UPDATE: MAY 18, 2017
Today my I received an email from the Association noting that the agenda for this Monday night’s board meeting will not be made available until the day of the meeting, instead of on Friday.
Since the agenda will be posted late, I’ve asked the Association to distribute it via an email blast, so unit owners can decide whether or not to attend. It would also reduce the need for paper copies.
ORIGNAL POST: MAY 11, 2017
This afternoon I received a Call and Notice of the May 22, 2017, Board of Directors meeting, via email blast from Lieberman Management Services, Inc., stating that “in addition to regular business, the board will be discussing a special assessment.”
Special assessments can be levied for the following purposes:
- to cover operating deficits or to raise additional working capital;
- for unanticipated expenses (that is for “contingency reserves”);
- to fund a program for major repairs and replacements of the common property (rather than for specifically identified repairs); and
- to cover any expenses that have already been incurred.
A recent blog post I wrote detailed the fact State Parkway has $507K of deferred assessment increases, including $152K to cover garage operations shortfalls.
State Parkway may have significant federal and state tax exposure due to underreporting gross income and claiming falsely inflated deductions via an impermissible accounting method, when it amends prior returns prior to being selected for an audit. To make matters worse, State Parkway is filing Form 1120-H even though it cannot pass the 90% expenditure test, which is defined as Qualifying Expenditures divided by Total Expenditures. Qualified Expenditures equals Total Expenditures minus Replacement Fund Capital Expenditures minus Expenditures Allocated to Non-Exempt Function. Hence, if State Parkway’s capital expenditures and allocated non-exempt expenses are at least 10% of State Parkway’s Total Expenditures, it cannot elect to file Form 1120-H instead of Form 1120.
State Parkway may need to add between $2MM to $9MM, if not more, to shore up its weak Replacement Reserve Fund. The good news, however, is if the special assessment is large enough, monthly unit owner assessments can return to an appropriate level sooner rather than later. In fact, last summer I wrote in a blog post that 2017 would be the second year of an unannounced 13-year special assessment.
Altogether, the total special assessment may be as much as $10 million.
Unit owners should not approve a special assessment until the following objectives are met:
- State Parkway submits to a complete forensic audit by an independent accountant with the results reviewed by a litigation committee;
- State Parkway provides all unit owners of annual capital contributions since November 5, 1992, and update it annually by April 1st;
- State Parkway’s annual and interim financials should disclose all sources of income, and all expenses (garage expenses and cable do not belong in “Repairs and Maintenance”);
- State Parkway changes its method of funding reserves to fully-funded from threshold funding;
- State Parkway funds all future Operating Fund shortfalls via a supplemental assessment over a six-month period, beginning no later than April 1st of the subsequent year;
- State Parkway to credit unit owner assessment for Operating Fund surpluses over a six-month period, beginning no later than April 1st of the subsequent year;
- State Parkway ends all interfund borrowing;
- State Parkway to use SP+’s budget proposed budget projection in the annual budget process;
- State Parkway takes tax planning very seriously in the annual budget process;
- State Parkway to update its Reserve Study Update every three years;
- State Parkway’s monthly financials posted on e-STAR to be prepared in accordance with Generally Accepted Accounting Principles (including reconciled with the independent accountant’s year-end adjustments and month-end payables);
- State Parkway discloses its Replacement Reserve percent funded in its annual financial statements;
- State Parkway to return to an expense authorization policy adopted by previous boards;
- State Parkway’s board of directors must be committed to the principle of ensuring intergenerational equity;
- State Parkway’s board of directors will retain a qualified engineering firm to perform feasibility studies with the focus on minimizing the present value of unit owner assessments;
- State Parkway makes all of its books and records, including tax returns and supporting tax worksheets, available for inspection; and
- State Parkway to resurrect its Finance Committee.