ORIGINAL POST: NOVEMBER 19, 2018
Less than one week from today, the corrupt and incompetent board of directors will meet to formally adopt the Proposed 2019 Budget. The question is will the board adopt it in its current form, with six fatal errors, or will it amend the budget and distribute it to unit owners for their 25-day review?
I will take you through everything that’s wrong with the 2019 Proposed Budget. But first, let’s start with board president Tom Battista’s budget cover letter:
Budget Cover Letter:
The budget cover letter is false, misleading and deceptive. In fact, contrary to the representation in the first reason for the massive increase, at least 100% of the 2019 Proposed Assessment Increase is for Non-Litigation Expenses. Moreover, the bulk of the 2019 assessment increase is due to the actual $135K (but the Association only budgeted $80K) 2017 budget deficit as well as the $246,605 2018 projected deficit. The deficits are so large because for years the board approved sham budgets prepared by management.
The second reason for the massive assessment increase admits to accounting irregularities. However, the board’s inclusion of the issue of property manager William Southall leaving unrecorded litigation invoices in his drawer is double counting, which I had explained to the board at it’s October 3, 2018, board meeting. This is because there are sufficient funds in the $500K Special Assessment Fund for litigation expenses that can easily absorb approximately $100K for unrecorded litigation invoices from 2017, especially since the Association will continue making installment payments. Meanwhile, the Association only recorded a $80K NOI Shortfall from 2017 in the 2018 Projection. As I mentioned in the preceding paragraph, this amount is $55K too short. However, the 2018 Projection includes a dubious $380K projection in the 4th quarter of 2018, which is impossible as the Association’s Operating Fund does not have anything close to this kind of cash on hand. In fact, as of October 31, 2018, the Operating Fund only had $26K of cash on hand. Finally, it should be noted that the accounting irregularities, totaling over $275K, were a direct result of budgetary pressures the board and management faced.
The budget cover letter fails to explain what the board plans to do with the purported $300K reserve/”contingency” for Legal Expenses and Judgments, and Related Legal Expenses. Some of the funds were already spent on budget overruns.
2019 Proposed Budget:
The 11.94454% assessment increase in the 2019 Proposed Budget includes the following fatal errors:
- ($250,008) for Legal Services – Special. Changes in the special assessment income and expense accounts cannot cause a change in regular and parking assessments.** This is because the two-year Special Assessment Budget is independent of the annual assessment budgets.
- $227,497 for Provision for NOI Shortfall in the 2018 Projection, because of both double counting and improper use of Special Assessment income and expense accounts, $120,076, and improper $300K projection for Provision for Other/AP.
- ($2,232) for Cable T.V. Fees in excess of Cable T.V. Expenses. The board does not have the authority to set a pass-through fee in excess of the underlying expense. This is because unit owners are assessed based on each owner’s proportionate market share.
- $114,905 or $35,354 for allocating losses from unrelated business activities (including allocation of 45% and 31% for garage valet parking services to non-exempt, respectively) to Common Area Maintenance (“CAM”). The board does not have authority to assess unit owners for non-CAM expenses.
- $106,919 for Special Assessment Income. Again, changes in the special assessment income and expense accounts cannot cause a change in regular and parking assessments.
- $0 for federal taxes, state taxes, and local property taxes. This demonstrates the board and management’s willful intent to continue evading these various taxes.
Correcting the aforementioned fatal errors, assuming 31% of garage valet parking expenses are allocated to non-exempt, results in a 15.84221% assessment increase.
What board and management need to do:
- Reconcile the Association’s financial statements with those of the 2017 Audited Financial Statements and record all automatic reversing entries so 2017 expenses are not included with the 2018 actuals.
- Update the 2018 Projection using 10 months of actuals and 2 months of estimates.
- Amend the budget so Special Assessment Income and Expenses are identical to one another in each 2018 and 2019.
- Amend the budget to exclude unrelated business income, expenses and losses from the budget. In addition, seek to minimize UBI losses or make profits. A good example of this are the three vending machines only produced a total of $59 of gross commission income during the past dozen years, but cost several thousands of dollars in electricity annually to operate. Consequently, the board and management have not replaced any of these three vending machines.
- The board needs to make a decision on Unit 906, which has been vacant shortly after it became a hot potato in May 2015. If the board is still claiming 100% of the Association’s expenses are qualifying expenditures, then 1.5% of expenses for Unit 906 cannot be a problem for the Association meeting the 90% expenditure test. Meanwhile, Unit 906 is still not a common area accessible to unit owners, which means its clearly not a common area expense. Nor is Unit 906 is a “storage room for accounting records.”
- Amend the budget so Cable T.V. Fees equal Cable T.V. Expenses.
- Make a decision what’s going to be done with the controversial $300K Reserve for Legal Expenses and Judgments Reserve/”Contingency”, which is much less than $300K, let alone cannot be “spent” in full by December 31, 2018. Do the math as the Association doesn’t have much cash on hand.
- The board of directors has to make a decision:
- make the correct allocation of garage valet parking expenses to non-exempt based on sp+’s actual car count (110 exempt and 49 non-exempt) and pay federal and state taxes, and allocate the exempt garage expenses to unit owners in the budget.
- or allocate garage valet parking expenses to non-exempt based on corrupt CondoCPA’s unlawful “estimate” (110 exempt, 90 non-exempt) which grossly exceeds sp+s actual monthly count, evade federal and state taxes, and only allocate the “purported” exempt garage expenses, which will be significantly lower, to unit owners in the budget.
- Amend the budget so both the 2017 actual budget shortfall and projected 2018 shortfall are in the “Provision for NOI Shortfall” account. This is not Fantasy Budget League.
- Distribute the complete 29-page amended budget to unit owners for their 25-day review.
- Last, but not least, the board needs to fire Lieberman Management Services, Inc., as managing agent, and Treasurer Pauline Oberland needs to resign from the board ASAP.
*Note: At the time of this blog post, the Association, run by a corrupt and opaque board of directors and management, had yet to respond to a handful of budget questions. The “Time for Transparency” Board’s failure to respond to simple questions stinks to high heaven.
**2019 is the ninth year of special assessments at State Parkway, but the first year where changes in the Special Assessment accounts caused a direct change in the annual assessment budget.
cc: Board President Tom Battista, LMS Regional Director Sara Kacheris