Condominium Comparison re: ECA Financials

The contents of this letter was presented by Jeremy Powell at the June 29, ECA Board Meeting. Visit the ECA Management Office to obtain the chart that Mr. Powell refers to.

June 28, 2016

Goldklang ® Group

CPAs, P.C.

1801 Robert Ful ton Drive, Suite 200

Reston, VA 20191

Associate Principals

Jeremy W. Powell, CPA

Renee L. Watson, CPA

Ma nagers

Allison A. Day, CPA

Matthew T. Stiefvater, CPA

Sheila M. Lewis, CPA

Board of Directors

The Elizabeth Condominium Association, Inc.

c/o Gates Hudson Community Management

Dear Board Members:

Based on past community discussions, with respect to the marketability and resale values of the

condominium units as it relates to the proposed condominium fee rates for fiscal year 2017, we have

a few thoughts that may be relevant for your consideration.

Condominium fees are set based on the estimated operating expenses and required reserve funding

levels. As such, there are many factors that must be taken into account when evaluating the

condominium fees of two different buildings. For example, having common utilities versus submetering, year round pool and recreational facilities versus seasonal only, whether there are fifteen

residential floors versus twenty, four elevators versus six, two live in onsite engineers versus one and

so on. Also, other major factors are whether or not a condominium has passed a special assessment

in recent years or plans to pass a special assessment in the near term, has completed a major repair

project and/or is rebuilding its reserve fund due to immediate past major projects completed. For

these reasons, condominium fees are not comparable and do not provide a meaningful benchmark in

evaluating the Association's proposed fees. The Association must set its condominium fees based on

its operating and reserve fund needs rather than the needs or circumstances of other buildings.

Attached, please find a very quick analysis of three condominiums that our firm works with in the

Chevy Chase/Bethesda area. These are all comparable to the size and age of the Association.

However, rather than focus on the assessment rates of . each community, we have provided

information in terms of the percentage of the total budget for three major cost centers, including

payroll, utilities and replacement reserve funding. In addition, we have provided a comparison of the

Reserve Fund and Operating/Contingency Fund balances of each. Please note that the Association's

amounts are based on the proposed fiscal year 2017 operating budget and the Reserve Fund and

Operating/Contingency Fund balances are based on the January 31, 2016 interim audit.

Sincerely,

Jeremy Powell

Associate Principal

Motion to Adopt Proposed FY 2017 Budget

The following comments were prepared by ECA President Sharon Bobb for the June 28, 2016, Board Meeting:

The Board has been looking at several iterations of the budget, and wanted to wait for the final numbers to come in.  Our first reaction to the budget that was initially presented was to ask the Committee and Management to go back and look at ways to trim expenses without jeopardizing safety, maintenance and services provided.  That has been done, and now we are considering a motion to adopt a more streamlined budget for FY 2017, and a proposed condo fee increase of 13%, rather than 15%.

In addition, it is important to note that the Board will be carefully tracking these expenses, and looking for additional savings throughout the budget cycle. 

Before I turn the mic over to the Directors during discussion, it may be helpful to review the Board’s obligation as it relates to budgeting, as stated in the following guidance issued by the Montgomery County Commission on Common Ownership Communities (CCOC). In the chapter entitled “The Wrong Way to Budget,” it states, and I quote:

“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.”

ECA President's Message for June 2016 Board Meeting

Here is ECA president Sharon Bobb's message that opened the June 28, 2016, Board Meeting. Note that while reference is made to the resignation letter written by Chief Engineer Barry Blanton, the letter was not available for publication. Essentially what the letter said was that his health was being affected by the extraordinary number of hours he was working dealing with one crisis after another and that many people were extremely rude to him and the assistant engineer who also quit.

President’s Message

June 28, 2016

1.   First, I’d like to welcome Jeremy Powell, again, to our monthly Board meeting.  For those of you who have not met Jeremy Powell, he is our auditor at the Goldklang Group, and he conducted the interim audit, which is found on BuildingLink in the Library.  He is seated on my right.

2.   This evening, at 6:00 PM, as agreed to by a majority vote of the Board of Directors, the Board met in Closed Session in the Party Room with Management and Counsel to discuss delinquencies, personnel, contractual and legal issues.

3.   On June 13, at 10 AM in apartment 911, as agreed to by a majority vote of the Board of Directors, the Board met in Closed Session with Counsel to discuss personnel, contractual and legal issues. The Board also approved the ePipe contract, to meet the requirements of our insurance.  The Master Policy coverage is subject to a signed contract within 30 days of binding or June 15.

4.   At the last Board meeting, I explained that it is the responsibility of each newly appointed President to appoint committees, and I announced the committees for this year.  After the meeting, I received a few questions about the MR&R Committee, which was established a few years ago to handle the window/ balcony door/facade project, as well as other capital improvements.   Since we now have very capable management – Larry Hirschman and Stephanie Deoudes, the responsibility for such matters can return to management. 

On behalf of the Board and the community, I would like to recognize David Robinson for his stewardship of this important committee for the past few years.  His advice, guidance, and hard work were invaluable.  I cannot imagine what we would have done without him.  So, thank you, David, very much.  And, thanks also go to the committee members:  Pat Batey and Jim Jones, who worked very hard alongside David. 

5.   Speaking of Committees, Folake Fabunmi and Karen Hendricks have resigned from the Budget & Finance Committee.  They have worked incredibly hard, and dedicated hundreds of hours these past few years to present the finances of the Elizabeth in clear, concise and realistic terms.  Their efforts have been key in placing the Elizabeth on a sustainable path to financial security. 

Both Folake and Karen have taken on new jobs, demanding jobs, and their time now is very limited.  We understand, and wish them every success in their new endeavors.  On behalf of the Association, I want to thank them for their outstanding contributions and accomplishments.  

6.   I also want to officially welcome Carolyn Buffington as the newest member of the Budget & Finance Committee. A school administrator, and an owner here for 19 years, she brings fresh ideas and an important perspective to our financial issues.  Welcome Carolyn.

7.   I have gotten a few questions from residents about notices/memos from Stephanie that arrive by email at midnight, 3 AM, 7:30 AM, and so forth.  Yes, Stephanie is working very hard, but no, she is not sending you emails in the wee hours of the night.  Those memos and messages are posted on BuildingLink and sent to you via the BuildingLink email system.  I have no idea why delivery is delayed, or why recipients receive them at different times.  Perhaps they go out batched, or perhaps it is the BuildingLink gremlin hard at work!! 

8.   As everyone now knows, both of our Engineers resigned!  This is very sad for the Elizabeth.  I will read now Barry’s resignation to you.  It speaks volumes.

9.   Last month, one of our residents made a plea for courtesy.  She was right.  The Board cannot productively discuss issues and make decisions in an atmosphere that is not civil.  Because Association issues involve matters related to our homes and families, there is always potential for emotional discussion. 

Tonight, the Board will be discussing the budget, and the recommendation for a substantial condo fee increase.  These are emotionally-charged issues.  Therefore, all of us should remember that we are neighbors, and we will be neighbors when this meeting is over. 

So, when residents make comments tonight, and when the Board enters into discussion, the Board asks that your comments be cordial and respectful, even if you are unhappy about how an issue is being handled, and that we all focus objectively on the issues, and not on personalities.

Fiscal Year 2017 Budget Review Process: Part two June 20,2016

Presentation by Folake Fabunmi; Mark Day, Connie Row, of the Budget and Finance Committee

 

The B & F committee has met frequently and, working with management, have identified some areas of multi-year savings, and have now reduced the recommended condo fee increase from 15% to 13%. The savings (over $100,000 per year) come from renegotiated or new contracts with service providers. Stephanie Deodes explained that the services were not cut, and in fact, would be the same or in many cases, better.

 

Nevertheless, as the committee dug deep into the numbers it became clear to them that we are in a transition year, a perfect storm as a result of deferred maintenance, rising costs from every day operation of the building, major repair and replacement projects, increased insurance expenses and the need to budget for the large deductible imposed by the insurance company. The premiums increased 250% and the deductible increased 400%.

 

The Elizabeth is largely dependent on condo fees to cover the costs of running and maintaining the building. The good news, as reported by Stephanie Deodes, General Manager, is that the windows, doors, and balconies are done, phase two of the fire safety improvements are completed, the elevator work, and the new contracts are for two years, allowing for greater stability and predictability in expenses. The ePipe project is set to begin and will be completed in 2017 which will fix the pin-hole leaks in the domestic hot and cold water pipes. New cut off valves will be installed simultaneously so that unit residents and building engineers can shut off the water quickly. Many of the deferred maintenance items will be done, including clearing the air conditioning condensate lines and the lint lines. We will then be moving to a phase of preventative maintenance rather than deferred maintenance. Will have a new reserve study by November 2016 which will help guide the budget process for the coming year. The reserve fund will be robust.

 

Still, the reality is that we have increased insurance premiums for about 3 years, we have to repay the $5M loan for the windows and doors and we ARE living in an older building. The committee and management will continue to look for ways to economize, various ways of financing, and ways to increase revenue.

Thanks to Jackie Lapidus for these notes.