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October 7, 2008
Even Tougher Times Ahead
The nation is finding out what we here in Michigan have known for quite awhile. Things aren't going too well for the economy. Blame is flying everywhere, but when you get right down to it, we're all too blame. We paid too much for housing, we charged for things when we should have paid cash, we elected the people who are making the decisions, we hold too few accountable for their actions until after the fact, we listen to rhetoric rather than demanding facts, and we read e-mails and watch "reality shows" rather than reading newspapers and magazines that actually have information to learn from.
The news about associations over the last six months has gone from bad to worse as foreclosures have taken a large swipe at operating funds, and boards are struggling to keep things running with less to work with. The margin for error in financial decisions has been reduced to zero and some associations that have also been hit by natural disasters are finding that skimping on insurance coverage or raising deductibles can come back to haunt you at the worst possible time. I feel sorry for those associations in Texas that will be faced with trying to borrow funds to make up for insurance shortages, just when the credit markets are essentially closing down.
If there was ever a time for all owners to get involved in their association's activities.....if there was ever a time when board members and professionals needed to step up to the challenge.....if there was ever a time when it was important to be proactive rather than reactive, it is NOW! You may not know where the economy is going, or what might hit you next, but you need to start making contingency plans to deal with a wide spectrum of possibilities.
Take a look at your budget and ask yourself what you would do if you only had 90% of the projected revenue. 80% 70% 60% 50%
What is your financial plan if a natural or man-made disaster hits? How do you cover the un-insured portion or the deductible? Don't just think in terms of hurricanes or floods.... there were over 1,000 fires in condos last year, most damaging multiple units. How is your plan impacted under the revenue reductions above?
Many state laws and governing documents prevent associations from using capital repair and replacement reserves for any purpose other than the ones intended. In other words, they are not a contingency reserve. But do your documents allow the association to borrow from them? This may help spread a short-term loss recovery over a longer, more affordable period.
Spend time with your contractors and professionals. Talk to them about squeezing every penny you can out of the contracts. They won't want to lose the business and there may be some services that you can delay, forget or reduce in the short term.
Don't skimp on the number of communications with the owners or in the amount of information provided. This is a time when you really need to put the "community" in community association. Cut paper quality, deliver them by hand and by e-mail, but it's more important than ever, to keep them well-informed about what's happening to the association.
Don't be so negative that you create a self-fulfilling prophecy. One of the more frequent comments I've seen in the news from associations in financial trouble is an owner saying "Well, everyone else isn't paying, and the services are dropping, so I'm not going to pay either". The message should always be about what you ARE doing, not what you aren't doing.
Owners - board members are just owners with added responsibilities. They are facing the same issues at home as you are. Now is not the time to be petty or nagging, but to pitch in and help.
I remember watching the New Orleans flood on TV, with all of the people at the dome yelling about the government not being there to help them. There was a questiona at the time as to whether it was a racial issue. I thought - maybe - but I also thought it was an "urban-rural" issue. During the Mississippi floods a few years earlier, when so many towns along the river were threatened or flooded, you'd see all of the citizens, regardless of race, throwing sandbags and trying to protect their town - none asking where the government was - just pitching in.
To the owners of homes in community associations, this isn't the time to crab about what the board is or isn't doing - it's the time to roll up your sleeves and help.
Posted by joewest at October 7, 2008 10:14 AM
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