Michaywé POA: Proposal for $100 Dues Increase Plus COLA

2009 November 24
Last update: 2009 Dec 01. Click on History for changes and updates.

__The continuation of this post is my email to MOA members concerning the Board's Proposed Vote on a $100 Dues Increase Plus COLA. Members are obviously polarized on this issue. Accordingly, this email attempts to provide information and discussion to help in the decision.

__I have received comments from some members. Those are added with permission at the end of this post. Please send me comments you would like to share or add your comments in the Comment section at the end of this post.

__(added 2009 Dec 01) In 2006, I recorded a post, Should MOA Annual Dues be Indexed for Inflation?. This post makes the same pro and con arguments now being made. The post also includes a graph showing the cost of living and MOA dues through 2006, which shows that the MOA dues trend is well in excess of the Consumer Price Index.

Memo: Some of the links including the one above in this post are to my password-protected weblog. If you are a MOA member, please refer to the Welcome & Home page for information on access.

Don Nordeen
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Please be advised that the writer is not an attorney, and this is not legal
advice. The information is based on research on information available
in the public domain.
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Key Words: Accounting Practices - MOA, Business Reviews - 2009, Financial Information - 2009 General, MOA Board of Directors, MOA Members & Members' Rights, MOA Members' Letters, abuse, access to records, accounting standard, accounting, balanced budget, budget, civility, closed meeting, closed session, Covenants Conditions and Restrictions, dues, duty of obedience, executive session, GAAP for community associations, GAAP for homeowners associations, GAAP for property owners associations, governance, governing documents, members' rights, replacement fund, reserve fund, special meeting, user fees, vote

Click Continue for Post Continuation plus Comments. Or Click Show All for Above plus Post Continuation and Comments.

Proposal for $100 Dues Increase Plus COLA (continued)

From: Don Nordeen
Date: 2009 November 24 21:14:58 EST
To: MOA Members
Cc: MOA Board of Directors, General Manager
Subject: Proposal for $100 Dues Increase Plus COLA

2009 November 24

Dear MOA Members,

Re: Proposal for $100 Dues Increase Plus COLA
__Members should decide — The proposal is for the members to decide. All members should recognize that a dues increase proposal is a polarizing issue. Perhaps the extremes are

those who place high value on the recreational facilities and use them often and favor an increase (in effect for all members to subsidize the costs regardless of how much they use the facilities)
those who choose Michaywé for reasons other than the recreational facilities and believe it is unfair that they should subsidize the costs for the benefit of others.

Unfortunately, the Board of Directors has not made a concerted effort to find common ground based on fairness to all members. Ideally, each group should recognize the interests of others and find common ground by creating alternatives for mutual benefit.
__This email provides some thoughts and information that is hopefully of value in your decision. The following subjects are discussed:

The Board's Notice and Motion are likely defective — The notice requires all dues to be paid by Dec 05 when only the 2009 dues need be current. The COLA provision is likely invalid under the governing documents.
Proposal poorly handled by the board — The dues increase proposal created at eleventh hour after the board had previously approved a motion to delay any vote on a dues increase until the 2010 annual meeting. Apparently, the unknown inputs from only a few members were considered.
COLA is not a good policy — Automatic increases in revenue are contrary to continuous improvements to reduce costs. The COLA for Social Security exceeds the COLA for consumer prices. It is much better to use any increasing costs as justification for a dues increase when known.
Effect of higher dues on real estate values is uncertain and may be negative for many properties — Simply stated, higher dues are helpful to real estate values only if accompanied by viable recreational facilities and of interest to a broad range of potential buyers. The other side of the coin is that higher dues reduce the number of potential buyers which may reduce real estate prices — particularly for the lower-priced homes and certainly for lots.
Communications among members — Exchanges of information among members are helpful if communications are civil and authors identified. Members have different views and are entitled to their own views, but not their own facts. Anonymous communications are cowardly.
Support a dues increase (if needed) with changes in governance and management — A dues increase is far from sufficient to address MOA's financial, governance and management problems. Changes in governance and management have not been addressed by the Board. Other owners associations operate more facilities with $400 annual dues.

__Again voting on a dues increase is likely to further polarize the Michaywé residents. The opposite is needed — a group of volunteers to find common ground. For now, I will call the group the Common Ground Group. Let me know if you are interested.
__Each of the above subjects is discussed in the appended information.
Don Nordeen
(989) 939-8240
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__A. The Board's Notice and Motion are likely defective — There are likely three defects in the actions of the board and the motion proposed by the board.

Proper notice of a motion for a dues increase was not included in the calling for the Nov 10 special board meeting. To ensure that board members will be informed and have the opportunity for good preparations, motions to be considered must be properly noticed prior to the board meeting.
The description of the requirement for standing to vote is incorrect. The notice states that all dues and assessments must be paid by Dec 05 when it is only 2009 and prior-year dues and assessments that must be paid.
The COLA provisions is not authorized in the Master Declaration and therefore would likely be unenforceable if the motion is approved.

__The above defects are discussed in my 2009 Nov 23 Email to the Board which recommends a new notice for a new meeting and revised motion which corrects the defects. If you agree with the recommendation, please send an email to the board immediately requesting a new notice. MOA does not need the risk that the motion, if approved, could be subsequently declared null and void by a court with a possible outcome that all funds collected would have to be returned to members. That risk is avoidable, but requires the Board to notice and new motion that is correctly prepared and valid.__The board proposed a dues increase this past year which was not approved by the members. Instead of immediately changing the management and operation to "live within the means available", the board delayed serious consideration of the financial shortfall, and did not make financial forecast for various alternatives for operating at reduced cost. However, the board did approve a motion not to pursue a dues increase until the 2010 annual meeting. There is obviously a disconnect.
__The disconnect apparently became obvious to the board during the preparation of the 2010 budget. Without proper notice in the notice of the Nov 10 special board meeting, the board changed direction to propose a dues increase for another vote by members. That kind of action is a "bail and switch" ambush of board members and certainly for the members.
__Based on the Board's answers to members' questions at the Nov 21 Open Forum, the Board did not consider whether or not the proposal was valid under the governing documents. Neither did the Board consider the reactions by the members of such an abrupt change in action. Many members believed that the matter had already be settled because of the prior vote.
__People become angry when they perceive they are not being fairly treated. That is evident in the turnout and comments at the 2009 Nov 21 Open Forum and in communications among members.

__C. COLA is not a good policy — Automatic increases in revenue are contrary to continuous improvements to reduce costs. In a competitive world, no one should be guaranteed automatic increases in revenues.
__The COLA for Social Security exceeds the COLA for consumer prices. Moreover, it applies to the country as a whole, and may not be representative of consumer price changes in Northern Michigan. The use of the Social Security index rather than the Consumer Price Index is just another example of the board reaching for more guaranteed revenue.
__It is much better to use any increasing costs as justification for a dues increase when known. A very capable process is to create a running three-year plan, budget and forecast. Then on a three-year cycle require the plan and any dues increase (for alternative proposals) to be approved by the members. If prices have gone up, the board will have the facts to show in addition to the actions taken to reduce costs.
__Directer Jay Welter made essentially these points at the 2009 Nov 21 Board Meeting and Open Forum.

__D. Effect of higher dues on real estate values is uncertain and may be negative for many properties — From what I have seen, there is not a reliable study that provides apples-to-apples comparisons. The results presented in the notice for the dues increase are clearly apples to oranges and only confirm that Michaywé is a upscale community in Otsego County.

__Vacant Lots — A significant part of the dues revenue is paid by the owners of vacant lots. Lot prices have decreased substantially. Many are not salable in today's market. Owners should logically question why they should pay $400 or more in dues and $50 in taxes on a property that has little value and for which there aren't any buyers. Owners may choose to abandon the vacant lots and let them be forfeited to the state. The state has no obligation to pay dues so MOA would lose dues revenue. The incentive to buy a lot now as a future building site becomes less attractive.
__Lower-Priced Homes — With higher dues, these become less attractive to a wide range of buyers but may be of interest to specific buyers who are interested in frequent use of the recreational facilities and feel the dues are justified. Higher dues will likely reduce the number of prospective buyers and therefore the prices.
__Higher-Priced Homes — Higher dues are not a significant factor. The availability of recreational facilities may be an attractive asset.

__Simply stated, higher dues are helpful to real estate values only if accompanied by viable recreational facilities. The other side of the coin is that higher dues reduce the number of potential buyers which may reduce real estate prices — particularly for the lower-priced homes and certainly for lots.

__E. Communications among members — Members communicating with one another is basically a favorable action. Members need more information since the information from the Board is typically less than full and accurate.
__Having a strong view doesn't make one a good guy or a bad guy, just a different guy. People are entitled to their own views but not their own facts. If facts are not correct, correct the facts with references and explain. The many communications are an indication that many members are concerned. Overall communications should be civil.
__Anonymous communications are cowardly. People should identify themselves the same way they would identify themselves if they spoke at a members' meeting. One of the anonymous communications includes a personal attack, something unlikely to occur if the names of the writers were included.
__Exchanges of information among members are helpful if communications are civil and authors identified. Members have different views and are entitled to their own views, but not their own facts.

__F. Support a dues increase (if needed) with changes in governance and management — A dues increase is far from sufficient to address MOA's financial, governance and management problems. Changes in governance and management have not been addressed by the Board. Other owners associations operate more facilities with $400 annual dues.
__The problems in Michaywé are exacerbated by the board not having effective processes for the board, governance and management. Some of the improvements in board process, governance and management on my list include:

provide timely business reviews each quarter

use the same format as used by the auditor
explain the financial status in the Business Reviews
include forecasts for the year and beyond

ensure that the annual audit is timely prepared and available to members prior to mailing of the notice for the annual meeting

should be a major part of the annual meeting
members need time to study and understand

implement AICPA accounting standards for MOA's accounting
use the same format as used by the auditor
change the accounting to show full costs for each facility and major activity
include accounting for Replacement (Preservation) Fund in monthly and quarterly accounting
when different members quote different numbers and claim different conclusions, there is something wrong
fix the Replacement (Preservation) Fund accounting
- provide understandable analysis of the Replacement (Preservation) Fund requirements, planning and status
- facilitate development of a policy for Replacement Fund with approval by members
develop an effective operational planning and budgeting process

organize committees of the members to study and make recommendations, not to provide what the board wants to hear
provide forums for full consideration of alternatives for governance and management of MOA such as user fees, joint operation, leasing of facilities, separate entity for recreational facilities
adopt a rolling three-year cycle for operational planning, budgets, capital and forecasts including required members' preference voting on alternatives with each alternative including the required annual dues

stop the abuse of closed sessions
make instructions to and opinions from the attorneys and accountants available to members unless immediate release of the information would cause material harm to MOA
open other records to members unless immediate release would cause material harm to MOA
ensure conformance to the law and governing document in each decision and action with ambiguities resolved against the board

__Higher dues will not solve these problems. Higher dues will reduce the board's incentive to address these issues. The board needs to make a commitment for major improvement and base future financial requirements on improved board process, governance and operation.
__Michaywé may be a $400 community with $400 striking a balance between the maximum vacant lot owners may be willing to pay and the allocation of some dues for subsidizing the operation and maintenance of the recreational facilities. If so, alternatives must be found for operating and maintaining the facilities on the amount of money available.
__I believe that user fees are part of the answer. User fees for all facilities allocate costs to those who benefit. More customers are needed such as can be obtained with the "Gaylord Country Club" model. The Gaylord CC has broader appeal than just to residents of the land development through which the golf course winds. Joint operation with other facilities can reduce costs through economies of scale.
__Again voting on a dues increase is likely to further polarize the Michaywé residents. The opposite is needed — a group of volunteers to find common ground. For now, I will call the group the Common Ground Group. Let me know if you are interested.

DLN

History: _

2009 Dec 01 — added link to prior post on indexing dues to inflation.
2009 Nov 24 — Initial Post

Links: Proposal for $100 Dues Increase Plus COLA at [http://swagmanmwpoa.blogspot.com/2009/11/proposal-for-100-dues-increase-plus.html]

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••• End of Post •••

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On 2009 Nov 24 , at 23:32, Frank McClelland wrote:

Don
__I agree with all your points. I do not appreciate the “Concerned Michaywe Owners” emails coming from no-names…it is cowardly and annoying.
__The board itself has done little except ask for more money from members to perpetuate the problems—rather than address them…and address them with the welfare and interests of all members in mind.
__I do not believe the business/association mix is any longer feasible financially or even, at this point, ethical.
__Your idea of common ground is novel and has potential, but I do not want to see something as destructive as COLA or a dues increase have a chance to get put in place in the meantime.
__I think it will probably take a legal challenge to the stop the board’s recent actions and that may be the only avenue left to actually resolve the financial and operational problems with this pseudo association.

Frank
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On 2009 Nov 24 , at 23:43, Leo Lyddy wrote:

__Well done Don……..one of your better attempts to clearly define what you think…again, very well done.

LLL

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On Wed, Nov 25, 2009 at 9:22 PM, Larry Miller wrote:

Thank you for saying what I feel. I would also like to know why anyone who disagrees with the "Board" is considered "Dissenter", "Rabble Rouser", or even "Trouble Maker". I have noticed that they really seem to single you and Jim Pagels out for their venom. I thought that as US citizens, we have the right to disagree and dissent, not to mention try to defeat proposals that we feel are wrong. Keep up the good work.

Larry L. Miller

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Michaywé POA

November 24, 2009

Proposal for $100 Dues Increase Plus COLA

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