Municipal Duties Move to ‘Burbs as HOAs Must Step In
Homeowners associations are taking on traditional local government responsibilities at the same time a growing number of them are being managed by national companies.
Once primarily mom-and-pop enterprises of like-minded residents, the privately operated associations are increasingly performing traditional roles of local government, such as recreation, trash pick-up, lighting and street upkeep.
“It’s the most dramatic privatization of local government services that we’ve ever seen,” said Evan McKenzie, a political science professor at the University of Illinois at Chicago and author of Privatopia: Homeowner Associations and the Rise of Residential Private Government.
Transferring these responsibilities to homeowner associations places more of a financial burden on individual homeowners and drives up the overall cost of housing, McKenzie said.
The costly repairs of aging streets or retaining ponds can become too much for a small group of residents in the community, particularly as many HOAs continue to reel from the lost revenue created by foreclosures, he said.
“I just think as a short-term solution to the fiscal problems of cities, what they created potentially is a long-term problem,” McKenzie said.
“At some point, my question is this: Is not the responsibility going to come back to the municipality? They’ll have slums on their hands.”
Sentry Management, which provides association property management, condominium and home-owners management services in places including Orlando, Sarasota and Fort Myers, Fla., Phoenix, Atlanta and Indianapolis recommends — and some states now require — that associations anticipate the costs of large repairs and set aside a portion of income every year to handle such expenses, said Sentry President James Hart.
If a roadway is expected to last 15 years before requiring $150,000 in repairs, the association should set aside $10,000 per year, for example, he said.
Many municipalities, particularly in states including Arizona, Nevada and Florida, which faced rapid growth during the housing boom of the mid-2000s, now require new residential developments to be managed by some sort of homeowners association, industry watchers say.
About 20% of homes in the country are part of a community association, and that number will grow as local governments seek strategies to do more with less, said Dawn Bauman, senior vice president for government affairs for the Virginia-based Community Associations Institute.
While the Institute estimates that about 15% to 25% of communities are self-managed, volunteer homeowner association boards often hire management companies to take care of the day-to-day business of their communities, such as hiring a contractor for maintenance.
Large companies, including Associa, FirstService Residential Management and Sentry Management, are increasingly purchasing smaller local management companies.
“We take clients who are already being served well by their local representatives and allow them to experience some of the advantages of having a larger company,” Associa spokeswoman Carol Piering said.
Melissa Layton, who founded Palm Desert, Calif.-based Desert Resort Management, sold her company to Texas-based Associa in 2010 as the industry became more regulated and required more training to keep up.
When she started in the business in 1987, most management companies were run by local companies, she said. Layton, who stayed on as CEO of the company until 2012, did not feel that selling eliminated local input.
“Even though they have more corporate policies, they respect the local entity and the local culture, and they want you to continue taking care of that,” Layton said.
Larger companies can provide more training and technology and can use their size to command better pricing, said John Friedrichsen, senior vice president and CFO of FirstService Corporation, parent company of FirstService Residential Management…
…“The boards always have a choice” about which contractors they hire, FirstService’s Friedrichsen said.
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