Published in the ECHO Journal, February 2009
ECHO and the firm of Levy, Erlanger & Company, CPAs (LEC) completed a financial survey of approximately 1,500 Northern California community associations in late 2008. The associations included large and small developments, urban and rural projects, newer and older associations, managed and self-managed developments, etc. The survey included actual financial statements (either CPA- or management-prepared), not budgets, for fiscal years ended May 31, 2007 through April 30, 2008. The financial data summarized included both balance sheet (assets and liabilities—an indication of financial strength) and income statement (revenues and expenses—indicators of financial performance) accounts.
The surveyed associations were not statistically selected but were generally drawn from the client list of Levy, Erlanger and from information supplied by several financial management-only firms. Due to the nonstatistical nature of the survey, the summarized results will not be indicative of the financial strength (equity) or profitability (net income) of any particular association, but they will give an indication of what is “average” for the associations included in any particular subgrouping of the survey.
Demographics of Surveyed Associations
For all community associations in the state, approximately 2% are very large, 11% are large, 22% are medium and 65% are small. These statewide averages (and those disclosed below) are from the “2008 California Community Association Statistics” book published annually by LEC based on their statewide community association database of approximately 46,000 California common interest developments. Accordingly, the financial survey sample is roughly in proportion to statewide averages.
| Size | # of Associations | Percentage |
| Very large (501+ units) | 31 | 2% |
| Large (151 to 500 units) | 207 | 14% |
| Medium (51 to 150 units) | 487 | 33% |
| Small (2 to 50 units) | 752 | 51% |
| Unknown | 21 | <1% |
On a statewide basis approximately 66% of community associations are old, 17% are middle-aged, and 17% are young. Again, the financial survey sample is roughly in proportion to statewide averages.
| Age | # of Associations | Percentage |
| Old (16+ years old) | 752 | 51% |
| Middle-age (6 – 15 years old) | 496 | 33% |
| Young (1 – 5 years old) | 232 | 16% |
| Unknown age | 18 | — |
On a statewide basis approximately 67% of all community associations are located in the 13 southern-most California counties. Since none of the surveyed developments are in Southern California this survey is not proportionately representative with respect to the location variable.
| Location | |
| Alameda County | 292 |
| Contra Costa County | 167 |
| Marin County | 88 |
| San Francisco County | 319 |
| San Mateo County | 162 |
| Santa Clara County | 255 |
| Solano County | 67 |
| Sonoma County | 31 |
| Other Counties | 117 |
On a statewide basis approximately 67% of all community associations are condominiums, condominium conversions and housing cooperatives, and approximately 33% are planned unit developments. Hence, the financial survey sample is reflective of statewide averages.
| Legal Entity | ||
| Condominiums, Condominium Conversions, Cooperatives (COOPs) | 913 | 62% |
| Planned Unit Developments (PUDs) | 565 | 38% |
| Other and Unknown Legal Entities | 20 | — |
On a statewide basis approximately half of all community associations are professionally managed (i.e., off-site management company), and approximately half are self-managed. Self-managed, board-only managed projects tend to be smaller (under 30 units) while self-managed, with on-site manager, projects tend to be larger (over 300 units). Accordingly, this survey is not proportionately representative with respect to the management variable.
| Management Type | ||
| Off-Site Management Company | 1,465 | 98% |
| Self-Managed (i.e., Board Members and/or On-Site Manager) | 33 | 2% |
Survey Financial Results
All surveyed associations (1,498 consisting of 142,581 units; not all associations are included in each line of the following survey results). In a 1995 survey of 929 Northern California associations representing 125,326 units, the average cash and investment balance, excluding litigation settlement funds, was approximately $220,000 or $2,900 per unit. Hence, the per unit increase over a 13-year period is only about 10%. Among small associations (2-50 units) average cash jumped from $3,400 per unit in 1995 to $10,900 per unit in 2008. The change was much less dramatic for medium and large associations.
| Financial Strength | Average | Average per Unit |
| Cash, Excluding Litigation Funds | $313,000 | $3,200 |
| Assessments Receivable | $26,000 | $270 |
| Reserve Obligation (71 Associations) | $265,000 | — |
In the 1995 survey, the average assessment receivable balance for small associations was $580 per unit, while in 2008 it averaged $910 unit. Average assessments per unit and overall changes from 1995 to 2008 were generally smaller for medium and large-sized associations.
In the 1995 survey, the average reserve obligation for 58 associations was $117,000. Given the aging of associations, and the inflation of major repair and replacement costs, the increase of 125% over 13 years is not surprising.
Financial Performance – Income
| Financial Performance – Income | Annual Average | PUPM | |
| Assessments, Operating | $203,000 | $177 | 73% |
| Assessments, Reserves | $83,000 | $67 | 27% |
| Total Regular Assessments | $286,000 | $244 | |
| Assessments, Special (214 Associations) | $150,000 | $154 | |
| Lawsuit Settlements (16 Associations) | $675,000 | $581 | |
| Interest Income (1,321 Associations) | $10,000 | 2.9% Average Rate on Cash |
In the 1995 survey, operating assessments represented 74% of total assessments while reserve assessments represented 26% of total assessments—a negligible change from the 2008 survey results. From 1995 to 2008, on average, the assessments of small associations increased, percentage wise, more than those of medium and large associations. Small association regular assessments increased from $82,000 per year or $261 PUPM in 1995 to $234,000 per year or $823 per unit in 2008. Reserve contribution increases for small associations was even more marked—from $19,000 per year or $50 PUPM in 1995 to $69,000 per year or $228 PUPM in 2008. The foregoing results are based on a sample size of 373 small associations (11,048 units) in 1995 and 752 small associations (17,271 units) in 2008.
Newer associations (232 projects) had average regular assessments of $246,000 per year ($181 PUPM), middle-aged associations (496 projects) averaged $276,000 per year ($298 PUPM), and older associations (752 projects) averaged $307,000 per year ($237 PUPM). Similar data from the 1995 survey was $154,000 ($174 PUPM) for newer associations (110 projects), $177,000 ($192 PUPM) for middle-aged associations (450 projects), and $318,000 ($213 PUPM) for older associations (335 projects).
In the 1995 survey, 159 associations, 17% of those surveyed, had average special assessments of $142,000 or $150 PUPM. In 2008 roughly the same percentage of surveyed associations, 14%, experienced roughly the same average special assessments.
Newer associations (30 projects) had average special assessments of $69,000 ($44 PUPM), middle-aged associations (65 projects) averaged $101,000 ($123 PUPM), and older associations (116 projects) averaged $201,000 ($216 PUPM). Similar data from the 1995 survey revealed $15,000 ($25 PUPM) for newer associations (11 projects), $214,000 ($206 PUPM) for middle-aged associations (70 projects), and $96,000 ($105 PUPM) for older associations (74 projects).
In the 1995 financial survey, the average interest earnings rate was 3.6%.
Financial Performance – Expenses
In the 1995 financial survey, insurance, excluding earthquake, averaged $17,500 or $27 PUPM, and, for earthquake coverage only, $30,000 average (23 associations). 2008 insurance expense (excluding earthquake) may be slightly overstated due to some associations not disclosing earthquake coverage. Management averaged $22,000 in 1995 or $21 PUPM. Bad debt expense was not sufficiently prevalent in 1995 to warrant separate disclosure.In 1995, Management by association size was $22 PUPM for small (2–50 units, 332 projects), $16 PUPM for medium (51–150 units, 346 projects), and $13 PUPM for large (151–500 units, 156 projects) associations.
| Administration | Average | PUPM |
| Insurance, Excluding Earthquake | $28,000 | $25 |
| Insurance, Earthquake Only (7 Associations) | $32,000 | |
| Management | $19,000 | $17 |
| Bad Debt Expense (323 Associations) | $13,000 | $10 PURA |
Similar data for 2008 was $64 PUPM for small (2–50 units, 697 projects, including several high-rise urban condos), $20 PUPM for medium (51–150 units, 454 projects), and $7 PUPM for large (151–500 units, 188 projects).Management expense, broken down by type of development, was $20 PUPM for condominiums (477 projects) and $13 PUPM for planned unit developments (322 projects) in 1995. Similar data for 2008 was $21 PUPM for condominiums (848 projects) and $13 PUPM for PUDs (519 projects).
In the 1995 financial survey, general maintenance averaged $24,000 or $40 PUPM. Security and concierge (262 associations) averaged $25,000 or $92 PUPM. Landscape maintenance averaged $28,000 or $30 PUPM. Elevator maintenance was not separately tabulated in the 2008 survey. Pool and spa expenses (468 associations) averaged $7,000 or $7 PUPM—virtually unchanged 13 years later in the present survey.
Newer associations had average maintenance expenditures of $77,000 per year (228 associations), middle-age associations averaged $77,000 per year (489 associations) and older associations averaged $91,000 per year (741 associations). Similar data from the 1995 survey was $42,000 for newer (111) associations, $49,000 for middle (461) associations and $71,000 for older (340) associations.
| Maintenance | Average | PUPM |
| General Maintenance | $50,000 | $45 |
| Security and Concierge (207 Associations) | $50,000 | $38 |
| Landscaping | $26,000 | $21 |
| Elevator Maintenance (295 Associations) | $11,000 | $13 |
| Pool and Spa ($69 Associations) | $8,000 | $7 |
In the 1995 financial survey, total common area utilities averaged $52,000 per year or $53 PUPM.
| Utilities | Average | PUPM |
| Gas and Electricity, Common | $23,000 | $21 |
| Water and Sewer | $21,000 | $19 PUNA |
| Garbage Collection | $18,000 | $17 |
| Utilities, Total | $62,000 | $57 |
Not surprisingly, major repairs and replacements have increased markedly due to the aging of community associations. The effect of increasing petroleum prices is evident in the doubling of average paving costs from 1995 to 2008. Even more striking, average painting cost has tripled over this same period.
Newer associations had average major repair expenditures of $86,000 per year (148 associations), middle-age associations averaged $94,000 per year (356 associations), and older associations averaged $108,000 per year (549 associations). Similar data from the 1995 survey was $8000 for newer associations, $49,00 for middle-life associations and $76,000 for older associations.
| Major Repairs and Replacements | Average | PUPM |
| 2008 Survey | ||
| Roofing (138 associations) | $65,000 | $81 |
| Painting (150 associations) | $94,000 | $58 |
| Paving (115 associations) | $31,000 | $26 |
| Overall | $99,000 | |
| 1995 Survey | ||
| Roofing (136 associations) | $52,000 | $39 |
| Painting (122 associations) | $21,000 | $22 |
| Paving (84 associations) | $16,000 | $9 |
| Overall | $54,000 |
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Acknowledgements
The generous assistance of the financial management-only companies listed below is gratefully acknowledged. Space does not permit the listing of the approximately 150 full-service management companies that also contributed financial data but their participation is also gratefully acknowledged.
Account Management Solutions
Community Association Financial
Community Financial Management, Inc
HOA Accounting Services
NA Shade & Associates
David Levy is a partner at Levy, Erlanger & Company, CPAs, in San Francisco. He is the treasurer of the ECHO board of directors and a frequent speaker at ECHO seminars.