2014 Community Association Financial Survey
Introduction
In 1996, Berding|Weil published “Latent
Liabilities” a treatise which explored the long-term impact of underfunding
of the reserve accounts of community associations. Some of the data came from
our clients, and some from Levy, Erlanger & Company. We predicted that most
multi-family community associations were severely underfunded for long-term
maintenance and repairs and we opined this issue could lead to serious deferral
of maintenance obligations and ultimately a shortened service life for these
projects. Subsequent financial surveys by Levy, Erlanger & Company, with
our assistance, have shown this problem to be systemic—affecting most community
associations. This year’s survey finds community associations to have only 57%
of the funds on hand they should have. This shows that the problem is not
getting better—in 1993 that figure was 60%.
Since “Latent Liabilities” was
published, we further documented this problem in “The Uncertain Future of Community Associations” and similar
treatises. Community associations are slowly running out
of cash. Borrowing from reserves for regular, and newly discovered maintenance
issues has trended upward, and when the reserves run out, special assessments
and borrowing from banks increase. The fundamental cause of this cash shortage
is the inability or unwillingness of boards of directors to increase
assessments sufficiently to keep up with inflation coupled with the discovery
of needed repairs not anticipated by the reserve budget.
