Finance & Legal minutes: 2011-03-14

Minutes:

Minutes of F&L Meeting

3-14-11



Present: Aaron, Mary, Carl, Peter, Adi (guest)





1. Investing the Reserve Fund



On 2-26-10, Aaron forwarded an e-mail from Paul Conahan regarding investment
of reserve funds. Paul explained that there are no laws governing reserve
fund investments, but there are good reasons to be conservative. Sunward’s
policy is that they only think it’s worth moving funds to a new investment
if the positive difference on return is 1% or more. Paul has written and
published numerous articles on this topic. He recommends that we have a
consistent investment policy. In a condo setting, “the threshold for
responsibility is much higher, and the preservation of principal needs to be
paramount.” Aaron also shared these articles with us via e-mail.



Great Oak's Reserve Fund currently has about $75,000 liquid, $61,000 in a CD
paying 5.15% (comes due in 13 months in April 2012), and a portion that was
invested in GOCA to pay off the commercial CH Loan, now about $36,000, with
a return of 6%. Total is ~ $172,000.



Regarding the Common House Loan: there are three lenders (two households,
plus the reserve fund). We have an agreement to revisit these loans in May
2012. The refi happened in May 2009. We could pay off the 2 households at
that time, and the Reserve fund could take this on entirely if we think it
is a good investment.



We could use the funds that will be released by the CD in April 2012 to pay
off the two households if we wish to. That way GOCA is paying itself
interest instead of paying interest to two households.



Mary sent an e-mail requesting a copy of Sunward’s investment policy from
Paul.



It’s clear that we need to develop an investment policy for GO. One
question is whether investing in GOCA is prudent. Should we be using our
reserve funds in this way?



MONKEY: Add to to-do list: develop an investment policy for the Reserve
Fund. Luckily we don’t need this for about a year!



2. Workshop Loan Update



In 2006, the community agreed that Great Oak would contribute $15,000 toward
the Workshop. The $15,000 was loaned to GOCA by five households who
contributed various amounts from $1 to 5 K.



GOCA is paying simple interest on this loan in the amount of 5% on an annual
basis. No amortization was calculated. So the loan principal has not been
dropping, and we have been paying out a total of $750/year. The loans were
originally made on 7/15/2006 and the principal is due back to lenders by
7/15/2011.



Carl has not been able to find the original loan documents for the Workshop
loans. Carl has put out a message to Talk to find out if anyone has the
file. Adi arrived as we were discussing this and will work on locating an
electronic version for Carl. Some lender households did not want their
names publicly known so the documents were not kept publicly.



Adi explained that at the time these loans from households were intended as
a way to get money for the Workshop quickly when none was available
otherwise. It was meant to be a short-term situation. It was intended that
the loans would be amortized but this was not done.



We wondered if the households would be open to a retroactive pay down of
their principal? In any case this is something we need to figure out soon,
before the loans become due on 7/15/2011.



There is $1400/yr allocated in the operating budget for payoff of the
Workshop loans. This is composed of $750 in interest, plus $650 that was
supposed to have been paid out toward principal. But since no amortization
plan was put into place, no payments have been made towards principal.



Adi remembered how this happened: We set the loan amount for 5 years
because we weren’t sure where the money would come from. 5 years was a
stopgap out of the 20-year term of the loan. 5% interest was a compromise
to see if we could get a better loan from a commercial loan than 7%. But
apparently we didn’t find a better commercial loan.



Adi found one of the loan documents while we were talking. It allowed for
pre-payment, paid 5% simple interest, and did not mention amortization.



Carl recommends that we pay back the principal now, and have the Reserve
Fund pick it up until we can figure out a payment plan that makes sense. Or
the Reserve Fund could take on the loan and GOCA would pay the Reserve Fund
interest on the loan. (The Reserve Fund model requires that we make 3%
interest.) How long can we do without funds from the Reserve Fund? That’s
a different question. What is the risk of investing in GOCA? We have one
household seriously in arrears and if others get in trouble, that’s the
risk.



For at least 3 years, $650 was collected but not spent on principal. We
could choose to spend this $1950 to pay down the principal. We could do
that on July 15. So the Reserve Fund would only have to loan GOCA $13,050.


Carl recommends that we pay off the principal asap with the Reserve Fund,
and then figure out what to do next.



We all feel that this is something that should never happen again. Our
negligence led to an extra expense that we didn’t plan on. We have to be
wary of creating complicated agreements that we are not able to stay on top
of.



It’s good to make a mistake like this on such a small amount of money and
learn from it.



Another piece of the decision 5 years ago was that we were reluctant to loan
money for the workshop from the Reserve Fund. The $1400 interest/principal
line in the operating budget was the amount the community was willing to
pay.


MONKEY: Carl needs community agreement before July 15 to pay off the loans
with Reserve Funds. We will need a proposal for this. Ideally this would
be part of an overall Reserve Fund investment policy, but if we can’t get
this done in time, we just need to pay off the $15,000.



There is a workshop agreement that requires the payment of a subscription by
heavy users. These fees are supposed to be paying for utilities, etc.
However,
as far as we can tell, no subscription fees have been paid, and the
community has been paying for the workshop utilities.



MONKEY: Peter is going to review Paul’s articles and GO mailing list
threads regarding investment strategies, and will draft a Review Fund
Investment Policy. We encouraged Peter to keep it simple!!



3. Solar Energy Investment Opportunity



Adi explained that there are two good reasons to invest in the installation
of photovoltaic solar panels now. DTE’s “Solar Currents” program is offering
to pay for part of the installation and then will buy back the energy the
panels generate for 20 years at 11 cents per kilowatt hour. The panels
would also offset our Common House electrical usage, so we would also be
saving those expenditures.



In addition, the federal government is offering a 30% subsidy on such
installations until their funds run out, so we would need to act on this
fairly quickly.



Sunward is going to do this on their Common House roof. Their installation
will cost them about $20,000 ($10K from the community, $10K from their
Reserve Fund.) They are expecting to get a 3% return on their investment.



Great Oak has room for more solar panels than Sunward, on our two banks of
south-facing garages, so we could do a much larger installation. A
professional firm would do the installation, including a trench for wires
from the garages to the Common House. We would need to add insurance for
the panels and installation.



Q: When can you get confirmation from the federal government that we can get
the rebate?

A: Have to have signed a contract, then you make the application for the
subsidy, then you find out if you get it. So that’s a risk.



We did a quick calculation and figured that the final cost to us would be
about $52K for a large installation.



This would be a long-term investment – 20 years is a lot out of our 25 year
reserve. We would need to look carefully at the Reserve Fund plan to see if
this fits within our needs horizon.



What are worst case scenarios?

- we don’t get the federal grant

- electrical generation is less than projected

- we’re wrong about when we need to spend lots of money for reserve
fund expenses



We could do a smaller array to lower the risk.



Adi thinks this is a great idea but doesn’t want to be the one to push it.
He is looking for other community members to be part of a planning group.



Note that GOCA would need to keep paying the Reserve Fund at whatever rate
we would have been paying for our GOCA electrical bill. This would be an
accounting transaction that we would have to remember to do for 20 years.



If we did our installation at the same time as Sunward’s, we could get a
discount for using the same installer. The installer is coming on Friday
and Adi will ask him for a number of scenarios. Installation would include
trenching from the garages to the CH to connect to the main meter. An
earlier quote included $3K for that trenching work.



Sunward is planning for their installation to happen at the end of
April. Prime
generating time is between May and October.



The installers do most of the paperwork with Solar Currents, but we’d have
to do the government application.

This is a great fit for our values, but we need to really think about
modeling the risk in a variety of worst case scenarios to make sure it’s
worth the risk.



One idea is to take all the money from the Reserve Fund, another would be to
have individuals contribute. But this would take a lot of management work.



A reason to do this is because many of us would like to do it as
individuals, but can’t because we might not have the roof space or
wherewithal as individuals. By pooling together, this is a cool thing we
could do.



When do the garage roofs need to be replaced? Roof lasts longer when
photovoltaic panels are on them. Don’t need a construction permit to install
them b/c they are so light. Permitting is only needed for the electrical.
SW is planning to provide the labor to remove the panels to have the roof
replaced when needed.



We’ll return to this topic at our next meeting.



4. Next Meeting



Monday, March 28 at 7:30 pm
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