FEMA assistance bill for HOAs in Congress: Is it fair?

By Deborah Goonan, Independent American Communities

For several years, trade group Community Associations Institute (CAI) has been working with Congressional Representatives to attempt to push through federal legislation that puts private communities – homeowner, condominium, and cooperative associations – on par with publicly governed communities and private residences when it comes to receiving FEMA funds for clean up of debris following a disaster.

A recent news release from the Island Packet of coastal South Carolina explains:

 

Sanford bill’s aim: ‘Treat taxpayers the same’ in private community storm cleanup

BY LUCAS HIGH
lhigh@islandpacket.com

If another hurricane strikes South Carolina, Rep. Mark Sanford wants residents in private communities and neighborhoods with homeowners associations to be eligible for help cleaning up debris.

The Republican congressman introduced a bill last week — the Disaster Assistance Equity Act — that would allow common interest communities — neighborhoods, condominium complexes, and cooperatives that share amenities and infrastructure typically owned by an HOA — to receive Federal Emergency Management Agency money without jumping through hoops.

“I think there ought to be equity,” Sanford said Monday. “Storms treat everyone the same no matter what type of neighborhood you choose to live in, so why shouldn’t there be fairness in terms of FEMA (reimbursement)?”

“The simple aim of the bill is to treat taxpayers the same,” he said.

…

“We are looking to level the playing field,” said Peter Kristian — general manager of Hilton Head Plantation and a member of the federal legislative action committee for the Community Associations Institute, a nationwide organization that advocates on behalf of HOAs and POAs — said Monday.

Residents in private communities or neighborhoods with homeowners associations “are citizens who pay the same federal taxes as everyone else,” he said. “We feel this is an issue of equity — a fairness issue that’s worthy of Congress’ time.”

Read more here: http://www.islandpacket.com/news/politics-government/article161812318.html#storylink=cpy

Pure irony

Isn’t it ironic that CAI has gone on record as being concerned about equity and fairness for residents of association-governed communities?

And yet the basic model for the modern homeowner, condominium, or cooperative association is corporate and by nature inherently inequitable.

Association governance systems are inequitable because of their built-in power hierarchy.

The Declarant (Developer or Land Owners) sits at the top of that hierarchy.

The corporate association is the next level down – often assisted by management companies and attorneys, many of them certified and indoctrinated by CAI.

The next rung down on the ladder is the property owner, whose property rights and civil liberties are consistently compromised by virtue of governing documents, especially the Covenants, Conditions, and Restrictions (CC&Rs), a contract to which the owner has supposedly “agreed” by virtue of purchasing property in the Association.

At the bottom of this inequitable hierarchy are the remaining residents who are non-owners, including tenants and household members who are not named on the title or deed of a property governed by the Association.

Each level of the hierarchy allocates different voting interests – or no voting interests – and varying levels of financial burden and liability.

Furthermore, a Declarant can reap substantial profit margins from financial risks.  At the same time, Associations, Owners, and Shareholders reduce a Declarant’s up front investment, but rarely share the rewards of a profitable real estate investment.

Hardly a fair or equitable arrangement.

Double taxation but inequitable representation under Constitutional law

Residents of association-governed CICs also pay taxes at the state and local level. Owners pay property taxes directly, and tenants pay them indirectly by way of rent.

In addition, owners and residents pay assessments to the association. Tenants pay these either indirectly as a portion of rent, or sometimes, directly in addition to rent.

And yet, contract law applies in association-governed CICs in lieu of Constitutional law, because Constitutional law is reserved to apply to governments, not private organizations.  

CAI has adamantly adhered to that political stance, a policy cleverly crafted by their most prominent community association attorneys, many of whom have served in key staff and Trustee positions over the past 4 decades.

How many articles and public policy releases has CAI written that go on record as stating that community associations are businesses, or private organizations that should be run like businesses? CAI has never been willing to admit that community associations are governments, quasi-governments, or even state actors.

The reason for that stance: a majority of CC&Rs would be challenged as unconstitutional. Key provisions governing aesthetics or developer rights would likely be deemed unenforceable.

So homeowners and residents pay a heavier tax burden than their non-CIC counterparts, and yet they enjoy fewer rights and unequal representation in their interactions with their own community leaders.

 

Are CICs strictly non-profit?

In many cases, landlord owners of units in association-governed CICs make a healthy profit on long- or short-term rental properties. At the very least, landlord owners receive significant tax deductions for expenses related to their rental properties.

In fact, quite a few CICs generate profit-making revenue for the owners of recreational amenities (golf course, restaurants, boat slips, etc.), and real estate brokers or investors who own, lease and self-manage their units.

Why are all CIC associations lumped together as nonprofit organizations, including resort communities, vacation communities, and de facto rental communities?

Read on for even more irony.

Rep. Mark Sanford (SC-R) outlines the political agenda for his proposed Disaster Assistance Equity Act. (Emphasis added)

DISASTER ASSISTANCE EQUITY ACT OF 2017
REP. MARK SANFORD

Background

The Stafford Act empowers the Federal Emergency Management Agency (FEMA) to provide federal assistance to individuals and communities affected by natural disasters.
There are two primary forms of federal disaster assistance:

• The Public Assistance (PA) Program is focused on enabling communities to recover through helping municipal governments clear debris and repair damaged infrastructure.
• The Individual Assistance (IA) Program focuses on providing assistance to individuals and households including home repair and providing temporary housing and other essential consumer goods.

Over 70 million Americans live in homeowners associations, housing cooperatives, and condominium associations that provide common services in lieu of a municipal government such as roads and wastewater systems.

 

Problem

Natural disasters often impose crippling costs on homeowners associations, housing cooperatives, and condominium associations, and especially have an adverse impact in areas that have been affected by frequent natural disasters.

Despite that municipal governments and public buildings can receive federal assistance to recover after a natural disaster; homeowners associations, condominiums, and housing cooperatives are often unable to receive assistance unless they go through a time-consuming process to try to receive a waiver from FEMA.

This is unfair considering that these community associations provide services similar to that of a government to their residents and residents pay taxes to the federal government.

 

Solution

The Disaster Assistance Equity Act would close this gap by making two changes to the Safford Act.

• Make homeowners associations eligible for Public Assistance for debris clearance and repair of common infrastructure.
• Enable condominium associations and housing cooperatives to be eligible for Individual Assistance.

Source: Rep. Sanford’s House web page.

 

What’s unfair?

Since community associations provide services “similar to that of a government” or “in lieu of a municipal government,” then why aren’t its residents also entitled to Constitutional protections and rights similar to that of a government? Why aren’t association leaders subject to Constitutional constraints that would apply to municipal government officials?

CAI and Congressional sponsors are muddying the waters with their contradictory political rhetoric.

Let’s look at the specific proposed amendments that are being proposed at the federal level.

 

Two key proposed amendments would redefine common interest communities (CICs) that are currently governed by corporate associations.

I. Changing current language for definition of additional “private nonprofit facilities” from the following: (emphasis added)

(11) Private nonprofit facility.-

…

(B) Additional facilities.-In addition to the facilities described in subparagraph (A), the term “private nonprofit facility” includes any private nonprofit facility that provides essential services of a governmental nature to the general public (including museums, zoos, performing arts facilities, community arts centers, libraries, homeless shelters, senior citizen centers, rehabilitation facilities, shelter workshops, broadcasting facilities, and facilities that provide health and safety services of a governmental nature), as defined by the President.

To this:

(a) Definition Of Private Nonprofit Facility.—Section 102(11)(B) of the Robert T. Stafford Disaster Relief and Emergency Assistance Act (42 U.S.C. 5122(11)(B)) is amended by adding at the end the following: “The term also includes any facilities (including roads, walkways, bridges, culverts, canals, sewer and wastewater systems, hazard mitigation systems, power, and other critical community infrastructure) owned or operated by a common interest community that provide essential services of a governmental nature.”.

 

Note that the addition of CIC purposely omits the phrase “to the general public.” Reference is only made to providing “essential services of a governmental nature.”

It is doubtful that owners and residents of million dollar and up properties on Hilton Head Island are prepared to freely share their private amenities and their gated enclaves with the general public. These private communities are marketed and sold to buyers as exclusive neighborhoods for the privileged class.

Even middle class planned communities and condominium complexes with amenities are unlikely to be willing to share their swimming pools, parks, fitness centers, tennis courts, and the like with the general public.

Why should taxpayers that do not benefit from living in exclusive, private nonprofit communities be expected to pay for FEMA disaster assistance for association governed CICs?

 

II. Changing current definitions of “individuals” and “households” from current language: (emphasis added)

(b) Housing assistance
(1) Eligibility
The President may provide financial or other assistance under this section to individuals and households to respond to the disaster-related housing needs of individuals and households who are displaced from their pre-disaster primary residences or whose pre-disaster primary residences are rendered uninhabitable, or with respect to individuals with disabilities, rendered inaccessible or uninhabitable, as a result of damage caused by a major disaster.

To add the following definition:

“(B) CONDOMINIUMS AND HOUSING COOPERATIVES.—For purposes of providing financial assistance under subsections (c)(2) and (c)(3) with respect to residential elements that are the legal responsibility of an association for a condominium or housing cooperative, the terms ‘individual’ and ‘household’ include the association for the condominium or housing cooperative.”.

 

In other words, this is yet another attempt to equate corporations with individuals. The industry continues its decades-long political argument that somehow, the mandatory association is the same thing as the people who are its members. In reality, a residential, commercial, or mixed use corporate association is a fictional creation of real estate attorneys with a legal framework designed to benefit stakeholders at the top of its hierarchy.

As an abstract entity, CAI then proceeds to characterize the mandatory association as business-like or government-like, depending on which way the wind blows.

Let’s use a little common sense. Condominium and cooperative associations should be carrying sufficient hazard insurance, flood insurance, and financial reserves to cover the cost of clean up and repair after a disaster, just as the owners of single family homes and apartment communities.

Why should owners of non-condominium property be expected to contribute tax dollars to make repairs to million dollar ocean view condos, most of which are owned by non-occupant investors or by affluent owners investing in vacation property?

To the extent that FEMA insurance does not cover clean up and repair of common elements and grounds, the legislative initiative needs to mandate insurance policy standards that include reasonable coverage without numerous policy exclusions.

Reserve funds should be used to cover deductibles and other non-covered repairs and clean up services.

As businesses, both apartment owners and community associations are currently eligible for FEMA loans through SBDC. (Small Business Development Centers)

But CAI is advocating for free money on the backs of taxpayers than cannot afford to own coastal property.

 

What about Affordable Housing?

If a CIC with a mandatory association is publicly funded with grants, tax credits, and rent vouchers to serve housing needs for residents with limited incomes, FEMA policy already provides some assistance under its Public and Individual Assistance Programs.

But FEMA is a financially distressed agency that faces insolvency in the absence of policy change and setting fair rates for insurance premiums based upon actual risk.

 

All in all, the Disaster Assistance Equity Act (H.R. 3238) can hardly be considered a fair policy proposal.

 

Read Full Text H R 3238 115th Congress 2017 2018 Disaster Assistance Equity Act of 2017 Congress.gov Library of Congress: