Associations can learn something from government infrastructure failures

/ Owner - February 7, 2011

It’s in the news media every day – towns, cities, counties, states and the federal governments struggling to keep up with crumbling infrastructures with the problems magnified by revenue shortfalls that prohibit even temporary fixes.  Roads, bridges, dams, levees, lakes, water systems, power grids, utility lines, and more, are all continuing to be put on the back burner when it comes to government finances.  The problem is that this is the way it has been even when times were good.  Governments did not put away a portion of the anticipated replacement costs because it might have meant raising taxes and politicians will always punt that to the next generation.  Now that the economy is in such bad shape, even basic stop-gap repairs are being neglected.  In my state, the city water company, which covers about five of the most populated counties in the state, have been neglecting the 100+ year old pipe system forever.  This winter, after large personnel layoffs, they couldn’t even begin to keep up with the breaks in the pipes.  It’s now taking two to three weeks before someone even shows up to put a few orange cones around the frozen lake that’s been created.  35 billion gallons wasted this year.  I can think of a lot of places out west that would give a lot just to have that much water available.

The point isn’t to beat up on governments, but to remind associations that even in tough economic times, it still makes sense to keep the reserve funding at or close to what is needed to keep your infrastructure sound.  Once you start down that “slippery slope” of using the funds that should be going into reserves, to fund current operations, it’s almost impossible to make up.  As a board member, you can’t just say that things will be fine once the economy turns around, or once all of the units are finally paying their assessments.  You really don’t know when that is going to happen and “counting on it” isn’t going to be a very good excuse when you need a new roof and the money isn’t there.

It is going to be tough when you have owners looking at you to cut expenses as much as possible, but reserves are not the area to be cutting.  Even borrowing from reserves is risky without a rock-solid re-payment plan, that the owners have agreed to, in place.  Murphy’s Law tells you that the worst will happen when you can least afford it, and too many associations have found that out because they either under-funded or completely ignore reserves.   There were a number of existing condo associations that had entire buildings condemned as uninhabitable, forcing the owners to move out, but requiring them to continue paying assessments for a residence they could no longer use.

You can’t just focus on current finances – you have to keep an eye on what’s coming down the road.  It’s up to the board members and the professionals to keep the future  as secure as they possibly can – and to communicate this to the owners so that they understand the critical nature of reserves.

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