©2018 Community Associations Institute
Brambleton community association's Brewfest brings more than 30 local breweries into the Loudoun County, Va., community for a day of fun and fizz. The event, held in May, has drawn roughly 2,000 people annually over the past four years and costs up to $40,000 to hold each time.
Located about 33 miles from Washington, D.C., the price of the nearly daylong event is no problem for the community of 5,500 homes on a sprawling 2,500 acres. Sponsorships, ticket sales, and food trucks more than make up for the cost of the event. Each attendee is charged $40 at the gate and $35 online, and kids under 12 are free. The additional revenue is then applied to other community events. It also gives the Brambleton brand a wider reach, as well as a definite feel-good touch, which is especially important as the community hopes to grow to just under 8,000 residential units in the next several years.
THE 17-YEAR-OLD master-planned community with plenty of open spaces and a town center that includes schools, shops, a movie theater, and a library has worked diligently to generate revenue beyond community association assessments. In addition to Brewfest, Brambleton runs an array of ticket sales and sponsorships and garners fees for camps, courses, and more as part of its nonassessment income strategy, says Rick Stone, AMS, ISM, PCAM, the association’s general manager.
Plans don’t always work out. A few years ago, the board decided to establish a concession stand for snacks and beverages at one of their busiest pools, believing it would be a surefire money-producer. But the concession stand needed constant staffing and consistent hours of operation. And it couldn’t always stay open because of weather conditions.
The little dream evaporated.
“After a summer of trying to make this work, we quickly realized that some things are better left to roving ice cream trucks and country clubs,” Stone says.
Nonassessment revenues can help communities offset potentially unpopular assessment rate hikes and special assessments or can put a little more funds in the bank. There are seemingly endless possibilities for income, including: renting storage facilities, RV lots, and party rooms; sponsoring classes, dances, musical events, and other activities like car shows or bus trips; leasing space for cellphone and wireless internet antennas; and transfer fees, which associations charge when properties change hands.
While many associations say such investments amount to relatively small portions of their budgets, they can have a significant impact. Brambleton, for example, generates more than $500,000 annually in nonassessment income, according to Stone. A small portion, about $100,000 is from what he calls “traditional sources,” such as interest, late fees, resale packets, and sales of planned unit development questionnaires. The remaining portion comes from general events, or “lifestyles programs,” and advertising.
Michaywe Owners Association of Gaylor, Mich., which has 950 homes amid winding hills and woodlands on more than 2,000 acres, is constantly checking out possible nonassessment funding—with good reason: It’s been a financial lifesaver, says Todd Chwatun, CMCA, AMS, the community’s general manager.
Chwatun says the board looks at nonassessment revenues as a vital income source because the northern Michigan association is generally unable to raise its assessments. They are “handcuffed” by deed restrictions that require a membership vote. Members typically have been hesitant to approve increases. For instance, the community was able to raise them in 2015, but that was the first time in 13 years, Chwatun says.
The community opens its restaurant and golf course to the public and also allows the public to use its beach house from Memorial Day to Labor Day. That generates fees that cover half of the operating costs, according to Chwatun. Michaywe’s golf course and restaurant used to require a hefty subsidy, but opening them to the public has helped.
“We have successfully grown the sales over a number of years to reduce the subsidy they used to receive,” he says. “That is the biggest reason we have survived.”
Reducing the subsidy’s size freed up some of the association’s assessment income. “We’ve always been a lean organization, but there were a few years where we were running on fumes,” says Chwatun.
The community also generates revenue by instituting late fees on delinquent assessments. Thanks to those fees, since 2009, the percentage of delinquent payments has been reduced to about 8.5 percent, tax-foreclosed, county-owned properties excluded, while generating more than $1 million, Chwatun adds.
Filing fees and lien release fees also have resulted in up to $5,000 per year.
Michaywe initiated its aggressive collections program in 2008. “When the economy tanked, most of our undeveloped property owners stopped paying their (assessments). We had a lot of problems in those years,” he says.
Generally, it makes “good business sense to find fair and creative ways to generate income,” says Chwatun. “I look at funding our community as the circus act where a performer is walking the tightrope while juggling. Fortunately, we haven’t dropped a ball or fallen off. I am proud of the results we have been able to achieve.”
MONEYMAKERS OR COMMUNITY-BUILDERS?
Joanne Bradley, CMCA, AMS, PCAM, executive director of the Kings Grant Open Space Association in Marlton, N.J., is ecstatic about the income brought in by the community’s annual 5K runs, each of which makes a profit of $3,500 that can be used for other projects.
The 30-year-old community of about 2,500 housing units, including single-family homes, condominiums, and apartments, also opened its pools to the public, which has generated steady income. Kings Grant charges $10 per person per day for guest passes, which ultimately generates $4,500 per year and helps offset the cost of operations, Bradley says. Each pool guest has to be accompanied by a resident who must purchase the guest passes.
Kings Grant also has a print newsletter that has generated solid advertising income, but Bradley will be the first to admit that many of the plans simply don’t make that much money, essentially breaking even.
For instance, throughout the year, the association rents out a 3,500-square-foot room that holds 150 people for weddings, graduations, bar mitzvahs, and seminars. The rental fee ranges from $350 for a seminar or children’s birthday party to $800 for a major event like a wedding. While revenue from these rentals is supposed to offset the cost of the room’s upkeep—utilities like lighting and HVAC and janitorial services—the community actually is operating the facility at a slight loss, says Bradley.
In addition, the community conducts a golf outing in partnership with the owners of a privately owned golf course. That isn’t a moneymaker either.
Still, Bradley likes the idea of hosting events because there’s another benefit not shown on the balance sheets: bringing a community together.
“We never really intended these events to be fundraisers,” Bradley adds. “We just want them to pay for themselves. On the whole, we have been successful in that regard. Our goal for events has always been to break even, not to supplement our assessments or make a profit. If a community was interested in supplementing their assessments with this type of revenue, it could easily be done by getting golf outing sponsors or other event sponsors.”
A PENNY FOR YOUR THOUGHTS
While many community associations are enthusiastic in searching for nonassessment revenues—some have been doing it for decades—several have only begun to explore those options. Too many, according to attorneys, go into these programs haphazardly, failing to check their governing documents about what nonassessment plans are feasible and regretting it later.
“Some boards are very conscious about everything and talking to their attorneys, and others don’t want to spend a dime for an opinion,” says P. Michael Nagle, an attorney with Nagle & Zaller in Scottsdale, Ariz. “A lot of them shoot straight from the hip and say: ‘Why wouldn’t we just rent out the clubhouse?’ (A board) should sit down and come up with a game plan and run it by the attorney.”
One major concern involves taxes: Any revenue brought in by a project could trigger an audit or tax implications. State or federal regulations could hamper a fee-based approach to raising funds, says Nagle, a CAI past president and fellow in CAI’s College of Community Association Lawyers (CCAL). “You can get penalties on the interest, depending on the amount.”
Kings Grant was aware of the tax implications when it introduced advertising in its newsletter, Bradley says.
A few years ago, it went from an online-only newsletter back to a printed and mailed piece. “Our hope was that the advertising would generate enough income to cover the cost of printing and mailing a 24-page newsletter to 2,500 homes six times a year,” she says.
The revenue exceeded their expectations. In 2017, Kings Grant had a profit of more than $7,700. For 2018, they are projecting a similar surplus. “The only downside to that is the tax liability,” Bradley explains. “The nonassessment revenue is taxed at 30 percent.”
BRADLEY LIKES THE IDEA OF HOSTING EVENTS BECAUSE THERE’S ANOTHER BENEFIT NOT SHOWN ON THE BALANCE SHEETS: BRINGING A COMMUNITY TOGETHER.
In addition to consulting an attorney or financial expert on taxes, communities also should discuss potential legal and insurance issues involving renting out pools or clubhouses and using vendors, especially if someone from outside the community is using a common area or association facility. Some issues simply aren’t cut-and-dried, Nagle warns.
For instance, a group may want to rent out the pool, but there may be room for debate within the community when “outsiders” can be using it, or when residents can have access.
Some residents may “object vehemently about litter, smells, or attracting insects” if a community hosts food vendors, says Ellen A. Shapiro, an attorney and a CCAL fellow at Goodman, Shapiro & Lombardi in Dedham, Mass. Meanwhile, residents also might object if they lose parking spots during concerts or rallies, Shapiro warns. And if a political or advocacy group is brought in, that may spark questions about providing equal opportunities for other groups.
In the event of someone falling or being in an accident, lawsuits may surely follow. “I suggest that (community) attorneys make their legal standing bulletproof, with an ironclad policy,” related to nonassessment funding activities, adds Shapiro.
There also can be hosts of tax and legal issues involved when leasing property for cellphone and wireless internet antennas, says Nagle.
As community associations prepare their nonassessment income game plan, Brambleton officials indicate the importance of having it be a part of the operational budget, developed by staff, and approved by the board. The finance committee reviews and recommends the draft budget and makes their recommendation to the board when they review the draft.
Brambleton’s board frequently relies on its attorneys. “We have checked with our attorney in the past on the overall vision of hosting events and programs,” says Stone. “Our governing documents make references to creating lifestyles’ and residents’ quality of life.”
The board also discusses types of events and programs with its insurance agent, accountant, and auditor.
Community leaders in Brambleton aren’t staying pat when it comes to revenue sources. There’s always something to think about and lessons learned.
The association released its first full-color quarterly magazine and programming guide this year. “It was our goal to cover the printing and postage costs for the magazine through advertising,” Stone says. “Our magazine has been so successful and desirable by advertisers that advertising has more than covered the cost of the magazine.”
Brambleton also recently partnered with an outside company to provide food trucks and farmers markets within the community. As Brambleton explores more options, Stone says: “It’s all about creating a lifestyle and experience for our residents. If we can do that and reduce the need for assessment income, it’s a win-win for everyone involved.”
Joe Cantlupe is a freelance writer in the Washington, D.C., area.
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