Montgomery County has just adopted a new law that will allow some condominiums, cooperatives and homeowners associations to be reimbursed for the money they spend on maintaining their roads, with a possible cost to the county of more than $1 million a year.
Members of condos and homeowners associations in Montgomery County pushed for the measure in an effort to lift what they believe has been double taxation of community association members: Associations collect money from members for road maintenance, and members pay county taxes, part of which goes for road maintenance.
The number of homeowners associations in Maryland has been increasing rapidly over the past several years, particularly in the Baltimore and Washington suburbs. Almost every new subdivision in the Maryland suburbs around Washington has an association, primarily because counties have been unwilling to accept maintenance responsibility for roads inside subdivisions.
To make sure the roads will be maintained, developers have been required to set up community associations to levy dues and keep up the commonly owned elements.
The new law creates a program for qualified condos, co-ops and homeowners associations under which a portion of the taxes members pay for road maintenance will be reimbursed to the association.
The Montgomery County Office of Management and Budget estimated that the new bill would cost the county nearly $900,000 in the first year and possibly $1.5 million by the third year.
To qualify, an association must have at least one-quarter mile of roadway that is paved, that provides public access to more than four houses and that is maintained with association funds. The association also will have to have a financial officer who is bonded or who meets the financial-responsibility requirements in the county's executive regulations.
The association also will have to agree to settle all disputes it is a party to -- including those affecting issues other than road maintenance -- through arbitration or mediation. Montgomery County has been trying to encourage community associations to settle disputes through arbitration to reduce the financial burden on individual association members of defending themselves against their associations in court.
Pat Huson, executive director of the Montgomery Village Foundation Inc., said that the association "was very pleased" to have the bill passed, but said additional regulations are needed to help implement the legislation.
Montgomery Village, a sprawling development in Gaithersburg with 35 miles of association-maintained roadway, could be reimbursed as much as $200,000 for road maintenance under the new program.
Roger Winston, an attorney with Linowes and Blocher who specializes in community association law, said that the new law "leaves the county a wait-and-see period" of one year before the program begins to pay out reimbursements in 1986. He said it is still unclear if an association would be reimbursed for road-maintenance money spent this year.
He also said there is some question about how the county will handle the program and whether community associations will have to continue to hold large capital reserves for roadway maintenance.
"It's a reimbursement program, so the association would technically have to pay the money for the work and then get reimbursed," Winston said. "It's unclear now what this could mean for associations, because once they were reimbursed, they would have a big fund of money sitting around."
Winston said that the law could create some problems for associations with very rigid rules concerning use of capital reserves. He also said it is likely that associations would be more likely to try to borrow funds for road maintenance instead of slowly putting them aside in a reserve because they know they will be reimbursed.
Borrowing could be difficult for some associations, however, because many don't have anything to put up for collateral, Winston said.
"Because of the restrictions and easements on the common elements of most associations, it is unlikely a lender would accept the common elements as collateral," Winston said. "Particularly for the small association that doesn't have a large fund of capital reserves, borrowing could be difficult."
The county plans to start reimbursing community associations for road work next year, but will repay only half of what an association spends during the first year of the program. Under the law, the county could limit total expenditures in the future. If that happened, each community association would receive only a pro-rated share of the total county fund set aside for reimbursement, Winston said.