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Residential community associations: their impact on local government finance and politics.

As the number of residential community associations has increased, so has their impact on local government decisions and politics. Fueling the confrontational atmosphere are the issues of property tax reimbursement and the provision of municipal services.

There has been relatively little research conducted on residential community associations (RCAs) by the academic community; however, RCAs deserve much greater attention because they are playing an increasingly important role in determining the outcome of state and local government decisions. In recent years, RCAs have emerged as one of the most potent political forces affecting local government land-use decisions in the United States. Moreover, RCAs also have expanded their lobbying efforts at the state government level. Their primary goal has been to convince state legislators to adopt legislation to require local governments to provide RCA members with property tax rebates for local government services that they already have paid for and provided themselves. If successful in all 50 states, these efforts could require local governments to provide RCA members with property tax rebates in excess of $5 billion annually.

As the number of RCAs in the United States continues to increase and their lobbying efforts at both the state and local government levels continue to expand, interest in research concerning RCAs is certain to increase both among the academic community and state and local government officials.

RCAs and What They Do

RCAs are nonprofit corporations created by real estate developers with local government approval. The three general types--homeowners' associations, condominium associations and cooperatives--can exist by themselves or can be grouped together into what are referred to as master associations, umbrella associations and master planned communities.

Areas with homeowners' associations (HOAs) typically consist of detached houses or townhouses with common areas. The homeowners own and maintain their individual residences; the association owns and manages their commonly held property, such as swimming pools, tennis courts and streets. Condominium associations (COAs) are usually located in multifamily, multistory buildings. The owners hold title to the interior space of their residences and own the rest of the property, such as hallways, elevators, exterior walls and parking lots, in common. The association manages the commonly owned property. Cooperative associations usually are located in multifamily, high-rise buildings in major metropolitan areas. The association's members do not own any real property. Instead, they acquire a long-term, renewable leasehold interest in their residence plus a share, or proportionate shares, in a corporation that owns the building and grounds. Approximately 51 percent of all RCAs are homeowners' associations, 42 percent are condominium associations and 7 percent are cooperatives.

RCAs serve four basic functions. First, they provide homeowners a governing mechanism to manage commonly owned property, such as streets, parking lots, tennis courts and swimming pools. Second, they provide services, such as lawn care, street maintenance, trash collection and snow removal. Third, they determine and collect assessment fees to pay for these services. Fourth, they create and enforce commonly held covenants, rules and regulations (CR&Rs) that regulate the behavior of the development's residents. The CR&Rs can, among other things, determine whether and under what conditions a homeowner can own a dog or a cat, build an addition onto their home, run a business out of their home or place a basketball hoop over the family garage.

RCAs also have a fifth function that is seldom, if ever, mentioned in their articles of incorporation: lobbying. Because local governments affect the welfare of RCA members through their taxing, zoning and service delivery functions, RCA members often lobby their local government officials in an attempt to protect or promote their neighborhood's interests. Recent surveys of RCA board members indicate that they regularly monitor local government decisions and attempt to establish personal relationships with leading local government officials. Often using what is referred to as the insider's lobbying strategy, their goal is to establish a good working relationship with local government officials. This, in turn, enables them to become aware of any proposals that may adversely impact their neighborhood early in the local government's decisionmaking process. It also provides them an opportunity to marshall their resources to respond to any proposal well before it is enacted into law. Many RCAs also have established committees that meet regularly with city council members and department heads to keep lines of communication open.

Recent surveys of RCA board members indicate that most RCAs have a good working relationship with their local government officials and are rarely involved in major political controversies. If the insider's lobbying strategy fails to resolve an issue to their satisfaction, however, RCA members are more than willing to turn to more aggressive forms of persuasion, such as marching on city hall and running advertisements in the local newspaper attacking local government officials who support actions that are perceived to harm the neighborhood's property values or aesthetics. A search of newspaper and journal accounts concerning RCA activities revealed that when RCAs do become involved in major political controversies they are a potent political force. RCAs have been particularly successful in extracting concessions from developers seeking local government approval for projects located near or adjacent to the RCA. RCA members are clearly in the forefront of the NIMBY (Not In My Back Yard) movement in the United States.

RCAs are potent political forces because they have a number of organizational advantages that most other neighborhood groups lack. They have the capacity to raise significant amounts of revenue through regular and special assessments that can be used to hire professional lobbying assistance, including attorneys, engineers and planners. They also already have, through their associations' newsletter, a communications network in place that can be used to mobilize the neighborhood for political action. Their board of directors constitutes a ready-made forum for providing the political leadership that often is necessary to serve as a catalyst for neighborhood political action. Also, their members are used to gathering together to discuss the neighborhood's welfare and have established procedures that help them reach collective decisions.

There are currently more than 150,000 RCAs in the United States, and between 9,000 and 10,000 more are added each year. They range in size from three-unit condominiums and cooperatives to 19,000-unit master planned communities such as Reston, Virginia. The typical RCA consists of between 40 and 100 units and has an annual operating budget of approximately $125,000.

Although RCAs are particularly prevalent in Florida (40,000) and California (25,000), they are found in every state. They are especially popular in the nation's larger metropolitan areas, where they account for approximately 50 percent of all new home sales. Nationally, more than one out of every eight Americans (32 million) are currently governed by a residential community association and, based on current growth rates, that number is expected to exceed 50 million by the year 2000.

RCA Issues

As the number of RCAs and RCA members continues to climb, state and local government officials increasingly are forced to address a number of issues involving RCAs. These issues generally fall within one of the following five general categories: taxation, finances, service provision, citizenship and governance, and consumer protection.

Taxation. RCA members across the United States are becoming much more vocal in their demand for property tax relief. RCA members pay local property taxes at the same rate as other property owners in their town or city; however, they also pay assessment fees to provide services, such as trash collection and snow removal, that their local government provides to other members of their community. Thus, RCA members are often taxed by local government for services that they already have paid for and provided themselves.

RCA members have successfully lobbied for laws providing RCA members a property tax rebate commensurate with the cost savings realized from the RCA's provision of services in Houston, Texas; Kansas City, Missouri; Montgomery County, Maryland; and New Jersey. In a case with national ramifications, the Appellate Division of the New Jersey State Superior Court recently dismissed a lawsuit filed by the New Jersey League of Municipalities that challenged the constitutionality of New Jersey's Municipal Services Law, which requires municipalities to reimburse RCAs for the cost of snow removal, street lighting, and collection of recyclable materials and garbage. Similar legislation currently is being discussed in Connecticut's and Virginia's state legislatures. In Florida, RCA members recently formed the Florida Legislative Alliance, and RCA members in California recently formed the California Legislative Alliance to push for similar legislation there. RCAs in Connecticut, Nevada and New Hampshire also have formed legislative action committees, and RCAs in Texas and Virginia are in the process of forming such committees. These groups are expected to press for state legislation to mandate RCA reimbursement for the provision of "public" services.

Given their difficult financial positions, most local governments have refused RCA requests for property tax rebates. As the number of RCA members nationwide continues to increase and the number of localities and states offering rebates increases, however, the issue of RCA property tax rebates is certain to become more common in state legislatures and in city and town halls across the nation. RCA property tax rebates also are likely to become an important political issue in local and state campaigns in the near future.

Members of single-family homeowners' associations have another tax equity problem. As members of a HOA, they pay property taxes on their commonly owned property; they also pay property taxes on their residences. In many communities, the local tax assessor reflects the added value of common facilities onto the value of the individual's home. As a result, HOA members often are assessed twice for living in a RCA: once when paying their share of the association's property tax bill and a second time through higher appraisals on their home. To promote tax equity, HOA members are becoming more vocal in their opposition to what is, in their view, a form of double taxation.

RCA Finances. Although relatively few RCAs have ever gone bankrupt, many have approached local governments asking for fiscal assistance, typically in the form of a low-interest loan, following an unforeseen financial setback, such as a water-main break. Although local governments are not required to assist RCAs in the event of financial difficulties, most have enacted ordinances which allow them to temporarily assume control of the RCA's operations if a financial emergency arises. Although local governments provide mechanisms to take over financially troubled RCAs, most do not regulate RCA finances in any way. Because local governments are potentially affected by RCA financial activities, some scholars have suggested that local governments require RCAs to periodically report their financial status to local government officials and meet certain financial tests, such as maintaining a specified amount in their reserve funds.

Service Provision. Many local governments refuse to provide RCA neighborhoods with services that they routinely provide to other neighborhoods within their jurisdiction. Local government officials argue that they exclude RCA neighborhoods because they subject themselves to liability problems when their employees venture onto RCA property. For example, many local governments will not allow their police officers to patrol RCA streets or enforce traffic regulations on RCA streets without specific, prior written agreements that release the local government from any liability actions. In addition to the liability issue, many smaller towns refuse to collect RCA neighborhood trash because the town often lacks the resources to purchase the special equipment necessary to empty large dumpsters.

RCA members across the United States have been lobbying their local governments for years to provide them with the same services offered in other neighborhoods. Their first major legislative victory occurred in New Jersey. In addition to requiring municipalities to reimburse RCAs for providing "public" services, the Municipal Services Law requires them to provide RCA neighborhoods with the same services offered in other neighborhoods if the RCA does not already provide the service itself. Bills introduced in Connecticut and Virginia contain similar mandates, and the coalition of RCAs in California, Florida and Texas are expected to lobby for similar legislation in those states. Moreover, an ad-hoc group of RCAs in Naugatuck, Connecticut, recently filed a lawsuit claiming that Naugatuck's refusal to provide them with municipal services violated their constitutional rights under the equal protection clause. The case is expected to go to trial later this year.

Although public finance statistics compiled by the federal government do not include estimates of how much money RCAs are spending on "public" services, the Community Associations Institute, based in Alexandria, Virginia, has estimated that RCAs' current operating budgets exceed $17 billion annually. Thus, the potential impact of legislation and lawsuits mandating local government reimbursement to RCAs for providing "public" services and mandating the provision of municipal services to RCA neighborhoods is very significant.

Citizenship and Governance. Because the courts view RCAs as nongovernmental entities, RCAs are not subject to the strict legal standards applied to government. For example, RCAs typically base suffrage rights on home ownership rather than residence. As a result, although renters residing in RCA governed neighborhoods are directly affected by the RCA's decisions, most RCAs do not allow renters to vote at general membership meetings or serve on the RCA's board of directors. Also, most HOAs give one vote to each lot owner rather than to each adult resident in the HOA and most condominium associations give a weighted vote to the owners of each condominium unit based either on the unit's market value or on its square footage. All of these voting mechanisms violate the principle of one person-one vote, first articulated in Reynolds v. Sims (1964), that applies to governmental entities.

Some scholars have suggested that since RCAs have many of the same responsibilities as local governments that they should be subjected to the same legal standards that are applied to governmental entities. There is little difference, they argue, between the actions of the RCA's board of directors and its president and the actions of city councils and mayors. They also point out that RCA general membership meetings have all the trappings of an old fashion town hall meeting, where neighbors come together to discuss, sometimes rationally and sometimes irrationally, the future of their neighborhood. As a result, they argue that constitutional requirements, such as the one-person-one-vote rule, or some variant of it, should be applied to RCAs.

Consumer Protection

Many home buyers in RCA-governed neighborhoods do not understand the extent of their association's powers when they purchase their home, nor do they usually have a full or, in many cases, even a partial knowledge of the RCA's financial condition. Although most local governments require real estate developers to fully disclose the neighborhood's CR&Rs to prospective new home buyers prior to closing, some local governments have not addressed the issue, and many more only require notification the first time the home is sold, not on subsequent resales. Some scholars suggest that all local governments should require notification of the RCA's CR&Rs and its financial condition to home buyers prior to closing every time the home is sold. They point out that new home buyers in RCA-governed communities should be alerted to any pending special assessments that may be necessary to renovate or repair neighborhood facilities.

California, New York and Virginia currently require sellers of homes in RCA-governed neighborhoods to provide all potential purchasers with a public offering statement. This statement usually includes a copy of the RCA's bylaws and CR&Rs, as well as a summary of the RCA's financial condition and current assessment fees. The buyers then have a cooling-off period during which they have an opportunity to review the material and rescind their purchase agreements. California also requires its RCAs to conduct a reserve study that estimates the useful life of relevant common facilities and to include the study in the public offering statement.


Because RCAs are private organizations, they are not regarded as full partners in the intergovernmental system of governance in the United States. Their increasing numbers and interactions with state and local governments, however, make them important actors in that system. For millions of Americans, their RCA is a decision-making institution that is as important to them as their local government, if not more so.

In the short term, RCA demands for property tax reimbursements and the provision of municipal services is likely to create a confrontational atmosphere. Given the budgetary implications of reimbursing RCAs for providing "public" services and of providing municipal services to them, RCAs are quickly learning that the insider's lobbying strategy is not likely to produce the results they desire on these issues. Marches on city hall; negative political advertising; and appeals to the state legislature or the courts are likely to become the rule, not the exception, over the next several years.

RCAs provide neighborhoods an opportunity to come together and voice their concerns and desires to elected officials as a group. As such, RCAs hold the potential to represent a major advance in the continuing effort to enhance communication between citizens and their elected government officials.


Advisory Commission on Intergovernmental Relations (ACIR), 1989, Residential Community Associations: Private Governments in the Intergovernmental System? Washington, D.C.: ACIR.

Barton, Stephen E., and Silverman, Carol, 1987, Common Interest Homeowners' Associations Management Study, Sacramento, CA: California Department of Real Estate.

Barton, Stephen E., and Silverman, Carol, 1987, "Overcoming Conflicts and Frustration in Running a Community Association," Common Ground (September/October): 12-15, 25-27.

Budd, Kenneth, 1992, "A Force in Ring," Common Ground (November/December): 14-20, 40.

Community Associations Institute (CAI), 1993, Community Associations Factbook, Alexandria, VA: CAI.

Community Associations Institute, Common Ground (various issues).

Dilger, Robert Jay, 1992, Neighborhood Politics: Residential Community Associations in American Governance, New York, NY: New York University Press.

Dowden, James C., 1980, Community Associations: A Guide for Public Officials, Washington, DC: Urban Land Institute.

Dowden, James C., 1986, Creating a Community Association: The Developer's Role in Condominium and Homeowner Associations, 2nd. rev. ed., Washington, DC: Urban Land Institute.

Hyatt, Wayne S., 1988, Condominium and Homeowner Association Practice: Community Association Law, 2nd. ed., Philadelphia, PA: American Law Institute.

Winokour, James L., 1990, "Reforming Servitude Regimes: Toward Associational Federalism and Community," Wisconsin Law Review 2:537-552.

ROBERT JAY DILGER is director of the Institute for Public Affairs at West Virginia University. He is the author of three books and numerous articles and chapters dealing with national intergovernmental programs and state and local government. The author would like to thank Kenneth Budd of the Community Associations Institute for reading and commenting on an earlier version of this article.
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Author:Dilger, Robert Jay
Publication:Government Finance Review
Date:Aug 1, 1993
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