A Capital Idea Is There Ever a Good Time to Raise Fees?

 These days, just about everyone is cutting back on spending, either to make ends  meet, saving for something special or a rainy day, paying off debt or funding  their retirement. Consumers are cutting coupons, looking for deals and keeping  a close eye on their dollars. Whenever costs or fees go up and consumers have  to pay more, they invariably get upset.  

 The last thing that residents want to hear is that their association fees or  common charges are being raised. Realistically though, to keep a building  properly cared for and financially solvent, fees will need to be raised  regularly and fairly. Not doing so can force a board to impose a large  assessment or a big maintenance increase because they haven’t put enough money aside for a major repair or improvement project that has  arisen.  

 In recent years, both Fannie Mae and Freddie Mac (the Federal National Mortgage  Association and the Federal Home Loan Mortgage Corporation),  government-sponsored enterprises that control the secondary mortgage market,  have passed stricter lending guidelines for condominium financing. Among those  rules, the Federal Housing Administration (FHA) now requires that condominiums  set aside at least 10% of their operating income towards a capital reserve  account. For example, if the annual budget is $200,000, then the association  must set aside $20,000 for its capital reserve fund.  

 Necessary Funding

 Just as an individual needs an emergency fund in case of a job loss or an  unexpected car repair, an association needs a financial reserve to take care of  such major repairs as roof leaks, plumbing problems or foundation issues.  

 A Community Associations Institute (CAI) study in 2012 found that cash-strapped  associations are trying everything to make do. To compensate for a cash shortfall, the CAI study shows 38 percent have postponed planned capital  improvement projects, 35 percent have reduced landscaping services, 31 percent have reduced contributions to their reserve  accounts—funds that are set aside for major maintenance and repairs, 23 percent have  borrowed from the association’s reserve account, 16 percent have levied special assessments, 12 percent are  allowing residents to perform minor tasks in the community and 6 percent have  borrowed from banks and other lenders.  

Read More...

Related Articles

Funding Your Reserves

Banking Against Surprises

What are the Basic Steps of a Reserve Study?

Planning Your Community's Future

Funding Capital Projects

Whence Comes the Money?

Capital Funding and the Law

Funding the Big Fixes

Facade Safety

The Cost of Inspections

The Importance of Reserves

Funding the Projects That Really Matter