State Parkway’s Interim Property Manager Named Interim President of State Parkway’s Board of Directors

UPDATE: APRIL 1, 2017

In the off chance you haven’t figured it out, the original post below is an April Fool’s Day Joke!

 

ORIGINAL POST

Today State Parkway’s Interim Property Manager has been promoted to Interim President of State Parkway’s Board of Directors, after all five officers and directors resigned their posts.

The new interim’s board president’s first order of business “will be to find qualified residents to serve on State Parkway’s Board of Directors.” In the meantime, all of State Parkway’s professional consultants, including Lieberman Management Services, Inc., Picker & Associates, Levenfeld Pearstein, LLC, and Reserve Advisors, Inc., have been given notice of State Parkway’s intent to terminate their services, effective immediately.

More to come later today. Stay tuned to this blog post for the latest developments!

State Parkway Again Rejects Request to Inspect Year-End Trial Balance and Adjusting Journal Entries

UPDATE: MAY 8, 2017

On May 2, 2017, my wife and I received an anonymous email from the association through Lieberman Management Services, Inc., saying “Upon attorney review, these files will be turned over. They will require a few days to compile and redact.”

However, as of this today, my wife and I have yet to inspect the payroll records we initially requested on April 20, 2017.

 

UPDATE: APRIL 29, 2017

State Parkway confirmed that the 2016 Holiday Fund Bonus was paid in December 2016 and January 2017. A close examination of State Parkway’s books and records shows approximately 2/3rds of the $16K of the year-end bonus was booked in December 2016, with the remainder booked in January 2017. However, State Parkway rejected our request to inspect certain payroll records such as timesheets even though personal information will be redacted. This rejection led to my wife and I filing our 15th complaint with the City of Chicago. In any event, it’s clear that State Parkway’s auditor neglected to accrue the 2016 Holiday Fund charge in January 2017 as part of 2016’s accrued payroll. I was also able to confirm the $2K of accounting invoices for services rendered in 2016, were improperly charged to 2017 and not recorded as accounts payable as of December 31, 2016.

But the sad truth is that by improperly deferring tens of thousands of dollars of expenses into 2017, the 2017 budget cannot accommodate these budget overruns. In fact, it has gotten to the point whenever the board approves an unbudgeted expense, the board is, in essence, approving an assessment increase without unit owners receiving advance notice.

 

UPDATE: APRIL 20, 2017

After my wife and I filed our fourteenth complaint with the City of Chicago for State Parkway’s failure to make its books and records available for inspection, the other day my wife and I finally received a copy of State Parkway’s year-end trial balance and adjusting journal entries for the year 2016.

Because State Parkway’s year-end payroll accrual seems too low (just $7K of accrued payroll at the end of 2016 vs. $22K accrued at the end of 2015, but the final paychecks for 2016 and 2015 were through December 29, 2016, and December 31, 2015, respectively; and doorstaff’s December backpay wasn’t paid until January 2017 respectively), my wife and I recently submitted our request to inspect certain payroll records during the years 2015 and 2016. The names and other personal identifying information will, of course, be redacted.

Meanwhile, it appears the 2016 holiday bonus was booked in both December 2016, and January 2017. Further investigation is needed via the payroll records my wife and I wish to inspect. Perhaps this is why the property manager resigned shortly after the release of State Parkway’s January 2017, interim financial statements?

State Parkway’s March 2017 financial statements have yet to be posted on e-Star.

 

UPDATE: APRIL 5, 2017

This afternoon I learned from a unit owner that, unlike my wife and I, she has yet to receive her copy of State Parkway’s 2016 Financial Review. State Parkway’s By-Laws make it clear unit owners should receive their annual accounting of the previous calendar year by April 1st. So if you haven’t received your copy of the 2016 Financial Review, you can request it from the property manager.

Earlier today, my wife and I informed the Association’s independent accountant, Picker & Associates of the many other errors in the 2016 Financial Review.

Finally, my wife and I are still waiting to inspect State Parkway’s 2016 federal and state tax returns and related tax worksheets.

 

UPDATE: APRIL 2, 2017

In my blog, I had confidently projected that State Parkway’s Operating Fund would lose about $70K during the year 2016. The 2016 Financial Review my wife and I received late Friday, March 31, 2017, shows State Parkway’s Operating Fund only lost $31K. What happened to my $70K projection? Even though State Parkway refused mine and my wife’s request to inspect the independent accountant’s year-end trial balance and adjusting journal entries for the year 2016, I was able to figure out how the books were cooked.

Including the $7-plus million gross understatement of future reserve expenditures, State Parkway’s independent accountant also made the following errors in the 2016 Financial Review:

  1. Understated Garage Operations Losses by $14K via “errors” in the adjusting journal entries;
  2. Understated Payroll Expenses by $16K by failing to accrue the 2016 Holiday Bonus in 2016;
  3. Understated write-offs by $8K by failing to write-off the lost scavenger rebates per Alderman Smith’s office; and
  4. Understated Fees from State Parkway’s independent accountants (CondoCPA and Picker and Associates) by failing to accrue $2K of invoices that were sent in December 2016.

 

Altogether, correction of the aforementioned four errors would put the actual Operating Fund loss to about $71K instead of $31K. Meanwhile, State Parkway’s handling of painting and wallpapering work done in the 4th quarter of 2016 need to be investigated as it appears they were not accounted for correctly.

“Errors” by State Parkway’s independent accountants and other professional consultants have been going on for a very long time. In fact, twelve years ago this week, I, in my capacity as director, found that State Parkway’s independent accountant overstated State Parkway’s year-end Replacement Reserve Fund balance in the 2004 Audited Financial Statements by some $128K ($673K as reported vs. instead of $545K actual). It took Brad Schneider of CondoCPA seven weeks to admit I was correct (even though it took me just minutes to find and report the error).

The bottom line is State Parkway still has about $475K (28.4%) to $500K (30%) of deferred assessment increases looming.

 

ORIGINAL POST

On March 3, 2017, my wife and I received an email from LMS, rejecting our February 22, 2017, request to inspect the year-end trial balance and adjusting journal entries for the 2016 Financial Review. Despite the Association producing the year end workpapers for previous years in December 2016 as a result of our complaints to the City of Chicago, the Association said on March 2, 2017, that “[t]he audit workpapers and federal and state tax worksheets are not records of the Association because they are not delivered as part of either the draft or final audit and taxes. That being said, Picker’s office is extending the same offer that was extended last year to view these documents; at their offices for a price. That is $600 prepaid, for requested documents to be reviewed, under observation of one of their employees. Should additional documents be required, those can be attained at an additional price of $250 per hour, inclusive of time to produce these documents. For your information, neither is the 2016 [financial review] or taxes is complete at this time.”

My wife and I immediately responded, asking if the Association was reversing policy? Notwithstanding, we reminded the Association that State Parkway’s board of directors has a fiduciary duty to review all accounting and tax transactions and adjustments, prior to not only their approval but also prior to the board appointing an officer to sign the tax return on behalf of the Association.

LMS immediately responded, saying “If Picker does any adjustments as part of the 2016 engaged Review (not audit) these items should not be included in the final review documents. To restate; NEITHER the 2016 taxes or Financial Review has been completed so there are no documents to be delivered at this time. [no emphasis added]”

Yesterday my wife and I received a copy of State Parkway’s 2016 Financial Review from State Parkway’s property manager, Bill Southall. The end of Note 2 in the 2016 Financial Review (on page 7) states: “In preparing the [2016] financial statements, the Association has evaluated events and transactions for potential recognition or disclosure through, February 13, 2017, the date that the financial statements were available to be issued.”

CondoCPA was State Parkway’s independent accountant until shortly after Director Howard Robinson, State Parkway’s President since January 2017, was elected to the board of directors in September 2014. Picker & Associates had done accounting work for Director Robinson’s development company.

While my wife and I await to inspect the 2016 Financial Review year-end trial balance and accounting adjustments, I’ve notice a number of material “errors” in the 2016 Financial Review, including the following: 1) no write off for $9K of Scavenger Rebates lost per Alderman Smith; 2) some $15K-to-$16K of 2016 Holiday Fund expenses and related liabilities were improperly deferred to 2017; 3) painting and wallpaper expenses were also improperly deferred to 2017; and 4) the reported garage operating deficit ($271K) during 2016 is suspiciously too low, especially as compared to SP+’s accounting ($291.3K). [LMS reported the garage lost $305K during 2016 but LMS’ financial statements, as I have demonstrated, are bogus.] Consequently, State Parkway’s reported $31,302 Operating Fund loss during the year 2016 has been grossly understated.

My wife and I will soon file another complaint with the City of Chicago on the very same issue we had thought was resolved. It will be out 14th complaint since late last May.

 

Is the June 13, 2017, “Town Hall” Meeting a Prelude to a Massive 2018 Proposed Budget Increase And/Or Special Assessment?

UPDATE: APRIL 24, 2017

Today my wife and I received in the mail a a 3-page letter from the State Parkway’s board, post-dated May 1, 2017, inviting unit owners to the June 13, 2017, Town Hall meeting to discuss the 2016 Reserve Study Update at Hotel Indigo.

I was disappointed to see the letter claim the $1.2MM projected December 31, 2017, reserve balance as a “positive foundation.” This amount appears to be at least $58K too high, especially since it conflicts with the detailed reserve expenditure assumptions as disclosed in the 22.1 disclosure letter the board approved late last month.

To make matters worse, State Parkway does not possess the capacity to make accurate projections. In fact, State Parkway’s actual reserves as of December 31, 2016, fell $328K short of the incredulous $1.35MM projection that was made just a few months earlier as part of the 2017 Budget process. In other words, the $1.35MM year-end projection was 32.16% too high.

Notwithstanding, this purported $1.2MM number is not compared to an appropriate benchmark, such as percent fully funded. As one of my recent blog post shows, State Parkway’s percent funded as of December 31, 2016, is just 10.5%, or in the lower end of WEAK range (< 30%). In fact, Reserve Advisors recently recommended a $355K increase in State Parkway’s assessments to be phased in between the years 2018 and 2022. This means continued assessment increase shocks via more assessment increases and/or special assessments are forthcoming. A condo association with only $1K in reserves but 130% (> than 100%) fully funded, has exceptionally strong reserves. Bottom line, pay attention to the percent fully funded calculation rather than the dollar amount of the reserves!

The letter, however, conveniently ignores the fact that current unit owners are already paying more than their fair share of wear and tear because State Parkway’s board failed to maintain intergenerational equity. The question unit owners should ask at the upcoming Town Hall is when will their monthly assessment payments return to normal?

The good news is the board finally admits that replacing State Parkway’s tower windows via a loan and/or special assessment is the more expensive option. However, the board’s claim it “maybe (sic) more expensive but would spread the cost of this project to owners over a longer period” is without merit because funding for the subsequent round of windows replacement will also need to be funded in advance of the replacement. Otherwise, subsequent replacement of tower windows will have be be replaced via a loan and/or special assessment.

I don’t know what good this Town Hall will do for State Parkway’s board of directors, especially since the board, unlike unit owners, have a fiduciary duty to the Association. Meanwhile, the I should point out the board’s special assessment discussion first began at its September 2015, Board of Directors’ meeting, or 19 months ago.

 

ORIGINAL POST:

At the board meeting the other night, the board announced a “Town Hall” meeting about the 2016 Reserve Study Update the board approved in January 2017, will be held at Hotel Indigo sometime in mid-June (date uncertain — check with property manager Bill Southall).

“Town halls” have been held only when State Parkway’s Board of Directors knows it does not have at least two-thirds of the proxies prior to a vote. The Special Meetings of the Unit Owners that were called for in June 2009 and April 2015, were improperly hijacked into “Town Hall” meetings by then-Board President Mary Marta. President Marta did this both times because each time she knew the Association failed to obtain at least two-thirds of the proxies in advance of the meeting.

Later in 2009, once the board obtained at least two-thirds of the proxies, the board passed the resolution to sell the Engineer’s Unit at a board meeting without this issue ever being voted, let alone discussed, at a special meeting of the unit owners.

Later in April 2015, once the board obtained at least two-thirds of the proxies, the board passed a change to the Declaration and By-Laws at a purported special meeting of the unit owners but President Marta refused to let unit owners discuss the issues prior to the controversial vote.

I disclosed the aforementioned voting irregularities in my 197-page Verified Memorandum of Law in Support for an Appointment of Custodian to Manage State Parkway’s Affairs I filed in state court in late January 2016. This forced President Marta to stop hijacking special meetings of the unit owners and converting them into “Town Halls.” In fact, last November, the board called a special meeting of the unit owners but, because the board couldn’t commit vote fraud, the board’s initiative to lower the sales price of the Engineer’s Unit by some $44K fell well short of the required two-thirds majority.

The board made it clear the other night that they will try to lower the price of the Engineer’s Unit later this year, perhaps at the annual meeting of the unit owners.

The massive price reduction ($44K) suggests the board has plans to sell the one-bedroom unit (#906), which it couldn’t sell at $229K, to a unit owner so he/she can flip it and make a small profit. The board desperately needs funds to shore up State Parkway’s insolvent Operating Fund and the very weak Replacement Reserve Fund.

The “Town Hall” being held this summer will be unprecedented. Who will get invited? If all unit owners, why not make it a special meeting of the unit owners? Moreover, the board is taking the extraordinary step of having a professional reserve study consultant from Reserve Advisors speak — after the board approved State Parkway’s 2016 Reserve Study Update, which recommended yet another assessment increase shock ($355K) for the reserve contribution line to be phased in over the next five years. I wouldn’t be surprised if Reserve Advisors now thinks the tower windows should be replaced in year 2066, instead of 2026, or an extra 40 years beyond its initial estimated life.

To deflect attention from the major issues (weak funds, massive deferred assessment increases, non-feasibility of selling Engineer’s Unit, etc., look for the board to put a host of other issues (no smoke policy, no pets) before unit owners for a vote so whatever vote attains at least two-thirds majority looks legitimate.

DO NOT GIVE ANYONE YOUR PROXY. INSTEAD YOU ARE URGED TO ATTEND ALL MEETINGS OF THE UNIT OWNERS, INCLUDING SPECIAL MEETINGS, AND REQUEST A BALLOT.

State Parkway’s Board of Directors Look to Reinvent the Wheel in 2017!

It doesn’t look like this year – State Parkway’s 25th year – will be a watershed year. At tonight’s board meeting, I struggled to make sense of the board’s grandiose plan to implement assessment reform later this year. Specifically, the board wants to pass most or all of the net garage operations expenses to deeded parking space owners. In theory, it’s an excellent idea worth considering, but putting it in practice, will be difficult if not impossible. First, assessments are tax exempt. Parking fees, on the other hand, are not.* Second, I’m not keen on the idea of owning a deeded parking space and paying $250 a month for deeded parking privileges, especially if I can rent a parking space at a neighboring garage for the very same monthly amount or less.

As I’ve explained in my blog, State Parkway’s garage operations business model has been broken for quite some time. It needs to be turned around without the use of smoke and mirrors (fraud and deceptive business practices). Meanwhile, State Parkway’s board of directors admitted they outright failed to maintain intergenerational equity with respect to the annual reserve contribution to the point current unit owners have been left holding the bag. Assessment reform will not happen until (and only until) these two line items (net garage operations and annual reserve contribution) have been addressed.

So get ready for State Parkway’s town hall and special meetings later this year. It’s going to be one very bumpy ride!

*Private Letter Ruling 8216056 stated, however, that parking fees received from members of a condominium association for assigned parking spaces are exempt function income because each owner owned a portion of the common area garage, and all were charged based on their pro rata share. Thus, income was derived based on their capacity as owners, not as customers receiving services.

Who is Ron Neville?

UPDATE: MARCH 27, 2017

At tonight’s board meeting, President Robinson clarified that Ron Neville is no longer State Parkway’s general counsel, and added Neville was just hired for some short term work.

 

UPDATE: FEBRUARY 9, 2017

This morning I received an email from Ron Neville of Neville and Mahoney which said, contrary to the first three resolutions passed at the board’s December 8, 2016, board meeting, that he is not general counsel for State Parkway and does not represent State Parkway in any matter. The property manager has since confirmed Levenfeld Pearlstein, LLC, is still State Parkway’s general counsel.

 

ORIGINAL POST

Today I looked up State Parkway’s new attorney Ron Neville in Sullivan’s Law Directory. Here’s what the 140th Edition (2016-2017) had to say:

Neville, Ronald, F. Neville and Mahoney 221 N La Salle St Suite 2150 Chicago 60601 312-236-2100 Fax: 312-236-3613 silver-ii@att.net (Adm IL 71) Genl Practice, Lit, Legal Malpractice, Crim Defense, Govt Law – Muni, Comm Lit

As you can see there’s no mention about cooperatives, condominium and homeowner’s associations in all aspects of governance and litigation, including declaration and bylaw amendments and enforcement, assessment collections, owner bankruptcies and foreclosures, evictions, injunctions, covenant enforcement, and developer and construction defect litigation.

However, Mr. Neville’s specialties are intriguing: general practice, litigation, legal malpractice (Levenfeld Pearlstein, LLC, and/or Litchfield Cavo LLP?), criminal defense (IRS and/or Illinois Department of Revenue for tax evasion?), Government Law – Muni (Violations of Chicago Condominium Ordinance for failing to make State Parkway’s books and records available for inspection?), and commercial litigation.

This looks like a match made in heaven!

Reserve Advisors, Inc.’s Alternative Funding Plan in State Parkway’s 2016 Reserve Study Update is Bogus!

For the second straight Reserve Study Update, State Parkway’s professional reserve study consultant, Reserve Advisors, Inc., included an “Alternative Funding Plan” for the Association. The problem is Reserve Advisors actually does not advocate this approach because they know it is a more expensive option. To make matters worse, the “Alternative Funding Plan” presented in both the 2012 and 2016 Reserve Study Updates are bogus. The purpose of this blog post is to show you how.

First and foremost, the purported “Alternative Funding Plan” in the 2016 Reserve Study Update, unlike the 2001 Reserve Study Update, conveniently ignores the material fact that any and all carrying charges related to the replacement of tower windows will be incurred. For example, taking out a $2.8MM loan for the windows, will incur depreciation (or loan principal) and interest payments. State Parkway’s 2001 Reserve Study Update, which did not have any such “Alternative Funding Plan” included principal and interest payments related to the payoff of the loan related to the purchase of the Engineer’s Unit. Again, I must stress that any loan the board takes out for the replacement of tower windows, the resulting principal and interest payments will be passed along to unit owners. So if the “Alternative Funding Plan” does not include any carrying charges related to the financing of the tower windows, it should be dismissed as a bogus funding plan that was prepared to skew the “Alternative Funding Plan” as a very attractive alternative.

Second, as the attached Excel spreadsheet demonstrates, adding the carrying charges related to the replacement of tower windows in the latest “Alternative Funding Plan” will actually cause State Parkway’s unit owners pay the equivalent of a one-time special assessment of $474K on June 30, 2017, as compared to the latest Reserve Funding Plan. So if the board members are going to do their due diligence, they need to, at the very least, demonstrate to the unit owners that taking out a loan for the replacement of tower windows is the feasible alternative. Meanwhile, if the board elects to waive any or all of its reserve funding requirements, it will be required to disclose this material fact, in bold, in State Parkway’s Annual Financial Statements.

Third, the two funding plans (Reserve and “Alternative”) only has the former setting aside funds for the replacement of tower windows in 2065. Consequently, the “Alternative Funding Plan” assumes replacement of tower windows will always be funded via the more expensive financing option.

THIS PAGE IS STILL UNDER CONSTRUCTION

 

Nine Major Dilemmas Facing State Parkway’s New Board President

UPDATE: MARCH 26, 2017

The board agenda distributed in advance of tomorrow night’s board meeting (something we haven’t seen for more than 10 years) lists “Garage Issues (User Charges Note 6.08 of Declaration and Violation Notice” (sic?) (I think it meant to say Declaration and By-Laws.) This suggest the board is seriously contemplating allocating some or all garage charges (direct and/or indirect) to deeded parking space owners instead of all owners (condo owners and parking space owners). I’m pleased to see the board thinking out of the box. However, I’m not quite sure this approach would work, especially since it would mean a unit owner, who paid approximately $30K or for a deeded parking space, would be asked to pay almost $300/month, if not more, in parking fees. Such a change, which I believe requires 100% unit owner approval, would cause deeded parking spaces to become almost worthless. I will provide an update after tomorrow night’s board meeting.

 

ORIGINAL POST

Now that the Santangelo/Marta Dynasties are officially over, it remains to be seen if new President Howard Robinson will continue the old policies or steer State Parkway in the proper direction. Robinson is well qualified for the post, especially since he is the developer that converted State Parkway to condominiums more than 24 years ago.

The way I see it, President Robinson has nine major dilemmas facing him. They are as follows:

  1. State Parkway continues to either underreport gross non-exempt income and/or claim falsely inflated deductions on its federal and state tax returns. This is criminal tax evasion.
  2. State Parkway currently has approximately $500K of deferred assessment increases, or 30% of 2016 assessments, in direct response to the 2016 Reserve Study Update, which the board approved earlier this week, the 2016 Operating Fund Deficit; and the projected 2016 Garage Operations Losses. See my blog post regarding Deferred Assessment Increases.
  3. State Parkway still has a barebones maintenance budget ($94K in 2017), which is still insufficient to properly maintain the building and grounds.
  4. Garage Operations Losses, which was more than $50K over budget in 2016, continues to soar out of control. The 2017 Operating Fund Budget, for at least the second consecutive year, budgeted $50K less than what garage vendor SP+ budgeted.
  5. Due to the tax evasion and fraud issues, State Parkway still cannot rent out the Engineer’s Unit. The unit has been vacant for more than 18 months.
  6. State Parkway is spending thousands and thousands of dollars on attorneys and accountants in defending the board of directors in administrative actions filed by the City of Chicago for not making its books and records available for inspection.
  7. State Parkway’s Rules and Regulations need a massive overhaul.
  8. State Parkway needs to resurrect its finance committee.
  9. State Parkway still needs to replace at least three officers and/or directors and have all officers and directors participate in Condominium Training For Directors and Officers.

The first thing President Robinson should do is request a full audit by a new independent CPA firm, including but not limited to garage operations and past federal and state income tax returns. Robinson can seek and obtain a full audit via an email vote before Picker and Associates gets too far in the 2016 financial review.

Robinson should then appoint a committee to review and recommend changes to the Association’s Rules and Regulations, and, of course, welcome unit owner input.

Robinson should then develop a comprehensive maintenance program that covers the entire building and grounds. It will be money well spent.

Robinson needs to turnaround the garage operations. In addition, Robinson needs to make sure the Association receives the proposed garage budget from SP+ early in the budget cycle.

Robinson’s idea to convert the party room is a good idea. It’s probably the only option he has remaining. But Robinson should also consider moving the management office somewhere else so the property manager can work without too many interruptions.

Robinson has to commit to complete transparency, including responses to records inspection requests. In addition, he needs to resurrect the finance committee, which can make sure there are no accounting irregularities and/or the board of directors are not voting with their pocketbooks when they prepare and adopt the budget.

Last, but not least, Robinson should recruit several more competent officers and directors and ensure they receive the proper training as condominium directors and officers. The board, of course, should adopt a code of conduct, policies on conflicts of interest, confidentiality, redaction, anti-discrimination, records retention and whistleblower.

Good luck Mr. Robinson!