2007 was a tough year for HOA Boards financially, as were the years before, but 2008 was even more challenging, and now we are facing similar problems in 2009. Decisions will have to be made about HOA building, facilities, and grounds maintenance and where to put the dollars (if any can be found) is the question. I was at an ECHO East Bay Resource Panel meeting recently and the discussion was, as is common these days, the problems that the HOA boards face every day because of foreclosures and shortfalls in the reserves. We shared thoughts and came to some conclusions that may work to help convince boards to honor their "fiduciary duties" under the law without scaring them into running for the hills or getting them "run-out-of-town-on-a-rail." Here are some realities: "Tough Love" is in order in many HOAs. A big part of the problems HOA Boards face today is, of course, a shortage of funds in reserve for big projects. It has long been a problem for many HOAs, especially self managed HOAs (who are without someone reminding them on a regular basis of their fiduciary duty), but the virus is spreading exponentially to many more HOAs because of the foreclosure crisis, the fallout of the sub prime loan debacle, and the raiding of reserves to pay the shortfall in operating expenses because of these things.  Boards have to take measures that may be painful to the members, but necessary. That may mean pushing a special assessment to do a project that is needed, even if it results in some more foreclosures, or turning the heat off in the pool.

It is also important to acknowledge that a big part of the reason that many HOAs are in trouble today is a result of pinching a penny too tightly in the past years, assuming that when the big projects came up, that the Board would be able to find sufficient options for members to be able to pay, such as through a bank loan or individual equity loans, and/or including special assessments. But guess what? You cannot squeeze blood out of a turnip and today, a lot of those options have either dried up (property equity for example) or become more difficult (like qualifying for a commercial loan when delinquencies are high.) That does not mean building maintenance or reconstruction has to come to a halt or life as we know it should stop. There are some viable cost cutting options today that are not always available and may also be light at the end of the tunnel for some of the important projects since competition and market factors are driving the cost of services and products down. In past years, the mind set has commonly been to lump projects together to save money, such as siding replacement when painting was accomplished, or combining those projects with a re roofing project even if all the siding did not need to be replaced or the roofs were not at the end of their life, specifically to take advantage of the economy of scale. The common assumption was that doing things on a larger scale constituted an overall savings and also that getting one loan over imposing smaller separate assessments or raising the regular assessment was a better plan.

Today, what is difficult is that Boards need to focus on the other side of the equation too ­ such as ­ if we bite off more than we can chew, will we cause the solid owners to go down with the less fortunate. For example, if there is a big assessment and the HOA cannot get a loan, and 10% of the owners cannot pay and their homes go into foreclosure, will they take down another 10% or more who cannot withstand the added expense of the assessments that were not recovered, and maybe cause a revolt? It's a serious concern, but not the only one for sure.

All this said, HOAs are not without remedies. Here is some food for thought:

Cut the fat: Like the government, some HOAs would do well to cut the fat ... but where and how? Here are some suggestions (think in these terms: just tighten the belt, do not cut off the circulation...to make it through these times):

Review all HOA contracts, see if you are getting your money's worth, consider whether you might want to seek competitive bids for some services (but see warnings below before going off in the wrong direction.)

Consider whether temporary closure of less-used facilities that are draining funds with little benefit to owners; consider whether alternating days or weeks in areas such as heating pools or offering services makes sense.

See if there are any non-necessities or amenities that can be reasonably be cut out of any contract or service that the HOA is receiving. Investigate as to whether there are any viable energy savings alternatives.

Look at technology if you have paid office staff or equipment to see if there is anything that can be done electronically or technologically to minimize staff needs or replace a piece of machinery that needs to be maintained with something more efficient.

Ask the question as to whether HOA work crew volunteers might be a solution to some of the work normally done by paid contractors. Heck, see if a bake sale each week might help might help keep the lights on in the clubhouse! (Hey, it's a fair question!)

See if there are any "green" alternatives available for utilities or amenities that might lessen costs.

And last but not least, get on the web and research what cities, counties and to wns are doing to cut costs. They are in the same boat you are. The tax base is threatened and income has been cut drastically.