How government uses HOAs and special districts to create stealth tax

How many layers of government do we really need?

By Deborah Goonan, Independent American Communities


Have you ever stopped to think about all the costs associated with owning a home? Property taxes. Homeowners, condominium, or cooperative association maintenance fees and assessments. Insurance. Short and long term maintenance.

Homeowners and home buyers may not fully understand that living in a planned common interest community comes with several additional layers of financial obligation. Today’s article illustrates that point by example.

Take two homes with similar qualities and locations – one burdened by a mandatory association of some kind, and the other not. Property taxes apply to both of those homes based on their assessed value. Those taxes pay for maintenance of public roads, traffic control, public storm water infrastructure, County emergency services, public recreational amenities, social services, public health programs, public housing, and so on.

But the homeowner in a common interest community will have the additional obligation to pay mandatory HOA assessments. Depending on the community, HOA assessments will pay for maintenance of “private” roads and storm water infrastructure within association boundaries, private security staff and monitoring equipment, recreational amenities exclusive to the community, and any other amenity considered exclusive to use by association members.

Condo and townhouse associations pay even higher fees for maintenance of shared living spaces and maintenance of exterior lots or communal grounds.

But there is quite a bit of overlap, with the association-governed community paying for many of the same services twice — not only for services in its own community, but also for services to the municipality or county beyond its community’s territory.

That’s why you’ll hear some critics of HOAs, and advocates for reform, refer to the insidious practice of double taxation.

Of course, as listed above, property taxes also pay for additional services and amenities that are not provided by private communities.

To add to the layers of taxation, in recent decades, many property tax bills now fund a combination of more traditional governments (municipalities and counties) and various limited or special purpose units of government, generally referred to as Special Districts or Tax Districts. Those appear as separate line items on your annual property tax bill.

Some examples: Libraries, emergency management, conservation districts, and, of course, school districts, which account for a major chunk of property tax bills.

Many of these special districts exist because their boundaries usually do not coincide with boundaries of municipalities. Typically, a special district will span 2 or more small municipalities. Or, the opposite might apply. A special district might only impact a portion of a municipality such as a shopping district or history district.

But while your city or town politicians may brag about no tax increases, what they don’t usually acknowledge is that taxes assessed by one or more special districts are on the rise.

And, of course, we all know the national trend for HOA assessments – they are increasing faster than home values and often exceeding the rate of inflation.

Why are there so many layers of government, including association-governed communities and special districts?

It comes down to the cost of constructing and maintaining infrastructure and who should bear the burden of paying for the growth of a city or county.

A recent article Lawrence-Journal (Kansas), reports that a small group of homeowners in a new suburban tract development may be on the hook for paying $5 million to construct a road serving their new neighborhood.

Homeowners recently attended a City Commission meeting to voice their objections, and their expectation that the City taxpayers at large should pay for the new road. But the city is proposing that the cost of a new road and traffic signals be the exclusive obligation of homeowners in a “benefit district” (special tax district) that was established early on in the development of the subdivision.

Aside from the fact that homeowners say they were not informed about the “benefit” district prior to purchasing their homes, the underlying attitudes behind the controversy are made crystal clear in Rochelle Valverde’s account of the City Council meeting.

I have emphasized the key concepts in the excerpt below.

Lawrence City Commission weighs who should pay $5 million cost to improve suburban road

By Rochelle Valverde
June 7, 2017

Property owners near Queens Road — the rutted and partially gravel road running through a swath of new homes and apartments in northwest Lawrence — may have thousands of dollars added to their property taxes to improve the roadway.

As currently proposed, nearly all of the $5.3 million to reconstruct the road and add a traffic signal at its intersection with West Sixth Street will be split between dozens of property owners in the benefit district. Instead of seeing the cost showing up on their mortgage payments or tax bills, homeowners near Queens Road said they want the city at large to pay for the improvements.

In speaking to the City Commission Tuesday, many homeowners noted that there are other roadways in and out of their neighborhoods and that they weren’t aware they were in a potential benefit district when they purchased their homes.

“We bought our homes completely unaware that this project could ever grow to the extent that it has or that it would become our financial responsibility to pay for it,” said Pat Miller, who lives in Park West and owns a home in the district. “Very simply, we just can’t afford it. It seems blatantly unfair to place this burden on our subdivision.”

Mayor Leslie Soden also said she doesn’t have a problem with the city taking on a greater share, but others were more hesitant. Vice Mayor Stuart Boley said the topic needs to be looked at in context, and that the discussion gets at an issue that expands beyond just Queens Road.

“This road is going to be built, as I understand it, to accommodate the growth out in this part of the city,” Boley said. “And should people (elsewhere in the city) have to pay for that?”

Soules noted that if the city does decide to take on a bigger share, that other projects in the city’s capital improvement plan will have to be removed or postponed to compensate.

Boley said implications of the decision need to be considered.

“If we say, ‘Oh, we’ll just have the city do it,’ then people who paid their specials like my neighborhood 50 years ago, we’re going to be paying for that,” Boley said. “So, let’s put this in the context of the whole city. Let’s talk about, when we grow, does growth pay for itself, or does the city subsidize it?”

Read more:


And there you have it. The real reason we have tax burden bait and switch tactics involving new development is that some municipal or county leaders do not want to make any upfront investment for adding housing or commercial property. Oh, they want more people and businesses to move to their city or county to generate tax revenue, but they also want those newcomers to pay the lion’s share of the cost of infrastructure to accommodate new homes and commercial centers.

But notice that an increasing number of government officials and taxpayers are starting to object to this piecemeal approach of making new home buyers and developers pay for growth, even though local governments generally benefit from economic development in the long run.

Here’s how a City tries to force a homeowners association down the taxpayers’ throats

Meanwhile, over in Champaign County Illinois, homeowners of Timberline Valley South subdivision face pressure from County officials to form a homeowners association (the community does not currently have an HOA), because, somehow two retention ponds were recently sold to a private shell corporation at a tax sale for the drainage district.

Again, homeowners had no clue that a drainage district existed. And most had no idea that one homeowner in Timberline Valley South was paying $30 annual tax on the two ponds at the center of the dispute, but later stopped making those payments.

The developer never established a homeowners association, and most of the residents purchased their homes specifically because they liked the idea that they would not have to deal with HOA rules and additional assessments.

But Champaign County never wanted to pay to maintain these ponds, which is why the drainage district was created in the first place. The only problem is that, for unknown reasons, apparently there was only one taxpaying member assigned to the tax district.

Clearly, $30 per year would not cover the cost of liability insurance, let alone long term maintenance.

As covered in an earlier blog, the circumstances surrounding the sale of these two ponds is highly suspicious. And now the homeowners may be forced to hire an attorney to sort through this administrative mess.

You can get a sense of homeowners’ frustrations from the following TV news report from WCIA. I have once again emphasized a few key points in bold.

City holds meeting on situation with ponds
“He’s basically threatening all of us with trespassing on his property.”

By: Aaron Eades
Posted: Jun 06, 2017 10:51 PM CDT
Updated: Jun 08, 2017 11:44 AM CDT

Latest: 11:40 am, 6/8/17, Thursday

CHAMPAIGN COUNTY, Ill. (WCIA) — County officials say the man who bought two ponds in a Champaign neighborhood owns them fair and square, but it’s going to cost him.

A man from suburban Chicago both ponds in the Timberline Valley South subdivision after the owner stopped paying drainage taxes.

The supervisor of assessments’ office says, previously, the ponds were classified as “common areas” not owned by anyone so there was no assessed value.

But, since they’ve been bought, they’re now private property. It means the new owner will have to pay property tax on them. How much depends on the value the township assessor decides they’re worth.

The owner says he works for a company called Nasty Joe’s and has threatened to make homeowners pay rent to use docks or charge them with trespassing.

At a meeting Wednesday night, police said they likely wouldn’t enforce those charges.

Update: 10:00 pm, 6/7/17, Wednesday

CHAMPAIGN, Ill. (WCIA) — Dozens of homeowners came to the meeting with questions about their subdivision’s ponds, but many left with even more.

City staff members told residents of an area neighborhood they need to organize and hire a lawyer.

After someone stopped paying the taxes on these two ponds in the Timberline Valley South Subdivision, a man in suburban Chicago bought them. Since then, he’s threatened to make homeowners pay to use their docks or charge them with trespassing.

City representatives did their best to explain what they know and try to help the neighborhood. Their biggest suggestion is for them to form a homeowner’s association.

Read more (Video):


It is abundantly clear that the County wanted to shift the ongoing expense of maintaining these two stormwater ponds to the homeowners in the subdivision, at the time Timberline Valley was expanding to the south. But someone messed up, lawyers for the developer and the County failed to file the correct legal documents, and the ponds ended up in limbo.

And since the special drainage district thing did not work out as Champaign County planned, now their goal is to dump the expense of an aging pond – one that has not been maintained by anyone for many years – onto a relatively small number of taxpayers in Timberline Valley South. And their preferred method of cost shifting at this point is to push the idea of a homeowners association.

That way, the County does not have to spend a dime on deferred maintenance of these two ponds, and the owners can create onerous rules to keep Nasty Joe from creating a nuisance of his private property.

The trouble is, those onerous rules then have to be enforced upon everyone. Ironically, living under HOA rule was exactly what many buyers were trying to avoid when they purchased their homes.

Therefore, at least half of homeowners are not agreeable to forming an HOA. And who can blame them, given the circumstances.

As taxpayers with property rights of their own, no one should force the establishment of a homeowners association and all its accompanying deed restrictions, years after homeowners purchased their property without the burden of a mandatory HOA.

One more thing about storm water retention ponds…

Oh, and in the meantime, someone needs to explain to Timberline Valley South residents that storm water retention ponds are generally not suitable for boating and swimming. And, if there are fish in those ponds, residents may not want to eat any of them.

The main purpose of retention ponds – other than to prevent flooding – is to collect storm water run off, and allow environmental contaminants to slowly dissipate over time, in hopes that pollutants from fertilizers, weed killers, pet waste, and vehicle oils from nearby streets will not flow downstream and pollute the water shed area or natural habitats.

Although these ponds may be sold as attractive amenities, the sales pitch is misleading, at best. The two ponds at the heart of the dispute in Timberline Valley South serve a purpose. They are intended to protect public health and safety.

And that is precisely why it makes little sense to put hundreds or thousands of small private communities in charge of maintaining storm water ponds and related infrastructure. Private homeowners rarely have the technical knowledge and the financial resources to create and implement long term maintenance plans that ensure public health and safety, and prevention of deterioration that leads to public nuisances.



1 thought on “How government uses HOAs and special districts to create stealth tax

  1. You know, many of these issues are so complicated that it is difficult to follow. I think that is one reason people don’t hear us, they simply cannot follow the implications. I feel sorry for these homeowners. Who are the 50% that want an HOA??? They are not paying attention.

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