Finance & Legal minutes: 2009-09-14

Minutes:

Minutes of Finance & Legal Committee Meeting
9/14/09

Present: Elph, Aaron, Amy

1. Reserve Study

Elph will resume work on the Reserve Study in October, going through and looking for things that have changed, like painting, spending we didn't do, spending we did do, and making these items clear to Paul Conahan for his process.

Elph is now the Bookkeeper, Kathy has moved to Check Writer, and Carl is still Check Depositor. All these folks use "QuickBooks," and Elph will look at this for data to identify items for Paul Conahan. There's no deadline; this is a long-term thing so it's not burningly urgent and can wait until October when Elph gets back from his upcoming trip. Aaron is going to learn more about this process by attending Elph's meetings with Paul.

2. Painting

Nothing F&L (which has a policy-making function only) needs to do. Finops (which has the bookkeeping functions) needs to write a check for the 40% balance.

3. Budget Process

We reviewed last year's budget and will propose these items to the community:

Bookkeeping: $420 budgeted; had spent $465 halfway through the year. Includes software and outside expenses.

MONKEY: Elph will look at the details to see what went up and send that info to Aaron with a recommendation for a budget line for next year.

Common House and Garage Loan Payments: The Association pays it in lieu of the members, and the members pay the Association. The Association is also one of the lenders. This is supposed to be a pass-through but this year there we closed out our previous loans and opened new ones, which incurred fees. We have spent $1825. This *should* even out over this year, but in fact our Operating Budget will probably take something of a hit this year to cover these extra costs, which should be passed on to the borrowers.

Next year should be $0.

Insurance: recently went up 15-20% because we made a claim on water damage from fire suppression leaks. We had budgeted $8900, but with the increase the premium has gone up to $11,700, We'll be slightly over budget this year, but next year's budget needs to go up, or, we can increase our deductible and lower our monthly premium. Our agent, Barb Young, recommends that we do this. Our current deductible is $1,000, which is a 'start-up condo' rate in her opinion. She thinks we should have the funds to cover a $2500 deductible. This would lower our premium to $10,500. So we will recommend to the community that we increase our insurance line $13,000, which includes a premium of $10,500 plus $2500 for the higher deductible, which we will carry forward if not used. Then, in 2011, assuming we don't spend the deductible, it will carry forward and the insurance line will drop to $10,500.

Operating: $100 - miscellaneous. E.g. if we need to buy a "seat" so the convener can look at Quickbooks, or we need to do a mailing about something legal, etc.

Professional fees: Budgeted $1000, paid $500 to tax preparer. If we need to consult with a lawyer it would come from this line. We still need to update our Bylaws and Master Deed. We recommend holding off increasing this line until 2011 because we have other lines going up this year, and that we drop this line from $1000 to $500.

MONKEY: Aaron will gather and send this info to Rod for the upcoming community budget discussion.


4. Follow-up on Insurance question related to workshop

Our State Farm agent Barb Young says the addition of the workshop does not increase our premium significantly. Our policy insures our entire neighborhood, in which many things could go wrong, and this has already been taken into account in our premium.


5. Late Association Fees

a. Are we on the agenda for October Mtg?

Not until we ask to be. There are two business meetings each in October and November, so we should be able to get on one of them even though the backlog of agenda items is long.

MONKEY: Aaron will request time on the agenda.

b. Reviewing feedback from last mtg

i. Training and support for F&L members to have difficult conversations

Concern that we would not be able to be tough enough. Our new idea in ii. below will give F&L members a tool to negotiate with.

ii. 5% flat fee is very high APR

Aaron calculated that this adds up to 60% APR. So this clearly is very high. We talked about Ted's idea of using a standard bank loan rate and adding a few percentage points, to create a disincentive so households will want take out a bank loan to pay off their association fees instead of letting the fees rack up. A "signature loan" is typically 12%-15% annual interest. Our concern is that households in arrears don't seem to perceive their late association fees as a loan, and we'd like to have a fee significant enough to get their attention.

We went back to thinking about the 5% fee being too high on an annual basis. We agreed to reduce it to 4%, still compounded monthly, to respond to the community's concerns, and yet keep it high enough to get attention.

Our breakthrough thinking was to add a sentence to the proposal that says: If a household has a large amount of debt to the community (i.e after a lien is in place), and they have worked out a payment plan with F&L, and they are fulfilling this on a regular basis, then F&L would be very happy to accommodate a request to reduce the late fee to help the household pay off their debt quickly.


iii. Revealing names will be bad for community

It was clear that the community did not like the idea of revealing names of households in arrears unless the household wants to be named, but supported us going forward with placing a lien at 120 days past due. Individuals who want to know the identity of the household with a lien can take steps to find out from the Township office.

iv. Suggestion: formalizing a Cmtee to help households in trouble (not F&L; maybe Caring? Affordability?)

MONKEY: Amy will bring this to Steering. It is a conflict of interest for F&L to do this as our job is to protect the association.

d. Aside – what percentage of our units are being rented currently? (70% is a lower limit for someone – Freddie Mac?)

Five out of 37, slightly more than 13.5%.

e. Any answer re: what Freddie Mac considers “late” (30, 60 or 90 days)?

We assume 30 days.

Next meeting on September 28.