|Re: a question about funding capital projects||<– Date –> <– Thread –>|
|From: evdavwes (evdavwesaol.com)|
|Date: Sun, 23 May 2010 03:04:33 -0700 (PDT)|
Sylvie, At Westwood Cohousing (est. 1997) we currently do not have a Capital Improvements Fund, but we are considering this. I am aware of some communities that regularly put unspent money from the annual budget into such a fund. There are some feelings here against any required contribution to a fund to accumulate capital. We have had discussion about a transfer fee or "flip tax" (discussed previously on the Coho listserv) to accumulate money for improvements, but a number of members had strong feelings against this. We have not made an assessment for capital expenditures during my 7 years here, and I think have not made such an assessment during the existence of the Community. We had one big improvement, a bike shed, which was funded by a gift from an individual. We have previously discussed projects that would require capital, but have gotten hung up on how to pay for them. We are currently considering other projects which will need a funding source if approved. Previous projects have been rejected in which we were considering only one traditional funding model, the "special assessment." In this model, we decide on a $24,000 project, and each of the 24 owners is then immediately assessed $1,000 (on the average, with owners of bigger houses paying more, owners of smaller paying less) to make it happen. The big special assessment is a big block to many of our members. Also, it can be considered a problem that if we use a single "special assessment" the entire financial burden of the improvement then falls on one year's owners, whereas someone who buys in to the community next month does not pay but does "use" the improvement. Because the owners change from year to year, it can be considered "unfair" for the owners of any one year to pay a disproportionate share of the costs of the Community. As an example related to reserves, it would be "unfair" for the owners of 1997 to 2010 to have underfunded the reserves to such an extent that the reserves are depleted in 2010 and the owners of 2010 then have to be assessed $50,000 for urgent, non-postponable roof repair required in 2010. It would have been much "fairer" for the owners of 1997 to 2010 to have funded the reserve fund adequately, so that the $50,000 would be available for use when needed in 2010. "Fairer" in part because the deterioration of the roof, or "consuming" of the roof's remaining useful life, was happening during 1997 to 2010, not just in 2010. Similarly, assessing current owners bit by bit for a future capital improvement, say $6,000 per year for each of 2010 to 2014, for something to be purchased in 2014, could also be considered "unfair," because those who have been assessed in 2010 through 2014 may not be around to enjoy the improvement finally purchased in 2014. I have been discussing with our Finance Team a proposal for another way of funding, namely to have the cost of a project spread out over some limited future time, and paid for by the owners present during that limited future time. For example, do the $24,000 project in 2010, then have the owners of 2010 through 2014 pay $6,000 per year. That way, those who pay for the project will be the ones enjoying the improvement. Also, it will be possible to structure the payments as a yearly payment of $250 or a monthly payment of $21, roughly, rather than the one time $1,000 assessment. Doing things this way requires a source of capital. One source might be a bank loan. We have learned that banks will lend money to our HOA if our declaration were changed to enable us to "assign" (I think the right word) future assessments to the bank, so they could collect from individual owners in the event of a default. Another option, I think better for us, would be to "borrow" from the Reserve fund (our balance is currently c. $150,000). This is commonly done, but is sometimes done in a way which jeopardizes the strength of the reserves. What I am considering would be, for example, a $24,000 "loan" from reserves on 5/21/2010 to pay for the capital improvement purchased on 5/21/2010. At the same time that the Owners commit to spending the "borrowed" money, they would also vote on and commit to a series of special assessments to pay back the loan. For example, for payback over 4 years, there would be 4 special assessments totaling $6,000 each, due on 6/1/2010, 6/1/2011, 6/1/2012, and 6/1/2010. The amount of the special assessments would be increased somewhat, to roughly $6,500, to "repay" the reserve fund the foregone interest which the reserve fund would have accumulated had the money not been withdrawn (roughly 3% in our situation). We would probably want to make the assessments, like our regular assessments, payable in equal installments on the first of each month, and would list the special assessment as a separate item on the invoices sent out. Prospective owners for the next 4 years would need to be notified of the series of special assessments that would be due in the future. With a program like this, we would want to make sure that the "payback" period is not longer than the useful life of the improvement. For example, we would not want to assess over four years for an improvement (let's say a tent or pavilion) which would need substantial repairs or replacement in 3 years. We might assess for such an improvement over 3 years, however, and would also want to begin planning for the repair or replacement by revising our reserve study to accommodate this new item.. Also, whether to fund a capital improvement using a loan from the reserve fund would depend on the expected needs for money from the reserve fund. We would want to make sure that the expenses upcoming in the time of payback of the "loan" would not be more than the amount remaining in reserves. Our "reserve study" contains a graphic which makes clear the anticipated Reserve fund balances year by year over the next 30 years, and can be used to make the determination that the reserves can support such a "loan." I would love to hear other's ideas on this subject. David Clements 8282804431 www.westwoodcohousing.com Message: 1 Date: Fri, 21 May 2010 18:57:00 -0700 From: "S. Kashdan" <skashdan [at] cablespeed.com> Subject: Re: [C-L]_ a question about funding capital projects To: "Cohousing list Cohousing-L" <cohousing-l [at] cohousing.org> Message-ID: <F1C6C986D04E44B68E3E1691A608FF55@user1818ebb126> Content-Type: text/plain; charset="Windows-1252" Greetings all, I am posting this request again because I didn't receive much of a response the first time. I will give a little more information, and hope that more of you can respond. Here at Jackson Place Cohousing, we are trying to figure out a less cumbersome way of deciding on how to fund capital projects than the one we have used for the last eight and a half years. Currently, we consider funding capital projects on an annual basis. In a series of meetings, projects are presented by interested members, and we discuss and either come to consensus on having a project done or are unable to come to consensus on it. Once we have come to consensus on the projects we think worthy of being done during the coming year, we then begin a process of deciding on how they will be funded: 1. First we ask whether each project can be funded with our regular formula for deciding on association assessments: a 65/35 formula assessment. This involves deciding on whether we agree to pay a special assessment beyond the regular budget assessment requirements. Households may choose to pay their assessment in a lump sum, in monthly installments with their condo dues, or in another arrangement. 2. If we do not select to pay by special assessment for every project, we move to the next step for those projects still needing funding: We ask for consensus for paying for those projects with a special assessment, with owners having the option of not paying in full or at all, and others having the option of contributing more than their share to a pool to bring the amount up to the necessary sum. 3. If we do not accept all of the remaining projects for funding in the second way, we move to the next step, which is asking for voluntary contributions for the projects that were not approved for funding in either of the other ways. This is the background to the questions my neighbor asked me to post. I would greatly appreciate any responses you can give: How do different cohousing communities fund capitol projects? Do you have a separate fund? Is it in the budget? I have searched the archives a little, and I am finding it very confusing to figure out the answers. I must admit that this kind of technical financial information is not my specialty. So, if some of you could venture some direct and brief responses, it would be greatly appreciated. In community, Sylvie Kashdan Jackson Place Cohousing 800 Hiawatha Place South Seattle, WA 98144 www.seattlecohousing.org
- a question about funding capital projects S. Kashdan, May 18 2010
- Re: a question about funding capital projects Fred H Olson, May 23 2010
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