Memo from Jim Jones on Board Meeting of Dec. 20, 2010

MEMORANDUM

Date: December 21, 2010

To: Owners and members of the Elizabeth Condominium Association

From: James C. Jones

Concerning: Board meeting of Dec. 20, 2010

During the open session of the Board meeting yesterday evening, meanness mingled with great ignorance, in yet another sad spectacle of democracy as we know it in The Elizabeth.

Let me begin by noting that my intent last night was to suggest that a little sound reasoning leads to the minimal conclusion that we’re dancing on the edge of a financial cliff with regard to our spending. And with such dancing comes the risk of toppling over and into the abyss (where everything is dark, and where “dwelleth clowns and fools”). I certainly agree that refurbishment is a need everywhere in our aging building. But I’m also aware of the cost of repairing and replacing basic quality-of-life infrastructure. The Board’s challenge is to balance this out, with a bias as regards infrastructure. And that balance also requires the allocation of refurbishment resources rationally between all areas of the building.

There are at least two dimensions of the Board’s fiduciary responsibility as it pursues this balance. First, it must keep condo fees within a range tolerable for those of us—myself included—with less income. Many of our owners live on a fixed low income. And with the recent economic debacle, whose effects will resonate for years to come, those residents have reason to be concerned. And second, the Board must keep one eye cocked on property value.

As an economist and an owner, I question whether either the current or the previous Board have balanced this well. This is what the circulating petition is all about. Each owner, of course, must ask this question. And in so doing, I would encourage him or her to obtain a copy of the contract signed by the Board with the Hartman Group, and the addendum that goes with it. (I obtained both electronically, with Board permission and the kindness of Scott Murdoch.) Please look carefully at the costs. And note in the contract addendum that the Board commits to the Hartman Group for work on the floors—18 floors in each tower, for a total of 36 floors. I see a reckless lavishness—I’m not here arguing aesthetics—in these costs, one that we can ill afford. Do we wish to continue in this lavish vein as we refurbish the floors? Can we? What are the risks?

In trying to learn how designers operate, I consulted five or six of them in the D.C. area. True, not all of them do condos, sometimes because of the conflicts involved. But I did learn that there is no industry standard for design fees, which can be calculated in several ways. One is to bill by time spent. Another is by taking a commission on items procured. And a third is a combination of the two, which is what Hartman does. If you read the Hartman contract, you see an hourly fee structure, and also see that Hartman takes a 30 percent “procurement cost” on each item furnished. And the client pays shipping and handling, storage, and insurance costs separately. There is no economic incentive for Hartman to keep costs down, and every incentive to keep them high.

According to cost-track data provided by management, the design fee already disbursed to Hartman is $256,714.00. Adding the 30 percent procurement fee cost (30 % of $189,392, the figure from the contract cost proposal) yields $313,500. Something less than this amount qualifies as “profit” as that term is normally understood. And if the total construction cost is $1.3 million, then the profit is something less than 24 percent. Did we get our money’s worth?

Let me say more about the petition. The nub of it (the Third Point) calls for a restructuring of the Refurbishment Committee in order to create a mechanism to control costs and help the Board achieve the balance that I speak of above. The petition asks for a Committee with at least seven persons, including three petition signers. I did learn in talking with design firms that they prefer to deal with a minimum number of individuals in order to facilitate consensus. This is why I proposed last night that a new three-person Refurbishment Committee be formed, with a new advisory group. And the new Committee should consist of those who sign the petition.

Why did I say last night that I wanted more signatures in order to have some “legal” clout? It's quite simple. We currently have 67 signatures from 57 units. And those units represent 14.8 percent of total ownership. (This figure is not insignificant if one recalls that no candidate received more than this percent of ownership in the last three Board elections. If the petition, like voting, is an expression of community preference, then it ranks above those we have elected.) According to our Bylaws, a petition representing 25 percent of total ownership value obliges the Board President to call a special meeting. This is the “legal” clout to which I refer. A special meeting, should one be called, would address expenditures, especially as regards those for refurbishment. I would still ask owners to sign the petition. And please let me emphasize that you have nothing to fear: your names would be used only for the purpose that I just described—indeed, could not be used for any other conceivable purpose.

I conclude by noting that I grew up in a Scotch-Irish community. Composure is a delicate and near-uncontrollable thing among the Scotch-Irish, and I all but lost mine last night by sallying forth in full battle regalia. But let's be clear about one thing: I make no apologies for the combative role that I’m playing as regards the petition.