This letter from Sharon Bobb went to a particular, but unnamed, ECA Board member.
I appreciate very much your approaching these issues with an open mind, and particularly your willingness to take into consideration the health issues associated with an extra year delay in installing new windows.
Your point about past Boards making ad hoc decisions without doing a rational analysis and considering the implications of the decisions (i.e., due diligence) is something that has long bothered me. If you know anything about me, you know that I am very serious about doing due diligence on every job I undertake. I demonstrated this most recently when I prepared the position descriptions and the Handbook, and when I undertook a study to establish an Elizabeth website, and did my due diligence on prospective web service providers. On this point too, you and I agree entirely. And, I am very pleased with the due diligence that the Board has demonstrated to date with regard to the Maintenance, Repair and Replacement Project. The money spent on consultants was money well-spent. It appears that the Board is giving great weight to the recommendations, and appropriately so.
With regard to looking for a unanimous decision on how to proceed, I cannot agree more that a 7-0 vote would be optimum, and I hope we can accomplish that, but I am afraid that it may not be realistic. Some people just do NOT want to spend money. Some people simply do NOT want to borrow money - however legitimate the cause and whatever good business sense it makes. I have talked to many friends who live in condominiums all around the US - we are not making history at the Elizabeth when it comes to a community divided about how to spend money. Each one of us has different priorities and each of us spends our own money differently.
Borrowing for construction, though, is quite different than borrowing for personal needs. I have family and friends in the construction business, and I assure you that this is the case. Construction projects, including renovations, often run into the tens of millions of dollars (if not more). Nobody has that much cash lying around. And so, they work with the banks to secure loans that are structured solely for construction purposes. These loans are not at all like mortgages. In the end, it is more cost-effective to borrow the money and proceed to complete the work in the shortest time possible. It is also much less painful for the residents, because their lives will not be disrupted for a long period of time.
As I am sure you know, construction loans function more like a line of credit. But my point is, that for construction purposes, people do not look at loans as something to turn to as a last resort. Construction loans are the way business is done for such projects. The due diligence comes in when we shop for loans to get the best interest rate and the best terms. Lerch Early, our attorneys, has someone on their staff whose job it is to support their client condominiums in securing such loans. They do this all the time. They prepare the loan documents, and assure that the client is getting the best terms. They often negotiate the terms on behalf of the client. L&N also can support us in that regard, and if I were on the Board, I would consult both.
For personal needs, I agree that one should borrow only as a last resort, and not for consumption purposes. Where you and I see the Buffet example differently is that I believe that money spent on maintenance, repair and replacement does not fall into the category of consumption - but rather is an investment. It is an investment in our property, and that investment pays dividends. Return on our investment, for example, is realized as higher property values and, in the case of windows and doors, is realized in lower utility costs. And let’s not overlook the intrinsic value of repairs and improvements that is manifested in improved quality of life for all. We are making an investment in our homes, just as one invests in a business.
There has been much talk about the fiduciary obligation of Board members. I would hope that in all of its deliberations regarding funding, Board members would give very careful consideration to the following guidance issued by the Montgomery County Commission on Common Ownership Communities. In the chapter entitled “The Wrong Way to Budget,” of the Common Ownership Community Manual & Resource Guide, the following is noted:
“Unfortunately, many common ownership community leaders forget the overall purpose of budgeting and approach it with their minds already made up about the outcome. That is, they strive to “force” the budget to balance despite projected increases so no increase in the monthly or quarterly assessment will be needed. In doing so, they do a tremendous disservice to their communities, even if many of the owners will regard them as local heroes for having done so.
The primary obligation of the board of directors of any common ownership community is to assure there are sufficient funds to properly maintain the community, not to keep assessments from going up. In fact, when a community goes several years without assessment increases, it’s a virtual certainty that the maintenance and upkeep of the community will suffer. It’s easy to understand why this is the case.
Every community has certain costs whose increases cannot be controlled. Utility charges, salaries, insurance premiums and essential service contracts, to name just a few, usually increase no matter what the community does to prevent it. When these costs as a group increase even a little, and assessments don’t increase along with them, then something has to be cut. That something almost always impacts the maintenance and upkeep of the community. This is transparently foolish when one realizes that everything structural and mechanical requires more maintenance and repair as it gets older. To ignore this reality ultimately will cost the community more money than it will ever save. It will also diminish the appearance of the community and make it a less desirable place to live. That will adversely affect its resale value relative to nearby communities that are better maintained.”
And so it is with the Elizabeth. For far too long, we have ignored this guidance, and worse, repeatedly made fiscal decisions that were diametrically opposed to this guidance. While our neighboring condos have been levying special assessments to properly maintain and upgrade their buildings (I am told that some buildings issued several special assessments of $20,000 or $25,000 each), we have focused on keeping condo fees low (or not raising them at all). For 12 of the 37 years since the Elizabeth was built, our condo fees were not raised at all. Further, in a significant number of years where condo fees were raised, the increases were so low that they did not keep up with the increase in cost of living. The result is that now our property values have fallen below those of the 4620 and Willoughby, whereas in the 1970s when I moved in, our property values were on par with the 4620 and far greater than the Willoughby. In other words, because we failed to properly invest in our building, our property values were diminished - our investment lost value.
Finally, while the Board should definitely listen to the owners (or your constituents, as you call them), and should take their concerns into consideration as it makes decisions, your fiduciary obligation is the building, not to individual owners. If you were dealing with a medical issue, I would expect you to give much weight to the opinion of those in a related medical specialty. However, in the instant situation, I know of no owners who have expertise in architecture, engineering (i.e., structural, mechanical, electrical), or construction management, except Ted. You may not care for Ted's style, but working against him, or failing to give his explanations and recommendations appropriate weight, to my mind, is a mistake. And as the votes in the last election demonstrated, Ted has the trust and confidence of the constituents.
Now, with so many critical issues facing the Elizabeth with regard to the integrity of our building, as well as many serious issues of life, health and safety integral to these matters, it would indeed be unfortunate to wait for unanimity, which may never come. Rather, your goodwill and ability to move beyond personality issues to expeditiously approve a funding plan will be much appreciated by the owners, and will also serve as a model for your fellow Board members as well as our residents.
Sharon Bobb
