Dear Charing Cross Neighbor,
We’ve recently received the Association’s 2010 Budget proposal in the mail. In these uncertain economic times, the Board proposes to raise your monthly assessment from $113 to $122. That’s a $9/month increase, which multiplied by122 homeowners, equals $13,176 yearly. As the proposed budget states, this increase in your assessment is to pay for the Board’s $10,000 in projected legal fees and $3,000 in landscaping project above and beyond the unprecedented $40,000 for grounds maintenance.
I hope you will demand our Board NOT raise your assessment and set a realistic budget for 2010. Please write or call Comanco (410-721-7171), or attend the 7pm Board meeting this Thursday, October 29, or November 24.
Annual Assessment
As a former director and vice president, I have always believed our annual assessment can and should go down, not up. This is not the time to place a greater burden on homeowners when so many families are struggling in this down-turned economy. The budget has room for the following savings, explained in detail further below.
| Expense Type | Board’s Proposed Budget | Suggested Budget |
| Grounds Maintenance | $40,000 (21.9% increase) | $34,859 (3.8% increase) |
| Landscaping | $3,000 (no description or explanation given) | $0.00 (deferred) |
| Snow Pushing | $10,000 | $5,000 |
| Capital Reserves | $28,327 (~20.66% of proposed annual expenses of $150,281) | $14,163 (~11.14% of suggested annual expenses of $127,140) |
| Legal Fees | $10,000 | $10,000 (offset this amount with funds drawn from savings or CDs for a $0 net impact on the budget) |
| Board’s Budget for the above 5 line items: | $91,327 | |
| Suggested Budget for the above 5 line items: | $54,022 | |
| SUGGESTED SAVINGS: | $37,305 (21% savings) | |
| Total Proposed Budget: | $178,608 (includes $28,327 reserve) | $141,303 (includes $14,163 reserve) |
| Proposed Mthly Assess: | $122 | $95.52 |
Grounds Maintenance and Landscaping
The proposed budget is $43,000 for 2010. That is a whopping 21.90% increase over 2009. This budget item was $33,780 in 2007, $31,386 in 2008, and $33,538 in 2009. Why is this budget item almost $10,000 more in 2010 than 2009? Eliminate just this increase and no monthly assessment increase is even necessary.
Compare this huge increase with the rate of inflation: 2.8% in 2007, 3.8% in 2008 and 0.3% thru Sept. 2009. The average since 2000 is 2.9%.[i] The changes in grounds maintenance costs 2007-2009 is certainly more in line with the rate of inflation than the nearly 22% increase for 2010.
The budget also fails to show any funds budgeted from reserves to replace our playground, an important part of the community.
Conclusion: A $10,000 increase is absurd. If our current reserves and monthly revenues cannot cover this increase then grounds maintenance should certainly not increase nearly 22%. An increase commensurate with the 2008 rate of inflation of 3.8% is more reasonable. Since the Board can move money in and out of any budget line item at will and spend it on anything, this whopping, unprecedented increase could be construed as a surreptitious means of raising money to pay for Board members’ personal priorities not detailed in this budget or revealed in open meetings with homeowners.
Snow Pushing
This item is budgeted for $10,000; in 2007 and 2008 it was also $10,000, and $9650 in 2009. Yet, we only spent $4,955 in 2007, $375 thru June 2008 and probably less than $1,000 total in each of 2008 and 2009. In any case, less than half the budgeted amount was ever spent during 2007-2009.
Conclusion: The historical precedent from 2007-2009 indicates snow pushing rarely if ever exceeds $5,000 and the budget should not exceed that. That frees up $5,000 for elsewhere (like a playground). If 2010 is an unusually snowy winter, we have sufficient savings for it (see below).
Capital Reserves (improvements) and Savings
By law, reserves can only be used for capital improvements or repairs. Our by-laws Article IX Section 3 mandates repair and replacement reserves no less than 5% of the “aggregate monthly installments levied pursuant to the provisions of this Article IX.” Md. law mandates no dollar amount or percentage of revenues, and it is unclear if the Board has or is following any recommendations from a reserve study. Since at least 2007, the Board has budgeted an arbitrary fixed dollar amount of $28,327. That works out to 20.66% of expenses for each of 2007, 2008 and 2009, and 18.85% for 2010. The proposed budget shows our current reserves are $93,055.54.
But the budget does not account for the balances of our 5 savings and CD accounts, which are there to offset unexpected and unbudgeted expenses, just like your family’s savings. As of April 2008, those balances totaled $115,648, and will have only grown in the 18 months since then.
Conclusion: Assessments for capital improvements should be reduced until Board members’ legal expenses end. Meanwhile, with such a large asset base in savings and CDs, why isn’t the Board utilizing this money to offset the unexpected legal or other expenses? Why raise your annual assessment during these uncertain economic times with these assets available?
Insurance and Litigation
As you may know, the Board and Comanco are in litigation now because, it is alleged, they routinely violated the Maryland Condominium Act and our by-laws, which caused harm to homeowners. The budget proposes $10,000 in legal fees, which encompasses not just the current litigation, but the everyday legal expenses normal to operating the condominium. The Board has already spent an estimated $10,000-15,000 on the lawsuit. As the lawsuit progresses $10,000 won’t be enough; if it reaches judgment unfavorable to Defendants, savings may not be enough.
The Board stated through their attorney’s June 10, 2009 letter that you must pay these legal expenses and potential judgment because our current insurance won’t cover this litigation.[ii] But the Charing Cross By-laws Article XII Section (d), (e) and (f) absolutely require insurance for “defending any suit or settling any claim, judgment or cause of action to which any such officer or director shall have been a party…” and “to protect against dishonest acts on the part of officers and directors.” Md. Condo Act §11-114(b) mandates adherence to this by-law.[iii] Yet the Board admitted in the June 10 letter that they have no such insurance. Instead, they will draw the financial consequences of their failure to obey this by-law from your bank account.
The June 10 letter implies we are properly insured, but that “defamation” is simply not a covered defense. It appears to me that in fact we are not insured in accordance with our by-laws, as below:
(1) Board members and Comanco were sued in 21 counts for violating a whole host of Md. laws and by-laws, “defamation” being only one of them. These 20 non-“defamation” counts are aimed solely at compelling the Defendants to obey the Md. Condominium Act and our by-laws, and chronicle the fraud and deception they allegedly engaged in during these violations. If the Board in fact purchased the insurance required in our by-laws, then it would cover their defense against these 20 counts that are not alleging “defamation.”
(2) As noted above, our by-laws explicitly require the Association to carry insurance that covers any litigation. Our by-laws do not exclude “defamation,” so any policy we buy must include it. “Defamation,” after all, is the result of engaging in lying and deception against another person, which is exactly the sort of potentially ruinous litigation and judgments our by-laws aim to protect against.
Conclusion: All 21 counts are exactly the kind of allegations condominiums get embroiled in every day across the nation because their boards of directors fail to obey laws and by-laws and harm homeowners. For the Board to claim we’re properly insured, yet have no coverage to defend any of the 21 counts, is patently bizarre. Can the Board show proof of coverage for “defending any suit or settling any claim?” You should not accept liability for what seems like the Board’s negligent failure to purchase the insurance to defend against any litigation as mandated by our by-laws. The question to ask is: why is the Board forcing you to pay for them to obstinately defend this lawsuit when a free settlement can be had simply by their addressing the lawsuit’s allegations before homeowners and rectifying the harm done by their violations?
Wrap-up: The proposed budget is uselessly vague and out of line with the realistic needs and expectations of our community. Except for legal fees, the Board gives no explanation or justification whatsoever for their dramatically increased expenses. They’ve simply stated the numbers they want and expect you to pay up. Instead of paying more money to them each month for unspecified uses, I encourage you to demand the Board scale back this proposed budget and actually reduce our assessment, as suggested above. Call or write Comanco (410-721-7171), or attend the Board meetings at 7pm on October 29 and/or November 24. Otherwise, expect the Board to continue using your wallet as a blank check.
[i] Rate of inflation source: InflationData.com (http://inflationdata.com/inflation/Inflation_Rate/CurrentInflation.asp)
[ii] “This case has been reported to the Condominium’s insurance company, Millers Mutual Group. Millers denied coverage based upon the exclusion of “defamation” as a covered loss. This means that Miller Mutual Group will not pay any judgment, in the event a judgment is entered against any of the Defendants, and will not pay for the cost of attorney’s fees to defend this case. Without insurance coverage, the Condominium must pay for the cost of its own defense.” June 10, 2009 letter, Niles, Barton & Wilmer, p.2.
[iii] “The declaration or bylaws may require the council of unit owners to carry any other insurance…”
Charing Cross Lawsuit Freedom of Information Weblog 