Minnesota’s premier homeowners association magazine
November/December 2011
Volume 29 • Issue 6
Maintenance Issue or Insurance Claim Who is Responsible to Repair or Pay? In this Issue: Curb Appeal During This Protracted Recession Progress Report And Much More!
Visit us online at www.cai-mn.com.
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Minnesota Communit y Living
Board of Directors
From the President
By Jonathan Edin | CAI-MN President
What is “community”? Today it is a well-used word that can mean many different things. It can refer to the location in which one lives; a support group, or an association of people with similar interests, professions or beliefs. It can also simply imply a feeling of togetherness. Webster’s Dictionary defines community as: “a unified body of individuals.”
Another great aspect of communities is the potential for teamwork. When homeowners feel like valued members, and board members feel appreciated for their hard work, the association can be very effective. It can be easy for board members to feel burnt out. After all, they are volunteers, often dealing with problem items or complaints. Sharing the work and getting additional homeowners involved can lighten the load and create a more vibrant community. Managers and vendors will find their jobs are more enjoyable in associations where the value of teamwork These “unified bodies” are important for society. is embraced. It can sometimes be difficult to get The homeowners who live in our communipeople engaged in the work involved in mainties have invested their money, their time and taining a community. This is why creating a sense themselves in their homes. What a great thing of togetherness is important. Being a part of a when they are also able to connect with their “unified body” can be a rewarding and fulfilling neighbors. Being involved in a community allows experience. us to work together. This sharing of work creates a synergy that can energize others to participate. As anyone who has lived in an association can The board members and community managtell you, living in a community provides many ers who work together with the homeowners in chances to foster togetherness and implement their communities have the most successful and teamwork. Homeowners will not always agree. rewarding associations. Living in a community Situations will arise that have the potential to also provides opportunities for cooperation and be opportunities for collaboration or division. compromise. While the process to compromise Maintaining a sense of community and concan be challenging, the opportunities of develnectedness is not always easy. When faced with oping a better understanding of others and the difficult situations, they are easier to overcome mutual feelings of success are great. as a team. Building upon components that are mutually beneficial is a great place to start. Take Being in a community creates a sense of togeththe time to encourage the homeowners to build erness. In a culture that values independence and relationships with each other. When communiself-reliance, it is important to remember that ties find ways to allow every member to feel valhumans are wired to care for and depend upon ued and contribute it creates an association that each other. We cheat ourselves and others of is rewarding for all. Dealing with disagreement is rich, meaningful life experiences when we try to not easy, but using the experience to better undo it all on our own. Celebrating the successes, derstand each other and work together will create mourning the losses and working together proan outcome that is positive for everyone. vide meaning and depth to our lives. The associations in which the homeowners embrace a sense of togetherness, those places where you can find neighbors grilling outdoors, starting a softball league, or a book club, are the associations that are the most rewarding for both the people who live there and the management companies and vendors who work for them.
President Jonathan Edin Phone 651.222.2155 JEdin@mncondodefects.com President-Elect Traci Lehman, CMCA, AMS, PCAM Phone 612.381.8600 tracil@citiesmanagement.com Treasurer Michael P. Mullen, CPA Phone 952.928.3011 mike@cpamullen.com Secretary Halo Stafford, CMCA, AMS, PCAM Phone 952. 277.2785 hstafford@gittleman.com Directors Tom Engblom, AMS, CMCA, PCAM Phone 866.800.4656 tengblom@cabanc.com Steve Hoogenakker Phone 763.213.2410 steve@landscape.pro Michael Klemm, Esq. Phone 952.953.8832 klemmm@seversonsheldon.com Rich Klobuchar Phone 763.551.9827 rklobuchar@usinternet.com Nancy Polomis, Esq. Phone 952. 941.4005 npolomis@hjlawfirm.com Jim Rezek Phone 763-424-9984 jimrezek@comcast.net Gene Sullivan Phone 952.922.2500 gene@ncmgi.com
Committee Chairs Legislative Action Chair Joe Crawford Phone 952.212.2216 joe.crawford9@gmail.com
Vision Awards Chair Lisa Astelford, CMCA Phone 952.277.2787 lastleford@gittleman.com
Golf Tournament Chair Tosh Tricas, CMCA, AMS, PCAM Phone 888.219.2534 capt.tosh@gmail.com
Tradeshow Committee Chair Mark Schoenfelder Phone 952.345.2900 mark@schoenfelderpainting.com
Communications Chair Joel Starks Phone 952.224.4480 joel@sharpermanagement.com
Education Committee Chair Gene Sullivan Phone 952.922.2500 gene@ncmgi.com
Home Owner Training Chair Sara Lassila, CPA Phone 952.474.1631 November sara@saralassila.com
Membership Chair Steve Arrell Phone 763.315.8900 December 2011 steve@newexterior.com
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Maintenance Issue or Insurance Claim – Who Is Responsible to Repair or Pay? by
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hen repairs need to be made on association buildings, it is important for unit owners, board members and property managers to understand whether the unit owners or the insurance company are responsible for funding the work.
The association’s governing documents will help determine the maintenance and insurance responsibilities. The declaration section clarifies these responsibilities, and it is important for everyone to understand what is specifically defined as a maintenance or insurance responsibility. Maintenance is defined as “work that is done regularly to keep a machine, building, or piece of equipment in good condition and working order.” The maintenance section of the declaration for ABC Association may state that “the unit owner is responsible for the maintenance of windows, decks, doors and exterior lighting.” Another association’s documents may say that “all maintenance of the units shall be the sole responsibility and expense of the owners.” Examples may include replacing old windows, rotting decking or corroded pipes
from a leaking HVAC unit. In these cases, the unit owners often bear the responsibility to repair or replace the items if the damage is caused by normal wear and tear over time. It is also important to understand the definitions of Common Elements and Limited Common Elements as they vary by declaration. Common Elements are items owned by the association for the benefit of all owners and occupants. Examples include garage stalls, storage lockers, community rooms and hallways. Limited Common Elements are those parts of the Common Elements reserved for the exclusive use of the owners and occupants of the units to which they are allocated. Examples include decks, patios, porches, balconies, shutters, doorsteps and chimneys. Your association’s declaration should be very specific about who is responsible to maintain these items: the unit owners or the association. Keep in mind that even though some of the maintenance responsibility of Limited Common Elements may be on the unit owner, they would still be covered under the association’s master insurance policy in the event of a covered claim.
Above all, the association must be compliant with the Minnesota Common Interest Ownership Act (MCIOA) when putting together its policy for division of maintenance responsibilities. Again, always refer to your association’s governing documents for clarification on who is responsible to maintain and insure what items. A common misunderstanding is that, while unit owners may be responsible for maintaining certain items inside or outside their units, it does not necessarily mean they are also responsible for insuring them. Always consult with an experienced Community Association Insurance Agent to make sure your association has a comprehensive insurance program in place. Determining whether or not an agent has the Community Insurance and Risk Management Specialist (CIRMS) designation is a good way to evaluate their knowledge of and experience working with community associations.
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Tracey Lund, CIC, CISR , RJF Agencies
Minnesota Communit y Living
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Calendar
Index
2012 March
features
March 9, 2012, 8:00 am – 3:00 pm Saint Paul RiverCentre More information coming soon!
4 Maintenance Issue or Insurance
CAI-MN Trade Show
Claim – Who Is Responsible to Repair or Pay?
Register online at www.cai-mn.com For more information regarding an event, call the office at 651.203.7250 or visit the CAI-MN website. Online registration is available at www.cai-mn.com.
By Tracey Lund
6 Curb Appeal During this Protracted Recession
By Ted Salgado
8 Ice Dams – A Closer Look at Insulation
By Roger Hankey
12 Oh, the Holidays Can Be Tough! 15 Progress Report
By CAI Mortgage Matters
17 How Will Your Current Snow
Removal Contracts be Affected by Last Season’s Record Snowfalls?
Published by Community Associations Institute — Minnesota Chapter, copyright 2011. All articles and paid advertising represent the opinions of authors and advertisers and not necessarily the opinion of either Minnesota Community Living or CAI–Minnesota Chapter. The information contained within should not be construed as a recommendation for any course of action regarding financial, legal, accounting, or other professional services by the CAI–Minnesota Chapter, or by Minnesota Community Living, or its authors. Articles, letters to the editor, and advertising may be sent to Chapter Staff Editor Jane Duntley at janeyd@ cai-mn.com, or at CAI–Minnesota Chapter, 1000 Westgate Dr., Suite 252, St. Paul, MN 55114.
By Steve Hoogenakker
18 A Reserve Study = “SMART” Leadership for the Jonathan Association
By Nate Bostrom
series 3
President’s Message By Jonathan Edin
Thank You 2011 Annual Partners Platinum Gassen Companies Gates General Contractors, Inc. Gittleman Management Hellmuth & Johnson Sela Roofing Xtreme Exteriors Gold Community Association Banc Reserve Advisors Silver Carlson & Associates Community Advantage Hammargren & Meyer, P.A. Levin & Edin New Exteriors by SMA, Inc. Omega Management Bronze American Building Contractors BNC National Bank Complete Building Solutions, LLC Construct-All Homeowner Association Website – HOA WEB Michael P. Mullen, CPA, PLLC Schoenfelder Painting SERVPRO of Brooklyn Park/Champlin
[ ADS Index ] of Advertisers American Family Insurance – Jeff Mayhew.... 13 CA Banc/CondoCerts...................................... 10 Carlson & Associates, Ltd .............................. 13 Columbus Exteriors, Inc.................................... 2 Complete Building Solutions ........................ 17 Construct-All Corporation ............................... 4 Final Coat Painting.......................................... 13 Gassen Companies............................................ 9
Gates General Contractors, Inc...................... 14 Gittleman Management.................................. 11 Hammargren & Meyer, P.A. .............................. 4 Hellmuth & Johnson, PLLC....................... 10, 16 Levin & Edin..................................................... 13 LS West............................................................ 13 New Exteriors by SMA, Inc............................. 13 Omega Management, Inc............................... 12
Reserve Advisors.............................................. 16 Sela Roofing .................................................... 20 Stone Valley Painting LLC................................. 7 Thomsen & Nybeck........................................... 7 Xtreme Exteriors.............................................. 19
November | December 2011
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Curb Appeal During this Protracted Recession By Ted Salgado, Reserve Advisors, Inc.
M
y wife and I have enjoyed condominium living for more than 20 years. We’ve both served on a couple of boards for different associations and at this time of year we look forward to enjoying the fall season. Our community association looks great with all major projects having been completed. This year our association invested (spent) about $1,000 of exterior maintenance on each of the 16 townhome condos including pavement repairs. So we are looking at a place that has lots of curb appeal. How did we get here and how best can we keep that curb appeal? Active Involvement – Our community association was built 11 years ago. Essentially, it’s a small business. We’ve been fortunate to have several owners who took an active interest in running the business. Not all, author included, have served on the board during these 11 years. That’s not what’s meant by active involvement. Sometimes it’s being a sounding board for the actual board and other times it’s serving on a committee. Like all associations, there is a very small minority group of owners who actively participate, and enjoy participating in making the difference. I suspect you are reading this because you are one of these folks. Active involvement is the key component to ensure the curb appeal of your community association. Without it, nothing else happens and the investment in your home will suffer. Maintenance – You might have noted my mentioning the $1,000 per home spent on maintenance this year. Maintenance is usually the most expensive line item in our budget. That’s pretty typical for us but it can be as low as $500 per home. Your experience will be different but we have set a fairly high maintenance threshold in the budget to ensure a policy of sustaining our common elements ahead of replacing them. Insurance or management is often the most expensive item for other community associations but this year during your budget deliberations, consider maintenance as a line item worthy of this level of atten6
Minnesota Communit y Living
tion. Without maintenance, its nemesis (deferred maintenance) causes even higher management and association fees, special assessments, and a waste of your time chasing problems. The side benefit of aggressive maintenance? You guessed it – curb appeal. A maintenance committee is a useful tool to implement a policy of sustaining your common elements instead of replacing them. Aside from homeowner “complaints,” maintenance committee members frequently walk the property with their grandkid or dog looking for budding problems and talking with the neighbors. But at this time of year, a close inspection will help determine key maintenance (and replacement) projects for 2012. Fall is the best time to identify these projects by visual observation and re-visiting your reserve study. Your reserve study should pre-identify possible replacement projects and give your association the opportunity to weigh the possible pecuniary advantage to defer replacements through aggressive maintenance. You may have heard the phrase “a reserve study is a snapshot in time.” A credible reserve study has an in-depth narrative condition assessment of your common elements at that point in time. Conditions change from year to year so budgeting for an “update” of the reserve study every two or three years is important to help maintain the curb appeal of your community association. The reserve study provides an important independent third-party opinion of the condition of your common elements. The engineer’s opinion is independent from that of any committee, board member or contractor looking for work. The reserve study update also considers how changes in local material and labor costs have affected future replacement cost estimates. There are national trends in petroleum based prices which also affect your original reserve study. Additions and deletions to the association property, fluctuations in construction costs, and unpredictable events such as harsh weather can all significantly affect the accuracy of reserve funding levels. And is your community association “on-track” with
its reserve savings plan? During budgeting season, we look at where our year-end reserves should be and where they actually are. Significant differences indicate the need for a reserve study update. Accountants and community managers agree that updating the reserve study is essential for the financial well-being of an association. Updating keeps the funding and repair/replacement schedule on track and assures the curb appeal of your community association. FHA Financing – The FHA has not affected your community association’s curb appeal until now. FHA has only played a minor role in mortgages for condominiums; however, that changed with the housing crisis and today, FHA accounts for up to 30% of all condominium mortgages, through FHA’s condominium mortgage insurance program. CAI’s web site has lots of information about how the FHA has impacted the ability of your association’s members to market their condo units during this protracted recession. For starters, FHA guaranteed loans are not available unless your association in total is “approved.” There are myriad new rules that affect requirements concerning reserves, insurance, number of rentals, number of homes in foreclosure, to name a few. It’s best to get your “house in order” before a potential buyer says that FHA is denying their loan and the sale falls through. Read more on this entire subject by searching for the keyword “FHA” at www.caionline.org. Curb appeal is affected by the appearance of your property and now by the new FHA rules governing your association. CAI National is your advocate, but let them hear from you with your thoughts. Contact your congressperson too. The appearance or curb appeal of your community association is the result of your active involvement, aggressive maintenance, professional management, and a credible, up-to-date reserve study. I hope that your budget for 2012 considers these key elements of a plan to maintain and improve your community’s curb appeal.
November | December 2011
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Ice Dams – A Closer Look at Insulation By Roger Hankey, ASHI Certified Inspector, Hankey & Brown Inspections
T
he Ice Dam article in the September/ October 2011 issue of Minnesota Community Living by attorney Matthew Drewes discussed some of the most common causes of ice dams, including inadequate ventilation within the attic and air leaks (bypass air) from the living space into the attic, as well as answers to some other common questions about what owners and community associations should do about this problem. The article also mentions other potential causes of ice dams such as inadequate insulation and heat loss from ventilation systems, but people may not realize all the reasons a properlyinsulated attic is possibly the second-most important way to prevent ice dams (other than sealing air leaks). This article goes into more detail about how to spot these insulation issues and what can be done to correct them.
been suffering from excessive heat loss and ice dams due to compromised insulation and air leaks to the attic. Blown attic insulation is easily compromised, when it is compressed or displaced by human foot traffic.
Mice also compromise insulation with tracks and/or tunnels, which are quite common in Minnesota attics.
There are two primary aspects of inadequate insulation: 1. insufficient insulation depth, and 2. compromised insulation.
Home owners and home owner associations are advised to adopt practices that restrict access to attics and require cable or satellite TV installers, electricians, or others who enter attics to be responsible for correction of any damage to or disruption of the attic insulation.
These conditions may have similar remedies depending on whether or not air leaks are present from the house to the attic. Prior to about 1985 the amount of insulation in new residential attics was about R-22. Since about 1986 many attics had the air leaks sealed and insulation installed to a level of about R-44 (about 17 inches of blown fiberglass, or about 14 inches of blown cellulose). Residential property construction practices before about 1985 typically did not include any attempt to seal air leaks from the house to the attic. Buildings built before 1985 which have been re-insulated to modern levels without removal of the original insulation and sealing of the air leaks have a high potential for moisture damage to the roof sheathing due to warm air from the house condensing on the sheathing during cold winter nights. Some modern townhouse buildings with an adequate original amount of insulation have 8
Minnesota Communit y Living
A fourth cause of ice dams, which is unfortunately becoming more common in Minnesota townhouses, is the installation of supply air ducts in the attic. The presence of heating ducts in the attic can lead to conductive heat loss to the attic from inadequate insulation over the duct and/or convective warm air leaks from punctures, damage, or loose connections in the ducts. These conditions can often be identified by use of an infrared thermal camera.
Attic insulation can also be disturbed by misplaced and/or unbaffled attic ventilators which may permit wind to blow the insulation around in the attic.
One way to develop long term remedies for ice dams is to work with an experienced inspection firm to investigate all the causes of the ice dams. The causes of heat loss may be different in each unit, even in the same building. Often the recommendation for best results will be to remove all the existing insulation to permit finding and sealing all air leaks into the attic before re-insulating. The good news is that most of the long term remedies for ice dams have the added benefit of significantly reducing heating and cooling costs, and may even extend the life of heating and cooling equipment.
November | December 2011
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Minnesota Communit y Living
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November | December 2011
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Oh, the Holidays Can Be Tough! From: The North Pole Homeowner’s Association To: The Claus Family Dear Mr. Claus: We are instructed by the Board of Directors to inform you of the following violations: Your sleigh is a recreational vehicle, which is prohibited by the covenants. When we told you to move it from your yard, we did not intend for you to place it on your roof. Please remove it from your premises. Red and Green colors on your house clash with the common scheme of the neighborhood. You must choose approved colors from our color book and submit an application for repainting to the Architectural Review Committee. You are feeding wild animals, which appear to be diseased. The sickest is the one with the shiny red nose. Some would even say it glows. You must discontinue this practice immediately, or we will call animal control. You are storing toys and games in a huge canvas sack in your yard. Be advised that all outdoor storage must be approved by the Architectural Review Committee, and must be of the same style and finish as your house. It appears that you are operating a day care center and/or workshop in violation of the covenants. Through the fence we hear the sound of laughing, playing games, and shouting out with glee. There are numerous small persons on your property and the clatter and activity is disruptive. The amount of mail you are receiving exceeds what will fit in your ARC approved mailbox, so you must make arrangements with the Postal Service for alternate delivery at a post office box or a business address. You have made unauthorized modifications to your home, which allow you to enter and exit through the chimney. You must submit an ARC application for your new entry, including evidence that it meets all state and local codes and is in harmony with other homes.
Managing to make a
difference 30 years of association management experience Reserve Plans are included in our management program Proactive management, including weekly property visits Smart, expert, professional advice
You have been observed making a list and checking it twice, finding out who is naughty or nice. You have no authority to do that and it is divisive. It is the function of the Covenant Compliance Department to determine who is naughty or nice. Thank you for your cooperation and understanding in complying with this letter. If you do not comply within ten days, we will refer these violations to our attorney. Respectfully, North Pole Homeowners Association
Omega Management, Inc.
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Minnesota Communit y Living
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To schedule a free initial consultation with us, or a free initial inspection by a qualified consultant, contact managing attorney Jonathan A. Edin at 651-222-2155
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November | December 2011
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Progress Report By CAI Mortgage Matters
T
he challenges presented by the wave of federal regulatory proposals that are reshaping the mortgage finance system made the summer of 2011 one of the busiest advocacy periods in the history of CAI. At stake is the health and marketability of the more than 24 million homes in community associations. CAI and our members, working through our Mortgage Matters Program, have been focused on three critical regulatory proposals: a proposed federal rule on transfer fees, Federal Housing Administration (FHA) condominium mortgage guidelines and Qualified Residential Mortgage Regulations. Each of these proposals as initially drafted had the potential to negatively impact community associations. To make matters more challenging, the financial reform process triggered more than 200 regulatory drafting exercises by a host of federal agencies on topics that include banking, insurance, hedge funds, mortgages, auto loans, credit cards and other financial services. In this flood of new regulations, it is difficult for any single industry to get their message through to lawmakers, but thanks to the work of CAI, our members and our allies, we have been making headway in shaping this important debate. FHFA Transfer Fee Guidance: In late 2010 the Federal Housing Finance Agency (FHFA) issued a proposal that would have banned federally backed mortgages to any property in a community association with a deed-based transfer fee. Such fees are a common funding mechanism for community associations with up to 49 percent of associations using such fees to fund reserves, capital accounts or operations. If enacted as drafted, up to 11 million homes in community associations would have been unable to obtain mortgages. Thanks to an incredible effort by CAI members, the FHFA backed down from its initial proposal and issued a revised draft regulation that specifically excludes community deedbased transfer fees from the mortgage ban. The revised draft regulation is still pending, but FHFA’s retreat on the deed-based transfer fees put CAI on the map as a major player in the mortgage reform debate. FHA Condominium Guidelines: FHA issued new guidance in July in an effort to cor-
rect problems created by previous guidance on condominium requirements for FHA mortgages. FHA addressed longstanding issues raised by CAI such as allowing associations to impose rental restrictions, allowing for affordable housing units and added some flexibility for delinquencies. However, rather than completely fixing the issues with the program the new guidelines created a new set of challenges for condominium buyers seeking access to the more than 30 percent of all condominium mortgages FHA currently provides. Among the issues created by the new FHA requirements are: • A costly fidelity bonding insurance for management companies, which is commercially impractical and in conflict with some state laws; • A requirement that the submitter to FHA agree to keep FHA abreast of any conflict in the community and to assure FHA that a board will not take any action that might impact a borrower’s ability to pay their mortgage; • Inclusion of bank-owned properties in the assessment delinquency calculation; and • An announcement that FHA will not approve any condominium project with a deed-based transfer fee, despite the Federal Housing Finance Agency’s findings (noted above) that such fees benefit communities and homeowners. Stepping up the pressure on FHA to engage in a more transparent rule making process, CAI members in key states set up Mortgage Matters Teams and met with members of the House Financial Services Committee and the Senate Banking Committee during the month of August. This grassroots activity is beginning to pay dividends; FHA has already backed down from the manager bonding requirements and is now indicating it may back off its current position on deed-based transfer fees. Although progress with FHA has been slow, it is adopting the policy positions advocated by CAI and our housing allies. Now that the debate is favoring CAI and our members, we will continue to step up our pressure on FHA and Congress to more quickly resolve the issues FHA is needlessly creating in the condominium market.
Mortgage Regulations (QRM/QM): In August, CAI submitted more than 200 pages of comments to federal regulators on proposals to tighten mortgage lending standards and reshape commercial mortgage products. Working with a coalition of housing interests that include the National Association of Realtors, the National Association of Homebuilders and consumer groups, CAI denounced the stringent proposals that would have set mortgage standards so high as to exclude up to 70% of current borrowers. CAI praised a proposal that would require a lender to factor in association assessments in the loan qualification process as such fees are mandatory. However, CAI was critical of the proposal which would have required the lender to assume that any special assessment in place at the time of the loan qualification determination would continue for the life of the mortgage. The comment period on these regulations closed in August and revised regulations are expected to be released in late 2011 or the first quarter of 2012. As we fight for our members, we will work to build new avenues of communication between CAI members, federal regulators and key members of Congress. Our success depends on the ability of every CAI member to respond to calls to action to make sure that our members can get access to fair and affordable mortgage products. The market is a fickle place, and any regulation or law that creates added costs or barriers for purchasing in a community association could result in a shift away from the community association model of housing that has dominated the markets for the last 30 years. Such a result would harm all CAI members. The good news is that we have demonstrated that when we make our voices heard, we can shape the debate and achieve positive results in the face of big challenges. As part of our ongoing Mortgage Matters Program, CAI is working to protect homeowners in community associations and to ensure access to fair and affordable mortgage products for all current and potential community association residents. You can follow our work and share your thoughts at www. caimortgagematters.org.
November | December 2011
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Minnesota Communit y Living
How Will Your Current Snow Removal Contracts Be Affected by Last Season’s Record Snowfalls? By Steve Hoogenakker, Concierge Landscape
C hourly or per time.
ICs have traditionally had their snow removal services budgeted by the month or season, while commercial properties budget
Why monthly? In a heavy snow season, like last season, board members are trying to explain why they’ve blown the budget by 50-100 percent. Is this the smartest way to budget your snow removal? It depends on the winter and the contractor. We are seeing major shifts from contractors and HOAs this fall because of last winter. HOAs and contractors are moving in opposite directions! HOAs that had large snow hauling bills are asking for more “all inclusive” contracts and some respected snow contractors are refusing to bid some management companies contracts that are all inclusive and they are asking for more revenue options for heavy snows and for icy conditions, so what’s the answer?
Here’s what happens behind the scenes when you ask for snow removal bids. The contractor goes out to the site and estimates the number of hours it will take to fully clear out the snow. He multiplies that per price bid by the number of snow events he expects. This part is highly subjective. Even when the Farmers Almanac says we will get a heavy or cold snow season, Mankato or LaCrosse or St. Cloud could have differences of 30 percent snow totals for the season. So when going with a seasonal price, you are banking on average to heavy snow for the season. This has many benefits and a few drawbacks. On a lighter snow season, the residents might complain about paying a monthly price when no service has been provided. Benefits are many. Except for hauling snow off the property and salting, you already know your budget. The other benefit is the realization that a snow event requires a lot of equipment and people at the ready. During the 150 days of the snow season, that equipment sits for about 100 days. By giving the contractor a monthly amount, he’s able to keep more equipment and people on hand to ensure your property gets taken care of. There are a dozen or so lawn/snow contractors in the Twin Cities that really specialize in townhomes. Because CICs are usually seasonal priced accounts, I believe these contractors do a better job because they specialize in townhomes and because you have given them the monetary resources to respond to the needs of your community ASAP. This also means that CICs should expect better service when they make this upfront commitment.
bS
First, realizing there’s no such thing as a free lunch. When you ask for an all-inclusive bid (meaning all salting and hauling is included in the contract), you’re telling contractors they better figure in all their possible costs when submitting their price. The good contractors will figure in responsible amounts of equipment, manpower and materials and will have a higher price. The less experienced contractors will forego this step and submit a low bid. You might take the best contractors out of the running and be only considering the poorer contractors. If a contractor with
few resources runs into problems, you could be left with an unplowed lot or hazardous conditions.
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What about hourly or per time bids? Unless you have someone up all night watching the parking lots, 763.544.3355
you have to have a contractor you can trust doing hourly work. Also, commercial per time or hourly contractors tend to have more subcontractors working on them. It makes sense. With an hourly price, a national company can hire subs at $60 per hour and charge $70, collecting a risk free, guaranteed 17 percent gross profit. Not so safe with a monthly contract. I also detailed in an earlier article that because of the high snow amounts last winter, pickup trucks became essentially useless after January because they couldn’t lift snow above the piles on the corners. So, looking at a contractor’s equipment list heavy, in-skid loaders might be a plus because they can stack the snow while piling, reducing the need for expensive hauling. What if you just don’t have the funds? Twenty years ago, HOAs had trigger depths of 2 to even 4 inches. A trigger depth is the snow depth at which snow removal operations started. In the last 5 years, trigger depths have been lowered to an inch, a half inch or on some condos even a trace! Raising the trigger depth from 1 inch to 2 inches might save 25 percent or more. What’s the recommendation? If there are adequate reserves and cash flow is not an issue, a per time can contract be a cheaper method in the long run. If cash is tight and you really need solid budgeting, then a monthly/ seasonal contract is the way to go. You might want to consider the condition of the board of directors. Some boards are unfairly “under siege” because they put forth some unpopular policies or tackled difficult issues. Having a set budget amount is more unassailable than a large budget buster. No matter which direction you choose, if you have a contractor that is in sync with your manager, board and homeowners, keep them and nurture that relationship; you’ll be glad you did.
763.544.3366
November | December 2011
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A Reserve Study = “SMART” Leadership for the Jonathan Association
By Nate Bostrom, The Jonathan Association
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he Jonathan Association in Chaska – with 3,000 homes, 20 miles of paved trails, 47 covered mail stations and bus shelters, 19 tot lot playgrounds, 34 neighborhood entrance monument areas, 23 individual neighborhoods, and a resident population (8,000) that is larger than 75 percent of all Minnesota communities – is one of the largest homeowner communities in the State of Minnesota. For a common interest community organization of this size to be effectively managed, its Board of Directors must be “SMART” in its annual budgeting and planning efforts. A homeowner association’s annual revenue and expenditure projections must reflect current specific financial and general economic realities; and Jonathan’s Board is guided by the “2039 Plan,” a 30-year reserve funding and property replacement schedule created via a reserve study which was conducted in 2009. “This is perhaps the most important tool that we have at our disposal,” says Jonathan President Nate Bostrom. “We believe that a reserve study, in our case the ‘2039 Plan’, provides us with empirical research and hard numbers to guide our budgeting decisions.” Using the “2039 Plan” enables Jonathan to be “SMART” in its budgeting & planning efforts: S = Strategic For three consecutive years the Jonathan Association Board of Directors has compiled an annual list of “Strategic Priorities,” which provides structure and intentionality to the Board’s leadership decisions throughout the year. This type of “to do” list guides the Board members along the way, and also gives a clear idea to all homeowners as to what they might expect of their elected leaders. As they collaborate in setting “Strategic Priorities” for each upcoming year, the Jonathan Board members realize that not everything they need to address is contained in the “2039 Plan,” but having this reserve study-based tool at their disposal helps them determine strategies, tactics and priorities.
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Minnesota Communit y Living
“Setting our strategic priorities in a collaborative way helps the Board to create and then maintain its focus,” says Bostrom. “It helps us remember that while ‘management’ is about doing things right, our responsibility as Board members (i.e., providing ‘leadership’) is to do the right things.” M = Measurable The old saying, “you can’t fix what you don’t measure” is a vital component to successfully achieving favorable organizational outcomes in any economy – but is especially true in challenging times of recession, commodity inflation, and home foreclosures. “In our annual budget planning process, the Board tries to answer the important questions of who, what, why, when, where, and how,” says Bostrom. “Not only does this approach enable us to more accurately forecast costs and predict timeframes, but it also helps our leadership team avoid the all-too-common mistake of confusing motion with progress.” Bostrom believes that the “2039 Plan” is invaluable in that it helps the Board achieve measurable annual results, especially in the areas of overseeing project management and choosing specific capital improvements. A = Accountable The Jonathan Board believes that homeowners deserve to know their Board’s game plan and objectives, and for this reason the annual list of “Strategic Priorities” is published in the association’s quarterly newsletter (“Jonathan Neighbors”); the President’s report segment during each monthly Board meeting, which is always open to the public and is televised live on local cable television, is also focused solely on providing a progress update on the “Strategic Priorities” checklist. The “Strategic Priorities” also appear prominently in the association’s Annual Report each year, which is postal-delivered to every homeowner, along with an itemized list of Boarddirected accomplishments for each priority. Additionally, the “2039 Plan” is a permanent fixture on the Jonathan website. R = Relevant Recognizing that the process of setting budgets and prioritizing capital projects can fall victim to the personal opinions of individual Board
members, or be unduly affected by other influential stakeholders in the association, the Jonathan leaders hold up their “2039 Plan” as the standard for fairness and accuracy in decision-making. “When a Board has the factual findings gained by the professional services of an outside organization, it would be an indefensible decision to ignore this resource during the budgeting process,” says Bostrom. “I know of no better way to stay relevant in the year-to-year budgeting process than adhering to an up-to-date edition of a reserve study.” T = Template “One of the most important challenges for any organization is to maintain sustainability,” observes Bostrom. “For an association that means adherence to its Articles of Incorporation, its By-Laws, and a guide for the budgeting process – i.e., the reserve study.” The Jonathan Board of Directors views its “2039 Plan” as an important template that will outlast the normal fluctuations of myriad personnel changes over time which are so common to volunteer Boards. “Board members come and go, and as the years go by an association will be served by many different leaders and personal perspectives,” says Bostrom. “However, a reserve study-based tool like our ‘2039 Plan’ can provide an ongoing budgeting and spending guide that creates the kind of leadership continuity that every organization needs for sustainability.” With its focus on a span of 30 years, the “2039 Plan” has become one of the most enduring documents and planning resources available to current and future Jonathan Association Board members. “We really do see it as a ‘template’ that can influence all of our budgeting decisions – year in and year out,” says Bostrom. Summary The Jonathan Association’s “2039 Plan” – its reserve study-based planning tool – enables the Board of Directors to achieve measurable results, identify strategic priorities, and effectively prioritize capital projects via its planning efforts. “These are all deliverables of what Jonathan calls ‘SMART’ leadership,” says Bostrom. “Frankly, I don’t know what our Board would do without the Association’s reserve study.”
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