused on flat assessments, and deferring maintenance, will pay later in the form of: stagnant sales prices, and the risk of special assessments due to neglected maintenance. When repairs and improvements must be made and Reserves are insufficient, then a
loan can be a good option. Often, the loan will allow families to absorb special assessments through more modest monthly increases versus the challenge of a lump sum special assessment. Projects that involve scaffolding and multiple buildings, when tackled all at once will cost less than phasing, too. Phased projects
can result in contractors added costs exceeding the interest paid on a loan and phased projects can mean added repair costs while the buildings in later phases experience damages. This is especially true with projects that involve the building envelope.
Preparing for a Loan All loans involve collateral or security, and the banker’s evaluation of the borrower’s ability to pay back the loan. The bank’s security (or collateral) with an association loan is the assessment income and the association’s right to collect assessments. Board members do not personally guarantee association loans. The reports needed by the bank: Current Year Budget, Financial Statements for Current and Prior Year, Delinquency Report, Governing Documents, Tax Returns, and a Reserve Study are easily obtained by the property manager or board members. If the association doesn’t have a Reserve Study, each Lender will handle this differently. If there are any pending lawsuits with the association, disclose these right away. The lender can navigate through those waters when there is open discussion of lawsuits.
Financial Focus Each lender has guidelines used in evaluating the creditworthiness of the association, focused on: Assessment Delinquencies: • Total number of units more than 60 days delinquent. • Total dollars more than 60 days past due. • Delinquency Reports that include present owners only. »» Writing off Bad Debts is important to the fiscal health of the Association, regularly address these with the Accountant, Auditor and Legal Counsel.
Owner Reports: • All unit owners with their addresses making evident Occupied vs. Non-Owner Occupied units. »» Discuss any seasonal variances in Owner Occupancy with the lender. »» Identify owners of multiple units.
Income Available to Make the Loan Payment (or Debt Service Coverage): • How the association will make payments. »» Income Sources: Assessments, Reserves, Special Assessment or all of these.
Pre-payment Penalty Land Mines
Thoroughly understand provisions for Pre-Payment penalties. For example: a 1% pre-payment penalty on the unpaid principal balance at the time of pre-payment is clear. A more punitive pre-payment penalty is known as Yield Maintenance. It is a prepayment penalty that allows the lender to recoup the interest they would have earned on the loan were it not pre-paid. Essentially, a Yield Maintenance pre-payment penalty provision means that the association as borrower does not benefit from pre-paying the loan at all. Some lenders have provisions for no pre-payment penalty. Uncover these. Ask the lender if they will accept additional principal payments during the life of the loan and will the lender re-amortize the association’s payment. When the bank re-amortizes the association’s payment, their payment is reduced and matches the cash flow of the loan. This is a win/win for the association and homeowner.
What’s in a Fee Not all lenders charge the same fees: some are an additional source of bank income vs. a fee that covers costs. An Origination Fee is usually a source of bank income. Closing costs however, are covering the cost of: preparing the loan documents, attorney review, filing fees and public record searches. Uncover these added costs.
How Long Will it Take? Involving a lender early is a best practice. Doing so will aide in promoting a full understanding of your Lender’s Loan Proposal and helps the communication with the overall community which takes time. Clarity will improve the community sentiment about borrowing. The lender being involved early helps ensure planning and preparation for any budget impact. Questions to resolve with counsel are: is a unit owner vote needed, is a simple or super majority required, do the By-Laws allow the board to incur debt or is the loan addressing a life safety situation? Seeking a lender that is a member of CAI is critical to understanding the complexity of your governing documents. When all the requested reports and documentation are provided to the Bank, an initial Loan Proposal addressing your association’s borrowing capacity can be provided in a matter of days. Otherwise, you may be working with a lender that is ill equipped for Association Lending.
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By Winta Mengisteab, ESQ. Winta has been with Rees Broome, PC, since December 2006, and has focused her career on community association law. She is licensed to practice in D.C., Maryland, and Virginia, and serves numerous condominium and homeowners associations in the tri-state area. Winta has been a member of WMCCAI since 2006.
F I N A N C I A L CO NS I D E R AT I O NS F O R
FHA CONDOMINIUM CERTIFICATIONS
D
ue to the relatively high prices of condominiums in the Washington DC, Virginia, and Maryland areas, FHA financing has always played a big part in the condominium market. Interesting fact, the mortgage limits for FHA jumbo loans in the DC metro area and other jurisdictions in VA and MD can be as high as $726,525 for fiscal year 2019. However, the FHA condominium approval process and the regulations that guide it are constantly changing.
On February 1, 2010, the Federal Housing Administration (“FHA”) stopped allowing “spot loans” or “spot approvals” for individual condominium unit sales, which meant that if a condominium was not FHA certified, buyers who relied on FHA financing were not able to purchase units within the condominium. But, on August 14, 2019, the FHA issued new regulations effective October 15, 2019, which establish a new “single-unit” condominium approval process. While this new “single-unit”
approval process allows individual units to be eligible for FHA-insured financing even if the condominium is not already approved, the process is only available for condominiums with FHA concentrations (i.e. existing FHA-insured loans) that are at no more than 10% (or no more than two FHA-insured units if the condominium has less than 10 units) – which is much more restrictive than the 50% FHA concentration that is permitted for approved condominiums.
NORTHSTAR
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As such, condominium associations should continue to consider maintaining their FHA approval status by recertifying their eligibility, which is now (pursuant to the newly issued regulations) required to be performed every three years, or if not currently approved, reviewing their eligibility for the first time. In this regard, this article briefly summarizes the chief financial considerations for the FHA condominium approval process. 1. Reserves funding. FHA guidelines require that condominium associations fund their reserves by at least 10% of their annual budget. If the budget does not reflect the minimum reserves funding, the association will have to provide additional documentation to show that the reserves are properly funded. *If the owner-occupancy rate is less than 50% but at least 35%, the association’s reserves must be funded at 20% of the budget. 2. Delinquencies. No more than 15% of the total units can be more than 60 days delinquent in the payment of assessments (exclusive of late fees and administrative expenses). *If the owner-occupancy rate is less than 50% but at least 35%, the maximum number of delinquencies can be no more than 10%. 3. Financial documents. Every FHA application or recertification submission must include the following financial documents: a. Th e current (approved) annual budget; b. The most current balance sheet, which cannot be more than 90 days old; c. The most current income and expense statement, which also cannot be more than 90 days old; and d. Th e prior year-end income and expense statement. Also, be prepared to explain the cause of and resolution for any deficits that are reflected in any of the financial statements. *If the owner-occupancy rate is less than 50% but at least 35%, the association will have to submit three years’ worth of financial documents. 4. Fidelity coverage. The FHA requires associations to carry fidelity coverage in amounts equal to the balance of their reserves plus three months aggregate assessments. However, state law can provide a maximum amount of coverage that is less. For example, Section 55-79.81.B states that associations must carry fidelity coverage in an amount equal to the lesser of $1 million or the amount of reserve balances of the unit owners’ association plus one-fourth of the aggregate annual assessment. Maryland has a similar mandate in Section 11-114.1(e), which provides a maximum of $3 million. The D.C. Condominium Act also requires fidelity coverage but does not have a similar maximum requirement for fidelity coverage. 5. Special Assessments. If a special assessment is being collected, has been imposed, or is pending, the association will have to provide a certification that must include the following information: a. P urpose of the special assessment; b. Whether the special assessment affects the marketability of any of the units and if so, how;
c. Whether other special assessments have been required and if so, the purpose and timing of those assessments; d. When the assessment is to be paid (lump sum or installments); e. How the assessment impacts the overall financial stability of the condominium; and f. What impact the assessment will have on the future value and marketability of the condominium. 6. Loans. If the association has an outstanding loan, the association must provide the following items: a. Purpose of the loan; b. L ength of the loan; c. R epayment terms (including interest information); d. How the payments are paid and the payments impact on the assessments (preferably to be shown as a line item in the budget); e. F ull payment history on the loan; and f. The current lender statement showing that the association is current on the loan payments. Again, the above provides only the main financial FHA requirements, there are several other topics that must be reviewed to determine an association’s eligibility for FHA approval. Boards should review the FHA guidelines or consult a professional before submitting an FHA application/recertification. SEPTEMBER 2019
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By Susan Miller, CMCA, AMS Susan manages a portfolio of communities in Northern Virginia. She has been with Sentry Management since 2015. In addition to her professional credentials, Susan graduated from American Public University and holds an associate’s degree in Communication and a bachelor’s degree in Marketing.
SPECIAL ASSESSMENTS:
Navigating the
I
Impact
f you live in a planned community, you likely have a homeowners association that impose general assessments for the betterment of the community. General assessments help pay for many things in the community such as the landscape contract, management contract and snow contracts, to name a few. The board of directors for the community sets a general budget every new year. All general assessments are determined with each year’s budget. Your
general assessments take care of the bills that come in each month; but what happens when you’ve exceeded your snow budget for the year and the largest snow fall in history blankets the area? The board of directors may consider a special assessment to cover the unforeseen expense. A special assessment is an additional assessment that most associations give the board of directors the authority to impose
YOUR ASSOCIATION BANKING PARTNER Wintrust Community Advantage is a leading provider of financial services to condominium, townhome, and homeowner associations. Our team of experts has more than 75 years of combined experience in the association market, and we’ve been exclusively serving this industry for 20 years. As part of Wintrust, a $32 billion financial services company, we’re ready to provide your association with solutions designed specifically for this market. “We are beyond happy with the level of service that we are receiving from everyone at Wintrust.” – Michael Buckmaster, President, Chesapeake Community Management
KIMBERLY MYLES
communityadvantage.com
VICE PRESIDENT Wintrust Community Advantage - MD/DC/VA kmyles@communityadvantage.com C: 734-276-3330 | D: 240-772-1212 2018 WMCCAI Volunteer of the Year Award Recipient CAI Educated Business Partner
Wintrust Community Advantage is a division of Barrington Bank & Trust Company, N.A., a Wintrust Community Bank.
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on each member in the community. In general, many homeowners are often unaware of what their association dues take care of in their communities so when they are hit with a special assessment it can get a little ugly. At some point the board of directors from all homeowner associations and condo associations will need to consider a special assessment and have to face the impact this can bring to the members.
Special assessments can become controversial, discouraging and an expensive surprise to many owners. The board of directors and the community manager will be on the frontline of the controversy and unpleasantness that special assessments can bring to a community. When the board of directors sends out a notice informing the association members of the special assessment to pay for an unplanned expense, they need to ensure that they are doting their ‘I’s” and crossing their “T’s”. The governing documents and state statutes (Virginia 55-514 listed below) will lay out the board’s authority and establish the max amount that can be assessed. If there is any question on authority of special assessments the board should consider having the association’s attorney review and provide an
opinion. Taking these initial steps can help minimize any turmoil in the community. Once a special assessment is established and ready to be communicated to the members, the board of directors should hold a Town Hall meeting to communicate the reason for the special assessment. Town Hall meetings will allow the members to meet with the board of directors and gain a better understanding of the “why” behind the special assessment. This is an informative meeting that will allow the board to state their reason for their decision and give the members a chance to share their concerns on the matter. The Town Hall meeting can be met with argumentative members who may oppose the special assessment. The board of directors will need to prepare for this type of contentious behavior by informing the members on their role in the special assessment process. The Virginia state statute allows 60 days for the members to rescind the special assessment. The board may request legal representation to be present at the meeting to assist in the discussion. The town hall meetings will allow the members to be informed and not surprised by the extra expense of the special assessment.
§ 55-514. Authority to Levy Special Assessments A. In addition to all other assessments which are authorized in the declaration, the board of directors shall have the power to levy a special assessment against its members if the purpose in so doing is found by the board to be in the best interests of the association and the proceeds of the assessment are used primarily for the
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maintenance and upkeep of the common area and such other areas of association responsibility expressly provided for in the declaration, including capital expenditures. A majority of votes cast, in person or by proxy, at a meeting of the membership convened in accordance with the provisions of the association’s bylaws within 60 days of promulgation of the notice of the assessment shall rescind or reduce the special assessment. No director or officer of the association shall be liable for failure to perform his fiduciary duty if a special assessment for the funds necessary for the director or officer to perform his fiduciary duty is rescinded by the owners pursuant to this section, and the association shall indemnify such director or officer against any damage resulting from any claimed breach of fiduciary duty arising therefrom. B. The failure of a member to pay the special assessment allowed by subsection A shall entitle the association to the lien provided by § 55-516 as well as any other rights afforded a creditor under law. C. The failure of a member to pay the special assessment allowed by subsection A will provide the association with the right to deny the member access to any or all of the common areas. Notwithstanding the immediately preceding sentence, direct access to the member’s lot over any road within the development which is a common area shall not be denied the member. 1989, c. 679; 1991, c. 667; 1992, c. 450; 1998, cc. 32, 751; 2008, cc. 851, 871.
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Directory and Classifieds AMUSEMENT & PARTY RENTALS
INSURANCE
MANAGEMENT SERVICES (CONT’D)
Fantasy World Entertainment 124 Jibsail Drive T: (800) 757-6332 Prince Frederick, MD 20678 www.fwworld.com Brooks Grady brooks@fwworld.com
Griffin Owens Insurance Group www.GriffinOwens.com 847 Station Street, Herndon, VA 20170 T: (571) 386-1000 Offices also located in Falls Church & Manassas Daniel Flavin, CIC, CRM dan@griffinowens.com
Comsource Management, Inc. AAMC www.comsource.com 3414 Morningwood Drive T: (301) 924-7355 Olney, Maryland 20832 F: (301) 924-7340 Gary M. Simon, CMCA, AMS, PCAM gsimon@comsource.com
ASPHALT PAVING/MAINTENANCE/REPAIR
JANITORIAL
Brothers Paving & Concrete Corporation 9469 Hawkins Dr T: (703) 393-1927 Manassas, VA 20109 F: (703) 393-1928 Paul Battista info@brotherspaving.com
Clean Advantage Corporation 4000 Pen Belt Place T: (800) 315-3264 District Heights, MD 20747 F: (301) 595-3331 www.cleanadv.com info@cleanadv.com
Espina Paving, Inc. Asphalt/Concrete 15441 Farm Creek Drive T: (703) 491-9100 Woodbridge, VA 2191 F: (703) 491-9101 Serving: MD, DC, VA info@espinapaving.com ATTORNEY
McMillan Metro, P.C. 7811 Montrose Road, Ste. 400 Potomac, MD 20854 McMillanMetro.com
Attorneys at Law T: (301) 251-1180
BANKING AND FINANCIAL SERVICES
WINTRUST Community Advantage T: (734) 276-3330 Metro DC www.communityadvantage.com Kim Myles kmyles@communityadvantage.com A leading provider of financial services to condominium, townhome, and homeowner associations. ENGINEERS
ETC Engineering and Technical Consultants Inc. Water intrusion, roofing, exteriors, windows, balconies, property studies, structural & architectural services www.etc-web.com T: (703) 450-6220 Mindy Maronic mindy@etc-web.com The Falcon Group www.falconengineering.com 7361 Calhoun Place, Suite 325 Rockville, MD 20855 T: (240) 328-1095 Stew Willis info@falconengineering.com GENERAL CONTRACTORS
Ploutis Contracting Co, Inc. T: (703) 360-0205 8365 Richmond Hwy F: (703) 360-5439 Alexandria, VA 22309 info@ploutiscontracting.com Stella Ploutis www.ploutiscontracting.com
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LAUNDRY ROOM EQUIPMENT AND SERVICES
Caldwell & Gregory, Inc. Your Commercial Laundry Professionals 129 Broad Street Road Manakin-Sabot, VA 23103
T: (804) 784-6100 F: (804) 784-7418
MANAGEMENT SERVICES
Associa Community Management Corporation, AAMC 4840 Westfields Blvd, Suite 300 T: (703) 631-7200 Chantilly, VA 20151 www.cmc-management.com John Tsitos, CMCA, AMS, PCAM jstitos@cmc-management.com Barkan Management Company, Inc 8229 Boon Blvd., Suite 760 T: (703) 388-1005 Tyson Corner, VA 22182 F: (703) 388-1006 Michael Feltenberger, CMCA, AMS, PCAM CAMP, AAMC (Community Association Management Professionals) www.gocampmgmt.com T: (703) 821-CAMP 4114 Legato Road, Suite 200 Fairfax, VA 22033 hgraham@gocampmgmt.com 209 West Street, Suite 302 Annapolis, MD 21401 sblackburn@gocampmgmt.com Capitol Management Corporation 12011 Lee-Jackson Highway, Suite 350 Fairfax, VA 22033 L. Peyton Harris Jr., CMCA, CPM lph@capitolmanagementcorp.net
T: (703) 934-5200 F: (703) 934-8808
Cardinal Management Group, Inc., AAMC 4330 Prince William Parkway, Suite 201 T: (703) 569-5797 Woodbridge, VA 22192 www.cardinalmanagementgroup.com cardinal@cardinalmanagementgroup.com Thomas A. Mazzei, CMCA, AMS, PCAM CFM Management Services, AAMC 5250 Cherokee Ave, Suite 100 T: (703) 941-0818 Alexandria, VA 22314 F: (703) 941-0816 Christiaan Melson, AMS, PCAM cmelson@cfmmanagement.com
FirstService Residential DC Metro LLC, AAMC 11351 Random Hills Road, Suite 500 T: (703) 385-1133 Fairfax, VA 22020 Robert Teeling robert.teeling@fsresidential.com KPA Management, AAMC www.kpamgmt.com 6402 Arlington Blvd., Suite 700 T: (703) 532-5005 Falls Church, VA 22042 F: (703) 532-5098 Offering personalized service Ed Alrutz, CPM, CMCA, PCAM ealrutz@kpamgmt.com Legum & Norman Inc. AAMC 3130 Fairview Park Drive Ste 200 T: (703) 600-6000 Falls Church, VA 22042 www.legumnorman.com Marc B. McCoy, CMCA, AMS MMcCoy@legumnorman.com Sentry Management www.sentrymgt.com 4401 Ford Avenue, Suite 1150 T: (703) 642-3246 Alexandria, VA 22302 602 South King Street, Suite 400 T: (540) 751-1888 Leesburg, VA 20175 Dave Ciccarelli, AMS, PCAM dciccarelli@sentrymgt.com Sequoia Management Company Inc., AAMC 13998 Parkeast Circle T: (703) 803-9641 Chantilly, VA 20151-2283 www.sequoiamanagement.com Craig Courtney, PCAM ccourtney@sequoiamgmt.com PAINTING SERVICES AND RETAILERS
Capital Painting Co. www.capitalpainting.net 5520 Oakwood Road T: (703) 313-0013 Alexandria, VA 22310 F: (703) 922-1826 George Tsentas george@capitalpainting.net Reston Painting & Contracting 619 Carlisle Drive Herndon, VA 20170 David Hamilton
T: (703) 904-1702 F: (703) 904-0248 dave@restonpaint.com
RESTORATION SERVICES
Titan Restoration Co Warrenton, VA T: (540) 349-1503 www.titanrestoration.com F: (540) 349-1512 Anita Puckett apuckett@titanrestoration.com
INDEX TO ADVERTISERS A Associa-Community Management Corporation, AAMC......................................................................9 Aquasafe Pool Management, Inc....................................................................................................22 B Barkan Management, LLC, AAMC..................................................................................................26 Brothers Paving & Concrete..............................................................................................................4 C Caldwell & Gregory, Inc...................................................................................................................18 Capital Painting Co.........................................................................................................................11 Clean Advantage Corporation T/A Condominium Cleaning Service..................................................40 ROOFING
TWC Services, LLC PO Box 150277 T: (703) 971-6016 Alexandria, VA 22315 www.twcserv.com Linda Walker info@twcserv.com
D DoodyCalls.....................................................................................................................................33 E Engineering and Technical Consultants (ETC).................................................................................30
WINDOWS & DOORS
Environmental Enhancements........................................................................................................38
Windows Plus, LLC 4321 Markham Street T: (703) 256-0600 Annandale, VA 22003 F: (703) 942-6987 Kimberly Wayland kknight@windowspls.com
F Fantasy World, Inc. dba Fantasy World Entertainment.....................................................................12 The Falcon Group...........................................................................................................................20 FirstService Residential DC Metro, LLC, AAMC................................................................................39 M Miller-Dodson Associates................................................................................................................16 Mutual of Omaha Bank@Community Association Banking & CondoCerts.......................................11 N Northstar Community Management Software..................................................................................32 P Ploutis Contracting Co., Inc.............................................................................................................39 Prince George’s County Maryland.....................................................................................................7 R Reston Painting Company................................................................................................................2 S Sentry Management, Inc.................................................................................................................17 Solitude Lake Management............................................................................................................14 T Titan Restoration Co........................................................................................................................35 TWC Services, LLC..........................................................................................................................19 W Windows Plus, LLC.........................................................................................................................10 WINTRUST Community Advantage Bank.......................................................................................34
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CUL-DE-SAC
By Katie Halfhill, CMCA, AMS Katie is a portfolio manager for FirstService Residential. She’s been in the community management business for over fifteen years, serving clients as general manager and portfolio manager over condominium associations, homeowners associations and LLCs.
BREAKING BUDGET
H
appy Budget Season! For most, budgeting is the same each year: apply your contractual annual costs, monitor utilities and don’t forget to add in extras like the mid-summer dumpster fees. For some, it’s not so simple: the inevitable large increase in assessments is here. How are you going to break that news to your homeowners? Those who attend board meetings or read meeting minutes regularly know how the year is going. They’re not the audience you need to address carefully. The majority of homeowners may not be aware of the financial situation in the association; those who aren’t tuned in need communication from the board so they aren’t blindsided by a significant increase in assessment fees.
How Can You Prepare Your Residents for an Increase? Hold budget meetings or discussions in open sessions. Note: This does not mean the budget is up for audience discussion. This is ideally a working session of the board or finance committee to go through the budget line-item-by-line-item and discuss them.
Be candid from the start. A negative response from homeowners in the room is better than lack of transparency. If the future increase is due to under-budgeting in a prior year or anticipated increases, these meetings will make that clear when year-to-date actuals and year-to-date budgets are discussed side-by-side. Is the assessment increase due to a specific project? Getting resident buy-in on the project itself can go a long way toward making the extra fees more palatable. Town halls are
BAD
NEWS
a great way to make that happen! Fully explain the project: • What is it? • What’s the timeframe for its completion? • Why is it needed? • Who is affected? • What is the complete funding plan? There is no such thing as to o much information. After everyone understands the reasons for an increase, ease them into the specifics of the increase. Be empathetic! It never hurts to remind homeowners that increases affect you as board members, too (sometimes homeowners forget that.) But, no matter how empathetic you are, at the end of the day, it’s your fiduciary responsibility to do what’s best for the association. When you send out the budget mailing
to your homeowners, include a message from the board with the financials. Break down any line items that had big increases – and big decreases, too! “Legal increased $10,000 due to bad debt collections” or “Trash contract decreased by $2,500 due to switching to ABCD Trash Haulers.” Good news makes bad news easier to take and shows how hard you as a board are working for your residents. If needed, summarize the outcome of the town hall and resident feedback on any projects that have a significant impact on the budget, as well as the benefits of the project. The key to breaking tough budget news is to start preparing everyone early. “We found this issue. This is what’s being recommended, and this is how much it will cost each of us.” Be transparent, be prepared to answer questions, and be human. It’s a complex job, but it can be done with planning and empathy.
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Exceptional Service is Our Mission. As Metro DC’s residential property management leader with national resources, we know what it takes to create great communities that residents are proud to call home. We start by putting the right teams in place – local property experts who deliver our best-in-class solutions, along with genuinely helpful service, to enhance the property values and lifestyle of those we serve. That’s how we make a difference, every day, for great communities like yours… • High-Rise and Mid-Rise Buildings • Condominium and Homeowners Associations • Lifestyle, Large Scale and Active Adult Communities 11351 Random Hills Road, Suite 500, Fairfax, VA 22030 923 Maple Grove Drive, Suite 101, Fredericksburg, VA 22407 8701 Georgia Avenue, Suite 300, Silver Spring, MD 20910
Making a Difference.
Every Day.
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703.385.1133 | www.fsresidential.com
SEPTEMBER 2019
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CHAPTER BENEFACTORS
C
ASPHALT & CONCRETE
WMCCAI 7600 Leesburg Pike Suite 100 West Falls Church, VA 22043 www.caidc.org (703) 750-3644
PRESORT STANDARD US POSTAGE PAID ALEXANDRIA, VA # 5659
OUR MISSION To optimize the operations of Community Associations and foster value for our business partners.
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