Dissecting the CAI white paper manifesto on Association  Governance (part 1)

By Deborah Goonan, Independent American Communities

image

Today’s blog examines Community Associations Institute’s (CAI) Panel Report on the Association Governance model, helping the reader to understand their political agenda. Part one will critique the Panel’s conclusions regarding relative size of associations and the composition of the boards.

Note to readers: CAI refers to Common Interest Communities (CICs) in their official white papers. The term is used to collectively refer to Association-Governed developments in all its forms – homeowners associations, condominium associations, property owners associations, cooperative associations, mobile or manufactured home associations, and master planned communities. 

The paper referenced today can be viewed here:

Community Next: 2020 and Beyond The Association Governance Model Panel Report

https://www.caionline.org/AboutCommunityAssociations/About%20Comm%20Assns/CAI%20-%20Community%20Next%20-%20Association%20Governance%20Model%20Report.pdf

A few highlights follow, along with some common sense analysis. Let’s start at the beginning, with CAI’s core assumption that the growth trend for CICs will continue.

As a result of local government regulation, CICs are becoming an even larger percentage of the U.S. housing market. As this trend increases, legislators and the courts will have no choice but to make reforms to current statutes to facilitate both growth in the industry and to reflect the governance realities facing associations. …

Why are we to simply accept that CICs must continue to grow into an even larger percentage of U.S. housing market? Do Americans want the CIC – Association-Governed Development industry to become “too big to fail,” just as the large financial institutions that finance the real estate market in the U.S.?

Fundamentally, if consumers and voters demand that CIC development trend is reversed – as it should be – then legislators and the courts will not have to bend to whims and agendas of real estate trade groups in order to “facilitate growth in the industry.” Instead, state and federal law (including the U.S. Constitution) and housing policies should supersede backward and destructive local government regulation that perpetuates the CIC model to the exclusion of other residential housing models.

… However, the panel felt strongly that these needed changes could be brought about earlier through a concentrated effort by the community association industry, i.e., homeowners, managers, professionals, CAI and its concerned affiliates—AARP, NAHB, NAR and other organizations.

 

CAI is a bit presumptuous here. The “community association industry” does not, in fact, include homeowners in any meaningful fashion. CAI’s organizational structure includes a few token “homeowner volunteers,” all of whom must have served on their association’s board as well as a CAI chapter or national committee board. Just two of CAI’s 15-member board are designated Community Association Volunteers. Homeowners at large have no voice in CAI. (See CAI’s By Laws, page 7 and 16 respectively) It defies common sense to insist that consumers (homeowners) are also members of the industry! Why does CAI mislead the public into believing it represents homeowners?

 

Size of Association matters

Associations, lawmakers, developers and managers of the future will need to find ways to ease the burdens of the association model for very small associations. Ideally, small associations would be exempt from irrelevant or inappropriate state statutes. And developers of these small associations would be relieved of the requirement even to establish an association unless a minimum number of homes are built, with restrictive covenants and deed restrictions being among the alternatives that provide homeowners in these projects with some measure of protection regarding matters such as architectural control.

 

Extend this logic a bit further. Developers could and should be relieved of the requirement to establish an association, regardless of the number of homes built. First of all, developments of more than 20 homes but fewer than 50 – 100 homes face similar practical and financial challenges. Generally, small associations must share maintenance costs among fewer property owners, and must select leaders to serve on the board from a small candidate pool. Objective, non-selective enforcement of covenants and restrictions becomes impractical in communities where everyone knows your business and insider vs. outsider cliques tend to form.

And there is no need for restrictive covenants and deed restrictions at all. But to the extent that they exist, restrictions should be subject to Constitutional review prior to being formally adopted and recorded.

image

Who will serve on the board?

On the issue of who will lead associations and how they will be governed, the panel’s report is somewhat contradictory. Regarding the future of millennials as board members, it is suggested that associations be “less governmental” and “more social.”

 

In 10 to 15 years, most boards will include millennials. As a group, Millennials are civic minded and want to have an influence in shaping their organization and its future. However, under the current association model their influence would be limited. Millennials distrust institutions, and associations are institutions. Accordingly, the environment must be less governmental and more flexible and social if we are to gain their participation in the association.

 

But then CAI goes onto to insist that boards need to be competent and suggests a “corporate model in which the association president is the CEO.”

 

Association operations have already become very complex; future operations will be even more so. At some point, board expertise and qualifications will have to be more carefully controlled. As this may stifle some amount of volunteerism, associations may turn to professional board members. These individuals won’t necessarily live in the community. Like portfolio managers, they might work for several associations simultaneously. Other communities may outsource governance duties to professionals who will interface between homeowners and the manager.

Communities may also turn to a corporate model in which the association president is the CEO. This position would be paid, and this person would make the big decisions. This CEO position might be filled by a manager, by a community resident or by a corporate executive. The balance of the board would include volunteers who would function under the CEO/president’s guidance. In this model, the CEO would work closely and directly with a professional manager.

 

CAI is acknowledging that demographic makeup of a development’s residents – factors such as socioeconomic status, age and stage of life, household size, educations levels, and more all determine the availability and the quality of board leadership. A 55+ townhouse community, or an affordable housing condominium project, or a family oriented single family subdivision, are not equivalent to a luxury condominium tower or enclave of estate homes on 1-acre lots.

What the panel fails to mention is that the demographic makeup of an association also affects the availability of aggregate revenue that can be consistently generated from assessments. Unless the housing development is of sufficient size and mix of household incomes, long-term financial viability will remain a challenge for many associations, and impossible for some.

Instead, the panel jumps to the conclusion that if boards were more competent, CIC Associations would function better. That, in turn, leads to CAI’s proposal for its self-preservation: associations of the future must be managed by a corporate CEO with absolutely no ties to the community.

Well, why don’t we import “professional” Mayors and City Councils from other cities, counties, or states, for that matter? Because, if the direction of this country is to gradually replace all residential housing stock with CICs managed by corporate associations, then we might as well do away with public offices altogether, and just turn the U.S. into one giant corporation with millions of subsidiaries.

The notion of doing away with local government leaders and devaluing public service – in favor of hired business leaders to increase profits for the community management industry – is particularly objectionable and absurd.

image

Police Powers of Associations

Board members are required to enforce rules. Unfortunately, most are unprepared and unqualified to fulfill this important function. Even when public laws are broken (nuisance, malfeasance), local municipalities frequently claim, “It’s a private matter, take it up with your board.” So it falls to boards to police residents’ behavior. Many people who are new to association living, and especially those who have different cultural paradigms, have difficulty comprehending the idea of neighbor “police” enforcing rules they don’t know about or that they don’t understand.

 

Again, is the American public to sit idly by and accept the fact that our local governments have washed their hands of all responsibility for law enforcement in association-governed CICs? After all, every homeowner pays taxes to the local municipality or county to enforce ordinances and laws for matters that occur outside of CICs, so why are these residents not entitled to the same level of service?

The truth is that the vast majority of homeowners do not want to police the behavior of their neighbors, and the few that relish this duty tend to abuse their power and authority.

According to the U.S. Constitution, police powers are supposed to be reserved for paid public servants, subject to legal constraints that protect and uphold the individual rights of the accused. Every American is entitled to rigorous due process where the individual is presumed innocent, and where disinterested parties are to render a verdict of guilt only after careful consideration.

But most homeowners and residents recognize that due process in their association is more like “kangaroo court,” devoid of any semblance of civil procedure, neutrality, or adult supervision.

Furthermore, in most associations, the rules themselves are vague, unreasonable, or blatantly unconstitutional. Outside of an association-governed CIC, for example, it would be illegal to fine or otherwise penalize a homeowner for painting their house a distasteful color, failing to store their trash cans in their garage, or hanging a seasonal decoration on their apartment door. Somehow, these ridiculous rules are enforced with vigor in some CICs, to the point of resulting litigation or threats of foreclosure. The punishment hardly fits the “crime.”

 

Conclusion:

In order to solve CIC governance problems, it’s time to think outside the CIC box. We need to unwind collective ownership and common interest entanglements in existing developments, on a case by case basis. At the same time, we need to stop creating new CICs. Doing so automatically eliminates the necessity of an association to “police” its members, resolve its own conflicts, elect a volunteer homeowner board, and hire “professional” managers. Minimizing or eliminating common interests shifts responsibility for public administration back to municipalities and counties, where it rightfully belongs, under Constitutional constraints and rule of law with respect for individual rights.

 

*Note: George Staropoli inspired the use of the word “Manifesto” to describe this written collection of the future of the Common Interest Community industry, according to CAI’s vision. See: CAI manifesto: CAI’s plan for HOA-Land in America

 

 

 

 

 

 


Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s