Governing is a big challenge for a small town or HOA

By Deborah Goonan, Independent American Communities

Today I’m going to switch gears a bit and blog about small town governance. Then I’ll connect the dots by comparing small town politics to politics in Association-Governed Residential Communities.

Check out this interesting article about Colwyn, Pennsylvania, population 2,500.

Colwyn, Pennsylvania: The Town That Can’t Seem to Govern Itself
Colwyn, Pa., is a perfect example of what happens when virtually every aspect of local government breaks down.

http://www.governing.com/topics/mgmt/gov-pennsylvania-colwyn.html

Striking parallels with Association-Governed Communities

When you read about the chaos that has ensued in Colwyn, you will see many parallels with homeowners’, property owners’, and condominium associations. Here are some examples, excerpted from the article, in reference to findings of a state intervention team tasked with helping the small borough on the road to financial stability.

The town had no ledger and no budget to speak of. The team had to piece together how Colwyn had been spending its money by using bank statements, cancelled checks and tax records. “The Borough of Colwyn has not been a functioning representative democracy for years,” the team warned in October. “The citizens lack the basic information required for them to cast meaningful votes. And the elected officials lack accountability to the citizens.”

…

Indeed, Colwyn’s elected officials have been more consumed with infighting than running the government. The fire department, police department and building code enforcement divisions have all been enmeshed in scandal. The widespread chicanery is apparently keeping the district attorney very busy. A grand jury is digging into Colwyn’s finances, and prosecutors twice raided the local fire company. On Monday, the district attorney issued arrest warrants for three fire company employees on charges of theft.

 

Wow. Sound familiar?

Under Act 47, Colwyn has been declared one of PA’s financially distressed cities. Only 29 cities have earned this dubious designation since 1987. According the the article referenced, only 9 out of 29 distressed cities have recovered.

But considering that the state has over 2500 units of municipal government, 29 is a very, very small percentage of complete failures over a period of nearly 3 decades.

Dare I mention that the failure rate for Association-Governed Residential Communities far exceeds that of local municipalities? No one is really keeping track of such failures, but anecdotally, we know the number is much higher than 29 failed Owners’ Associations in 30 years.

But has anyone ever wondered why?

Problem #1: No Economies of Scale

Let’s use a little common sense. Whether we are talking about a small town or the vast majority of Association-Governed Residential Communities, one of the biggest disadvantages of small populations is that there are fewer people to help share the costs of maintaining various infrastructure or amenities such as parks, pools, or tennis courts.

The larger the population that contributes to services, the greater the economies of scale. Although the overall cost of providing a service – let’s use the example of a sewer treatment plant – increases with the number of customers served, the price paid per customer falls as the number of customers increases. (For a more detailed explanation, see this definition and example.)

This is the main reason why so many aging communities have a difficult time maintaining major infrastructure such as roads, storm drainage, water utilities, and exterior components of multifamily buildings.

Problem #2: Not enough qualified leaders

As illustrated by Colwyn and countless homeowners’ and condominium associations, it is exceedingly difficult to find, let alone freely elect, highly qualified leaders – either council or board members – who will effectively manage finances and steer the community in the right direction. The smaller the community, the more difficult it becomes.

Generally, after a few years, an effective small town leader will move out of that community to pursue a better job either in a for-profit industry or as an elected official in a larger town, city, or county.

In the case of an Association Board member, however, the position is unpaid and rarely serves as a stepping stone to higher office. Therefore, volunteers tend to be limited to people who have plenty of spare time. That can be a good thing or a bad thing, depending on the individual’s personality and motives for serving on the board. Unfortunately, it is quite common for HOA Board members to benefit from their service in other, less obvious ways.

In either case, the qualified candidate pool is slim to non-existent in many small communities. And the people who are willing to serve might even do more harm than good.

But, what happens in times of trouble?

So far, I have pointed out several features that public local governments (municipalities such as cities, towns, and boroughs) have in common with “private” local governments (homeowners, property owners, condo, cooperative associations).

But here’s the key difference. When a municipality is distressed, the state intervenes with a recovery plan.

Colwyn’s draft plan includes a 10-year interest-free loan from the state treasury, a recommendation to sell its private sewer infrastructure to the regional water authority so that Colwyn can relieve itself of an impossible financial burden, and a requirement to hire a professional borough manager to provide needed guidance for a council that lacks the skills and knowledge it needs to lead effectively.

When an HOA gets into similar trouble, County and State governments avoid intervention like the plague. Homeowners and tenant residents caught in the crosshairs of severe corruption and dysfunction are told their problems are “civil matters” to be settled in court, even when matters of public interest are at play.

Generally, living conditions in failing associations have to reach the point of desperation, and the growing prevalence of violent crime or egregious social injustice, before any governing agency will offer assistance. It’s as if 70 million residents in Association-Governed Residential Communities are citizen orphans in their own states.

Readers of this blog will note many, many examples to support my analysis.

Now the question is, what can we all do about it?