Managing Municipal Reimbursements Who Pays What, and When?

Managing Municipal Reimbursements

Let’s imagine that your boss invites you to a group dinner to celebrate her recent promotion. At dinner, you have a tasty salad and one glass of the house red, but your colleagues all have multiple cocktails; somebody orders the surf-and-turf, and all of a sudden, desserts start appearing. Then the check comes, and your heart sinks as “Let’s just split it five ways” quickly becomes the consensus. Why should you subsidize Jim-from-Accounting's steak? You didn't eat any of it, and he makes way more money than you do anyway.  

If a skewed dinner bill is enough to make you fume, imagine sorting out the obligations, reimbursements and guidelines of municipalities versus homeowners associations when it comes to things like road and street maintenance, garbage and snow removal, and other civil necessities. Some states mandate how cities, towns and villages must handle the division of expenses between municipality and private HOAs...others like Massachusetts don't. It's an issue that can divide communities and cost condo owners a pretty penny. 

Different Strokes...

Condos and HOAs in different regions around the country approach the issue of divvying up the aforementioned tasks in different ways. In New Jersey, for example, that state's Municipal Services Act (referred to hereafter as the “Act”) provides qualified private communities with maintenance services, or reimburses those communities for the cost of obtaining them elsewhere. The Act covers removal of snow, ice and other obstructions from the roads and streets; lighting of the roads and streets (to the extent of payment for the electricity required, but not including the installation of maintenance of lamps, standards, wiring or other equipment), and collection and disposal of leaves and recyclable materials, as well as solid waste along the roads and streets.

According to attorney Eric F. Frizzell of the law firm of Buckalew Frizzell & Crevina LLP in Glen Rock, New Jersey, “The Act is intended to help eliminate double payment for these services by residents of qualified communities who pay for them both through their property taxes and association common charges.” 

“The vast majority of condominiums and other community associations in New Jersey are ‘qualified’ under the Act’s definition,” Frizzell continues. “They’re residential condominiums, cooperatives, or communities in which the cost of maintaining the roads and providing essential services is paid for by a not-for profit entity, such as a condominium association, consisting exclusively of unit owners who do not receive any tax abatement or exemption related to construction.”

At the same time, “the implementation of the Act is not black and white,” says David J. Byrne, an attorney and a partner at the New Jersey law firm of Ansell Grimm & Aaron, PC. “The municipality is supposed to decide whether to either provide the particular service, or reimburse for it. If it decides the latter, the Act requires that the community and municipality make and execute a Reimbursement Agreement.” According to the pros, a municipality does not get to unilaterally dictate the scope, or the reimbursement amount of any service—the municipality is empowered to elect whether to provide a particular service or reimburse for it; it's the Act itself that governs the scope of the service and the amount of any reimbursements.

Calculating the reimbursement and amount proposal varies, so homeowner associations can and should take part in negotiations carefully and cautiously to get the most bang for their buck. For example: “Some municipalities have offered associations snow removal reimbursement that’s limited to a pro-rated portion of the wage paid to a public works employee for the few minutes he drives the municipal snow plow through the association’s premises. An association should firmly reject this kind of low-ball offer and demand that the reimbursement include a fair allocation of all of the municipality’s direct and indirect overhead costs that are in any way attributable to snow removal, such as supervisory and administrative personnel costs, chemical de-icing agents, capital costs and fuel for snow plows, trucks, and salt spreaders, a share of employee health insurance, pension, and other benefits, and overtime...The association should request the municipality to provide a detailed explanation of how it arrived at its total costs, and a copy of its annual audited financial statements or other acceptable supporting documentation.”

Once negotiations have taken place and the agreement has been finalized, disputes can of course still occur. “Unfortunately, municipalities quite often violate the Act,” says Byrne, “whether that violation is a municipality’s failure to provide a service, reimburse for a service and/or reimburse correctly for a service. Bottom line: some condominium communities end up suing the municipality—or simply accepting whatever the city or town offers rather than spend time and money on litigation.

Other Markets, Other Issues

Up to this point, we’ve been talking about New Jersey, which has the benefit of having the Act to spell things out and hold municipalities accountable for either providing services, or reimbursing for them. But what if your HOA is in a state that doesn’t have similar legislation? 

In Massachusetts, for example, the idea of cities and towns providing many services like road maintenance, plowing or street lights for condominiums has not been a hot topic. “It’s been talked about, but it’s never really been an issue,” says attorney Richard Brooks, a partner in the Braintree, Massachusetts law firm of Marcus, Errico, Emmer & Brooks, PC. Outside of urban areas, where condo buildings are located on city streets, most condominium communities have private roads. Municipal highway departments generally don’t service private ways, whether they are lined with single-family homes or condominium buildings—so taxpayers in condominiums are not getting short-changed services that are provided to other tax-paying property owners. “You’d have to show that you are similar in type of service” to other taxpayers, he says.

And reimbursement—as opposed to actual provision of services—is not an option, Brooks adds. “All they (the municipality) can do is to put you in the same category as other taxpayers; they can’t treat you differently. By reimbursing, they would be changing the tax rate for some owners, and they can’t have different tax rates.”

Talking Trash

But where Massachusetts communities have been successful is in getting municipal trash collection. Brooks has worked on the rubbish collection issue for more than a decade, and has had noteworthy success in fighting City Hall. Of the state’s 351 cities and towns, “a bunch” have landfills that residents use, he says, with no curbside pickup offered; another group charges a trash fee to everyone, so collection is not included in property taxes; a few have always provided the service to condos; and others offer no municipal pickup to anyone, leaving property owners to contract directly with trash haulers.

A final group of municipalities—60 to 70, by Brooks’ count—do provide pickup, paid for through property taxes. Over the years, condo associations in some of those communities have sought municipal collection, arguing that they deserve equal services for their equal tax dollars. “Of the 60 or so, the number we’ve changed is in the high thirties,” Brooks says. “We did pretty well, getting more than half of them.”

For many communities, going after municipal service has been a worthwhile effort. “For a 200-unit condo, it’s a lot of money, even though it’s not a lot on a per-person basis,” he says.

In the past few years, though, requests for Brooks’ assistance in gaining trash collection at condo communities have dwindled. “It’s not as popular as it used to be,” he says of the battle. But every so often, association board members will contact him, sometimes unaware of efforts that their predecessors made years ago.

In Rhode Island, similarly, the double-taxation dilemma is also faced by condo owners on a town-by-town basis. While Rhode Island attorney Raymond Harrison has stated that condo unit owners and associations are “victims of discrimination” when they do not receive all of the services municipalities provide to single family home owners, associations have generally been resigned to taking care of their own needs. Services to condo communities are sometimes addressed as conditions of a special permit related to subdivision or building construction—but often there are no conditions and nothing in writing, notes Harrison.

And as budget belts tighten, even condo communities that have received equitable treatment may be facing new challenges. The town of Berlin, Connecticut, has been giving rebates to eligible condominium owners for a portion of the trash disposal costs each condo complex pays to private trash haulers, because the town-hired haulers do not pick up trash at condos. The rebates, which are sent to condominium property managers, are based on annual per-unit trash collection costs for the service the town provides to single-family homes.  But those rebates—currently about $177 per unit—may be ending, town officials said last month, depending on the state of the municipal budget.

An Issue of Fairness

So what's to be done in regions of the country where there is no equivalent of New Jersey’s Municipal Services Act? 

According to those who have been involved in the issue, contacting local elected officials and appearing at local government meetings is perhaps the best place to start negotiations though results definitely vary. “This is a money issue,” says Lee Tate, a homeowner/board member in Park Ridge, Illinois whose HOA is also dealing with that state’s lack of reimbursement guidelines.  “I've appeared before the city council, appealed to our alderman, and tried to get other association boards interested. I am amazed that more condo owners are not outraged at the unfairness of this issue.

“Park Ridge Pointe is a medium sized neighborhood comprised of 221 condos and 61 town homes,” Tate says. “We pay hundreds of thousands of dollars annually for snow plowing, street and curb maintenance, streetlights, flood control, as well as other services which should be paid for by our taxes.”

If your state does have laws on the books mandating municipal provision of/reimbursement for services, “Often the only remedy when a municipality refuses to meet its obligation is, unfortunately, a lawsuit,” says attorney Ronald L. Perl, a partner with the law firm of Hill Wallack, LLP in Morristown, New Jersey. “There are reported judicial decisions involving municipal services. For example, one case determined that where parking lots are actually used as interior streets, the traveled portion of those lots must be included in the snow reimbursement calculation.”

If your state doesn’t have a Municipal Reimbursement Act equivalent, you’re frankly facing something of an uphill battle. “Some HOAs have threatened a lawsuit, but that’s going nowhere,” says Tate. “Another big part of the problem is that neither the city, nor realtors, or even the state laws require that potential buyers be notified that their taxes won’t pay for services that [municipalities] provide to ‘conventional’ neighborhoods. I thought the new ombudsman law (in Illinois) might have an effect, but is has not been funded, so will likely have no impact.” 

Securing your association’s municipalities benefits—or battling the lack thereof—can be exhausting, but the savings are worth the challenge, provided you’ve got the stamina (and funds) to take the issue to court, or to your local and state representatives. If you do, consider it excellent practice for how to handle it the next time you’re out with coworkers and the guy who orders the surf-and-turf is the same guy who suggests splitting the bill five ways.

Rebecca Fons is a freelance writer and a frequent contributor to New England Condominium. Associate Editor Pat Gale contributed to this article. 

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