Apples and Oranges HOA alternatives comparison

By Deborah Goonan, Independent American Communities

Sometimes a story that is reported in the news is not actually news. Instead, it reads more like a soft sales pitch, an editorial, or, dare I say, political rhetoric.

Take this recent article about a Nevada community meeting, where the topic of discussion included HOA alternatives. In my opinion, the article seems a bit like a political campaign for keeping the HOA.

Read the article for yourself, and then see my commentary below.

Spring Creek homeowners lean toward status quo

http://m.elkodaily.com/news/local/spring-creek-homeowners-lean-toward-status-quo/article_fb35b3c6-1c12-5f40-9eed-a1b05ad5980c.html

Check out this comment:

huntnv Jun 17, 2017 10:33pm
I don’t know what meeting this reporter was at but there was no decision made. There was no vote…there was only one person that said that they thought SCA was doing a great job.

 

 

Not many facts in this article, just a few quotes from people who attended the meeting, and they all have the same point of view.

I decided to dig deeper.

First of all, Spring Creek Association has been considering its options and alternatives to its homeowners association for more than a year. I have featured Spring Creek in previous articles here on IAC.

NV: Spring Creek HOA wants to become a town

Is there any good reason to keep HOAs? Here are some people who want out.

Spring Creek Association, population rougly 12,000, is grappling with several pressing issues, according to information posted on their website: budgeting for long-term road maintenance, upgrading its water utility services, gaining access to emergency services, and deciding what to do about aging recreational amenities.

Therefore, the association has established an Incorporation Committee to explore several options to HOA governance, and has hired a consultant, Elysia Ulrich of Hansford Economic Consulting, to complete a study.

The link to the report can be found on the web page for Spring Creek Association Incorporation Committee.

 

Before I delve into the consultant’s report, consider how to evaluate a comparative study.

The reader needs to consider:

1. What are the underlying assumptions? Are any of those assumptions faulty or invalid?

2. Are all the variables considered?

3. What is basis for comparison? Are all the alternatives considered, or just some of them?

4. Is the conclusion based upon objective, professional analysis?

5. Who is conducting the study, and are those paying for the study inclined to bias?

 

 

In this example, did the Spring Creek study consider the future cost of maintaining those roads, and what it will cost to upgrade the water system (mentioned in passing near the end of the article)?

If all the study considered was availability of additional revenue sources from grants or state funding, then, in my opinion, it was an incomplete study.

Regardless of the unavailability of state grants, there should be the opportunity to issue bonds, collect funds through a local sales tax, and obtain low interest financing with the District or Incorporation approach. None of these revenue-generating options are available to a homeowners association.

 

Hansford Consulting report notable highlights:

 

On page 28, we can see the basic assumptions that form the basis of the study, my emphasis added in bold:

4.1 SCENARIOS The provision of services and amenities under each governance alternative is shown in Table 10 on the following page. The SCA currently provides for architecture review, roads, weed control, security, and parks and recreation, and SCU provides water and wastewater services. Under all governance scenarios there will remain a Spring Creek Association. In the DMR and Roads GID scenarios, the only service removed from the SCA is roads. In the SCA & Multiservice GID scenario, SCA retains the Committee on Architecture (COA), while the GID provides for everything else except water and wastewater which continues to be provided by SCU. The GID could provide water and wastewater services, but for the purposes of this financial analysis, the SCU continues to provide these services. Note that if the GID did provide water and wastewater, it could provide these services outside of its boundary by way of cooperative agreement with the County. Under the Unincorporated Town scenario, the SCA becomes a volunteer‐run organization, providing architecture review and Declaration of Reservations enforcement, and the Town provides for roads, weed control, police protection (through an interlocal agreement with the County, whereby the Sheriff continues to provide service at its existing service level), and Parks and Recreation. The Town could provide water and wastewater services, but for the purposes of the financial analysis SCU continues to provide these services. Note that if the Town did provide water and wastewater, it could provide these services outside of its boundary by way of cooperative agreement with the County.

 

SCA = Spring Creek Association (the HOA)

SCU = Spring Creek Utility

DMR = District for Maintenance of Roads (single function special tax district)

GID = General Improvement District (multi function special tax district)

 

The SCA (HOA) remains intact in all scenarios, if only to do covenant enforcement and architectural control.

But note that, in the cost comparison below, SCA assessments are only reduced to $0 for one of the four governance options compared – the Unincorporated Town (UNINC). If Spring Creek becomes a town, SCA becomes a voluntary participation HOA.

Of course, a voluntary HOA is a much different type of organization than a mandatory HOA. It truly is like commparing apples to oranges.

For homeowners who seek greater private property rights, the Unincorporated Town option is the way to go. It’s not just about the cost comparison, but also about the freedom to live on your property without a group of your neighbors telling you what you can and cannot do.

So why not analyze the cost of the other alternative models that completely dissolve the HOA or convert it to a Voluntary Association?

For instance, if a GID is created, SCA need not exist as a mandatory organization solely for the purposes of providing private security, because Spring Creek could also explore the possibility of a cooperative agreement for public services from the County Sheriff or the City of Elko.

Spring Creek owners might also opt to do away with under utilized recreational amenities by selling those amenities or land parcels to private entities. Weed control of common areas becomes a moot point if there are no common areas.

The County already has ordinances and building codes that can be enforced against private owners who allow weeds to get out of control.

Architectural Review is not an essential service that requires mandatory membership and collection of assessments.

The report limited its analysis to only a few of the possible options available to Spring Creek homeowners.

 

Report highlights (screenshots)

 

In the cost comparison above, the consultant assumes SCA annual assessments will remain at the current rate of $600. In another section of the report, however, Ulrich acknowledges SCA needs to plan for future reserves. (See below) Additional reserve contributions from SCA members would, of course, increase assessments substantially.

It is easy to envision a situation where SCA adds $29 – $52 to annual assessment for the purposes of building up a reserve account, essentially creating no difference in annual fees for SCA alone compared to either the Roads District (DMR) or Roads with GID. But if SCA were to keep the status quo at $600, as assumed in the report, in several years when the roads need to be repaved, a Special Assessment is very likely.

Note: According to its website, SCA annual assessments for 2017 are $624. 

And do not forget that at Spring Creek, there is a golf course that operated at a net loss of more than $230,000 from 2013-2015, despite the fact that a significant number of golf passes were sold to golfers who do not own property in Spring Creek. Potential future costs incurred from the golf course was not a factor that was fully considered in the study. (See Appendix A-1 through A-4 in the Hansford study for details.)

Other amenities at Spring Creek include an equestrian center, a rifle range, a community center, a marina, and campgrounds – some or all of which could become part of a Parks and Recreation District.

The study also explains all the potential obstacles to shifting costs and liabilities to non-HOA structures. There are many, and that is by design. But note that the study does not consider or compare potential legal liabilities at all — because of the common interest structure, legal liabilities are difficult for a private HOA to avoid, and not always possible to insure against loss from damages.

 

Notably, there are two very different payment structures for the alternatives studied, as explained in the HEC report.

 

Reading between the lines, transitioning from an HOA where every lot owner pays an equal share of the costs, to a partial or full local government model (ie. – deprivatizing in part or in full), means that some home and lot owners would pay more and some would pay less, based upon the assessed value of their properties.

This is bound to be a source of conflict in Spring Creek Association.

Common sense dictates that some owners of larger, more expensive homes are likely to prefer to keep the status quo, because to do otherwise would increase their costs substantially.

On the other hand, owners of smaller, less expensive homes or vacant lots would pay less under the GID or Town governance models.

 

How conclusive are the conclusions?

Once the data was compiled by HEC, SCA board members conducted a workshop with Ulrich. A summary of that workshop appears below.

 

SOURCE: http://nebula.wsimg.com/38abba3865e04c978c7000c50f7dccf6?AccessKeyId=9CADEE9E1B4D334DFEB1&disposition=0&alloworigin=1

 

In essence, the HEC consultant did NOT make a professional recommendation. Ulrich pulled together facts and figures, then led a workshop to allow the BOARD (not owners) to subjectively evaluate the alternatives. That subjective analysis was the basis for the report’s conclusions!

So, was this report “crafted” to present a particular point of view and to draw a certain set of conclusions? Let the reader decide. ♦

 

 

 

 

 

 


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