April 2011 Minutes of ECA Board Meeting

THE ELIZABETH CONDOMINIUM ASSOCIATION
4601 North Park Avenue
Chevy Chase, MD 20815

Minutes of Board of Directors Meeting APRIL 18, 2011

Board Present:
Alexandria Kielty .........................President
Dr. Alfred Muller .........................Vice President
Monique Fridell ...........................Treasurer
Molly Frantz ...............................Assistant Treasurer
Charles Bressler ...........................Secretary
Judith Barth ................................Director
Seth Levine .................................Director

Others Present:
Scott Murdoch ...............Community Manager, Legum & Norman
James M. Santos ...........ECA General Manager


Call to Order: Ms. Kielty called the meeting to order; a quorum was present. [This statement about a quorum has been raised as problematic to the ECA Board. The call to order is also missing the official start time.]

APPROVAL OF PREVIOUS MEETING MINUTES:
MOTION Dr. Muller moved to approve the minutes of the March 21 Board of Directors meeting, as amended. Seconded by Mr. Bressler and adopted unanimously (7-0-0).

PRESIDENT’S REPORT:
Ms. Kielty, recalling the distribution of the proposed FY2012 budget to owners for review and comment, reminded everyone that the proposed budget will be considered for adoption by the Board at a special meeting scheduled for Wednesday, April 27, at 7:30 p.m. She urged that all owners be present at that meeting. She also extended her thanks to Mr. Jim Rich, who was responsible for developing the recent survey of residents. The response thus far has been good. She asked that those who have already responded urge their neighbors to do so. Finally, Ms. Kielty also reminded everyone present that the 2011 Annual Meeting of the Association is scheduled for Wednesday, May 4, at 7:30 p.m. She encouraged all owners to attend to ensure a quorum in order to conduct necessary business before the Membership.

TREASURER’S REPORT: Ms. Fridell had no report.

OLD BUSINESS:

Proposed FY2012 Budget
Ms. Fridell reviewed the spreadsheets she has prepared on various scenarios relative to the funding of capital repairs and replacements over the next five-year period. Ms. Fridell clarified that the significant difference between the current Reserve funding scenarios and those previously discussed is the inclusion of about $2.5 million in expenditures—to include an estimated $300,000 for new building canopies and $164,000 for water consumption submetering of the building’s commercial units—over and above the projects already scheduled for the next five-year period. It also defers to beyond 2016 about $2.3 million in Reserve expenditures to help offset the cost of replacement unit windows and balcony doors. The challenge has been to generate the funds necessary to ensure that the building is well maintained while keeping condominium assessment increases reasonable. Under the current scenario, the Association will not have the Reserve funds necessary to fund scheduled capital repairs and replacement in some years, even if the Board approves a 10 percent increase in monthly assessments for the coming year.

Ms. Frantz clarified that her revised calculations assume a 5 percent increase in assessments for FY2012, all of which will be allocated to fund Reserves. Thus, based on that updated calculations, the net amount to Reserves is about $200,000 greater than originally estimated. Further adjustments are being made to the figures to account for already-approved or ongoing capital projects, the final costs of which should be available shortly.

Ms. Fridell further suggested that when thinking about the appropriate level of Reserve contribution in the coming years, the Board must consider that the five-year plan calls for about $1.5 million in capital expenditures per year.

Dr. Muller noted that whereas the future will be challenging, for the first time ever, and thanks to Management and the Treasurer, the Board has a Reserve Study and Schedule that includes all of the capital repairs and replacements that will be necessary in the foreseeable future and viable cost estimates for each, serving as an important planning tool. He urged, nonetheless, that no action on the budget be taken tonight but rather that the revised spreadsheet, which allows for certain variables, be distributed to the Board for review and further massaging.

Ms. Kielty added that the state of the Reserve Fund should not come as a surprise to owners as the Board has for some time been discussing capital repairs and replacement needs and has discussed the possibility of proposing to the ownership a special assessment to help pay for these needs. Ms. Fridell noted that whereas there has been some opposition to a special assessment, she believes that to be the most prudent approach to raising the monies needed to fund capital projects, not annual increases in monthly assessments. She calculates that if the Association approves a $1.4 million special assessment—the figure she calculates is necessary to ensure that the Association’s Reserve Fund balance does not dip into negative territory within the next five years—the average cost per unit would be about $4,000. Based on her proportion of shares of a two-bedroom unit, her cost would be $4,430, payable over a two year period. She figures that she would spend about that to replace the four windows and one balcony door in her unit.

Mr. Bressler, who has lived at The Elizabeth since the middle 1970s, noted that inadequate Reserve funding and inflation over the decades, coupled with significant deferred maintenance has led to the Association’s current position—i.e., the need to undertake a number of significant and costly projects for which funds are not readily available. And, whereas these projects need not be undertaken at once, the Association cannot afford to continue to defer projects indefinitely. He suggested that the Association no longer has the options of delaying the inevitable, and urged that the Board consider a 10 percent increase in assessments in FY2012, the entire proceeds to be allocated to the Reserve Fund. He added that replacing unit windows, doors, and HVAC systems will result in significant utility cost savings; these savings should be factored into the calculation of how and when these projects are to be undertaken.

Dr. Muller suggested that replacement of the canopies and submetering of the commercial space, be deferred. He also noted that whereas Ms. Fridell is correct in that a one-time special assessment is ultimately less costly than annual increases in condominium assessments, he is concerned that there are a number of owners whose cash flow would not accommodate a special assessment.

Ms. Kielty reminded the Board that questions of which projects to pursue, which to defer, and how best to fund them will be the focus of the April 27 meeting. At that meeting, the Board can also discuss with owners the suggestion of a one-year hiatus on capital projects.

Ms. Frantz commented with regard to the submetering of the commercial units, that if WSSC requires the submetering of commercial units to ensure that the Association can continue to benefit from lower residential rates, then it would behoove the Association to undertake this project quickly as the added cost of water and sewer at commercial rates will have a significant impact on operating costs. And, while there has been some discussion that WSSC may grandfather in older communities, not requiring commercial space submetering, it would be prudent to keep the funds in the Reserve schedule should submetering be required after all. If submetering is not required, the funds can be reallocated to other projects. Dr. Muller countered that if indeed WSSC requires submetering, the Association can use operating contingency funds—which are intended for such purposes. He would argue against collecting from owners more money than is needed to operate and maintain the property.

Ms. Fridell noted that, setting aside particular projects, the fact is that there has been an upward trend over the past several years in the building’s capital expenditure needs, in large part due to its age. According to an analysis prepared by Ms. Frantz, whereas capital expenses ranged between $400,000 and $600,000 per year in previous years, the last two years saw expenditures in excess of $1 million per year. During the current year, $2 million was estimated, but was later reduced due to Board decisions to defer certain small projects. The Reserve Schedule now before the Board calls for about $1.5 million in capital expenditures per year over the next five-year period.

Projects Update: Mr. Santos reported that as approved by the Board at its last meeting, Management has arranged for the installation of a new server to power the property’s surveillance equipment, and a new engine for the Association’s garage floor sweeper. Moreover, the common area doors have been rekeyed with a new fob-controlled system, and additional fob readers have been installed. These should facilitate authorized access to the property while improve controls against unauthorized access. In response to Mr. Bressler’s inquiry, Mr. Santos clarified that access to the Arcade, garage lobbies and guest garage level will be better controlled and that notices will be sent to residents so that they are aware that access for those common areas will require a fob. Guests wishing to access the property from those areas can use the intercom system, which connects to the front desk.

In response to a query regarding new microphones for use during Board and other meetings, Mr. Santos noted that there had been some problems with the microphones that were purchased initially. These were sent back and new ones should be available at the Board’s next meeting.

In terms of forthcoming projects, Mr. Santos noted that he is scheduling several spring cleaning and painting projects. The staff also will be focusing, over the next fiscal year, on upgrading the emergency alert systems and updating the Association’s emergency and evacuation plans, among others projects.

Fitness Room Upgrades: Mr. Santos reported receipt of an initial quote for replacing and adding several pieces of equipment in the Fitness Room from Heartline Fitness, the maintenance contractor on the existing equipment. Mr. Santos noted that Associa, Legum & Norman’s parent firm, has an arrangement with Heartline Fitness that will result in cost savings to the Association of about 40 percent, thus allowing for additional equipment. A Committee of residents is advising Management on what equipment is most appropriate for the community. Mr. Santos expects to have a final proposal for the Board’s consideration at its next meeting, well within the $17,000 budget for this project.

NEW BUSINESS:

Managing Agent Services Contract: Mr. Murdoch clarified that whereas the renewal language in the Association’s current contract with Legum & Norman (L&N) provides for annual increases of CPI plus 1.5 percent, currently 4.5 percent, L&N is now proposing a three-year renewal, with no increase over current rates in the first year, and a three percent cap on increases in the second and third years. He further clarified that whereas L&N is revising its contract document, the changes are not substantive. It will, most importantly, continue to include the standard clause providing a 60-day termination without cause. The current contract expires on June 30, 2011.

The Board generally agreed that whereas there have been several issues with regard to L&N’s financial management services, the Association has benefited from the relationship with Legum & Norman and that renewal of the contract is appropriate. The Board, nonetheless, agreed that the proposed new contract be reviewed by legal counsel before it is executed. Of special concern is the ability to terminate, at least the financial services aspects of the contract, should there not be the necessary improvements in L&N’s financial management in the months ahead. The Board requested that Mr. Murdoch provide a copy of the proposed new contract to the Association’s legal counsel for review.

MOTION Dr. Muller moved to approve the proposal to renew the managing agent arrangement with Legum & Norman, for a term of three years, with no increase in the first year and a 3 percent cap on increases in the second and third years, subject to legal counsel’s review and advice. Seconded by Ms. Fridell.

Ms. Fridell noted that while she supports renewing the contract based on the site management team, she continues to have serious concerns regarding L&N’s performance of the important financial management functions. As her term on the Board will be expiring, she urged that the new Board and Board Treasurer make it a priority to address these issues definitively in the next fiscal year. Issues include collection of delinquent assessment accounts, on which the L&N accounting/financial management staff has been less than proactive and which, were it not for the active involvement of the site manager, would be a greater problem for the Association; a number of basic bookkeeping and accounting errors, even beyond the miscoding of expenses, which resulted this past year in a significant number of adjustments made in the audited financial statements; and the accuracy and usefulness of the monthly financial reports, which have to date required close review by staff and the Treasurer to ensure that the Board is given a clear picture of the Association’s financial position at all times. This latter point is of special concern to Ms. Fridell as it is imperative that the Board trust the accuracy of the monthly financial statements, particularly if there is no one on the Board with accounting or financial management expertise. To their credit, it is her understanding that L&N is installing new financial management software that should help address some of the issues cited over the past months but it is important that the Board remain vigilant. Thus, Ms. Fridell recommended that the next Treasurer set down a number of critical performance improvement goals for L&N on the financial management front and that if these are not met within a reasonable time, the Board consider engaging another firm to undertake the financial management function or bring that function in-house.

Ms. Frantz added that whereas she concurs that the management team represents an enormous added value to the community, she too has concerns about the financial management aspect. She clarified, however, and Ms. Fridell concurred, that there is no question about fraud or malfeasance, but rather questions of sloppy bookkeeping and an apparent lack of knowledge of basic accounting principles. Of particular concern to Ms. Frantz is L&N’s inability to properly apply assessment payments made on several units with one check. That is but one example of a simple accounting function that has thus far not been handled properly. Ms. Frantz too urged that the incoming Treasurer treat the resolution of these issues as a priority in the coming year. Finally, Ms. Frantz expressed her discomfort approving a contract that she has not had the opportunity to read.

Ms. Kielty noted that whereas she agrees that there are persistent financial management issues, the problems experienced during the last audit were in part due to the Association undertaking the audit too early in the year and during a time of transition, when the management team was new to the community and it was in the middle of a major refurbishment project. She also noted that, as an individual not well-versed in bookkeeping and accounting principles, the financial statements generated by L&N are a vast improvement over what was presented under self-management, most particularly with regarding to the income and expenses analyses that are presented monthly. She also reiterated that despite the various accounting issues cited, there have been no questions of fraud or unnecessary expenses. Ms. Fridell concurred that the monthly analyses presented are indeed useful, but these are the result of significant work on her and Mr. Murdoch’s part.

VOTE ON MOTION The motion to renew the managing agent services control with Legum & Norman for a term of three years, per the terms proposed and pending legal counsel’s review was a adopted by a vote of 6 ayes, 1 abstention by Ms. Frantz, and no nays.

Landscape Contract:

MOTION Ms. Frantz moved that the Board ratify action taken between meetings by e-mail to approve the proposal presented by Ruppert Landscaping to undertake Phase 1 of the master landscape plan, at a cost not to exceed $16,650. Seconded by Mr. Bressler and adopted unanimously (7-0-0).

Mr. Santos clarified that the final expense will be somewhat lower as the contractor will apply the cost of the landscape design to the cost of its implementation. The irrigation system repairs are under separate contract. For the benefit of residents present, Mr. Santos clarified that a master landscape plan was commissioned, to include an inventory of existing plantings and a redesign of the planting areas with more appropriate plant material, greater symmetry, and a refreshed and aesthetic appearance. Phase 1 of the plan addresses the entrance to the building—to include the circular drive, the beds on either side of the entrance, and the planter box on the east side of the building.

Whereas Dr. Muller had no objection to the proposal, he urged against taking action on contracts by e-mail, except in emergency circumstances. Ms. Frantz thanked the members of the Landscape Committee for their work to improve the appearance of the community.

Master Insurance Coverage: Mr. Murdoch recalled that last year, the Board adopted the proposal submitted by John Manougian Insurance, transferring coverage from the Firemen’s Fund to Greater New York Mutual, at an annual premium savings of $53,000. He further recalled that L&N typically solicits competitive quotes for insurance coverage every two years; given the significant savings realized last year with Manougian, competitive quotes were not solicited. Manougian Insurance proposes renewal of the existing coverage, with the addition of coverage for the Association’s above-ground diesel fuel tank (which supplies the new generator) and increased artwork coverage at a total premium cost of $105,106.04, a further reduction over the current year’s premium cost $2,031.96.

MOTION Dr. Muller moved that the Board accept the recommendation of Manougian Insurance to renew the Association’s master insurance coverage—to include general property and liability, Directors’ and Officers’, crime and employee dishonesty, diesel fuel tank liability, and fine art coverages—through Greater New York Mutual at an annual premium cost of $105,106.04. Seconded by Ms. Barth and adopted unanimously (7-0-0).

Ms. Kielty noted, for the record, that Manougian Insurance has acknowledged that the frequency of claims has been reduced dramatically since 2009, which has positively impacted the Association’s ability to obtain necessary coverages at reasonable cost. The Association’s agent also has offered to meet with the Board later in the summer or early fall to review new legislation, that becomes effective on October 1, that makes it easier for Associations to adopt a bylaw amendment requiring unit owners obtain HO-6 coverage—condominium homeowners coverage. Such coverage extends over owners’ personal property, any betterments and improvements in their unit, and personal liability.

COMMITTEE REPORTS:
Landscape: Mr. Rich noted that now that the landscape improvements contract has been approved, the Committee will work with Management and the contractor, as appropriate, to ensure that the improvements occur as quickly as possible.

Chairman’s Contributions: Ms. Kielty reported that with the help of the “Making a Difference Committee” and James Santos, the Committee has identified several charitable organizations who are interested in and willing to pick up donations of items from the community. The National Alliance on Mental Health (NAMH) has agreed to schedule pickups of items that can be resold through the NAMH thrift shop. A Wider Circle, an organization that assists the homeless, also will pick up donations of household items, such as furniture, small working appliances, kitchenware, and linens. Finally, the Committee is making arrangements for the recycling of other items, such as electronics, clothing, books, and magazines. A series of bins will be located on the East and West G-1 garage levels for the collection of such items and notices will be sent to all residents regarding this program.

COMMENTS FROM THE FLOOR:

A resident objected to the removal of certain comments from an Elizabeth resident’s web-based blog. Ms. Kielty clarified that the Board and staff does not endorse nor manage the web-based blog.

A resident who has resided at The Elizabeth since 1975 commented that the current Management Team—Messrs. Murdoch and Santos, and Ms. Powell—is a much-welcomed improvement that all residents benefit from. She cited particularly Mr. Santos’s technical expertise, which has resulted in significant improvements in the operation of The Elizabeth’s physical plant. She expressed her delight at the Board’s intent to renew its arrangement with L&N for three years.

With regard to possibly adopting a one-year hiatus on capital projects, she strongly recommended against the Board taking such action, calling it an extremely poor business decision given that conditions have never been more favorable—that is, the cost of materials, labor, and money will never be less expensive than it is now—to address the many long standing issues that have been deferred in the past. She recommended against such a hiatus, urging instead that the Board move forward with whatever is necessary to take care of the property’s repair and replacement needs.

A resident commented on the recent questionnaire, questioning the purpose of the second item, which asked whether owners were residents or non-residents, and noting that several of the questions appeared to be leading—that is, eliciting certain responses. He suggested that the results of the questionnaire be broken down by type of respondent—owner resident and non-resident owner—and that the results are made available to interested owners in digital format and in print form.

Mr. Rich noted, with regard to the upcoming elections, that he has prepared a series of questions to which he would like each of the candidates to respond. These will assist the candidates as they prepare for the Meet the Candidates session and will give the community a good sense of the candidates’ qualifications and positions on issues.

A resident commented on the recent debate as to whether there should be doors on the library shelves. He favored no doors and suggested a more appealing labeling system to address concerns about the appearance of the shelves. A representative from the Library Committee reported on the work underway to improve the appearance and organization of the library, to include a new labeling system.

ADJOURNMENT:
Ms. Kielty adjourned the meeting. [Time of the meeting not listed.]


The initial draft of these minutes was prepared by Yasmin Santiago.


Respectfully Submitted,
Charles Bressler
Secretary, Board of Directors