Board Needs To Start Paying Closer Attention To Garage Operations

JANUARY 9, 2019 UPDATE

Good news! At last night’s board meeting the board approved several recommendations purportedly made by sp+. My understanding they are as follows:

  • No more cash transactions;
  • Reduce manpower by 40 hours per week;
  • Eliminate paper billing; and
  • Participate in Online Sales

It’s about time the garage banned cash transactions, reversed its ill-advised rejection of online sales and eliminated paper billing. The manpower reduction is a huge game-changer. However, I warned the board at the board meeting that it was actually tried back in 2005 and 2006 but the workforce went back up to six after a union complaint was filed. The board’s response was the recommendations were made by sp+.

Since late last fall, the garage workforce dropped from six to five, and cutting another 40 hours per week will further reduce the staff to four. Expect more overtime to cover paid absences. I must applaud the board for not sitting on their hands like their predecessors Mary Marta, Michael Cleavenger and Howard Robinson did. Since the “Time For Transparency” Board was elected on September 24, 2018, the board has quietly eliminated three personnel positions (contracted maintenance and 2 garage hikers).

I believe at least two more changes are necessary — implementing customer service feedback and auditing garage operations. Garage staff needs to provide excellent customer service at all times. Losing a repeat customer is exceptionally costly to the Association, especially with the advent of ride-sharing companies like Uber and Lyft. Meanwhile, the garage has never been audited in the Association’s 26-year history. Moreover, State Parkway recently received a qualified opinion, due to garage operations, during the most recent audit.

ORIGINAL POST: JANUARY 6, 2019

The board meeting agenda posted in the laundry room Friday afternoon notes State Parkway’s board of directors will discuss the garage contract at Tuesday night’s board meeting. This is a bit surprising because the garage parking service agreement was actually extended another three years, through December 31, 2020, at the December 19, 2017, board meeting. However, given garage parking operations losses between 1995 and 2018 have grown at least 30% compound annual rate, the board of directors has a fiduciary duty to closely monitor and discuss garage operations at each board meeting. This would include closely reviewing at least the following:

  • Revenue: both actual and budgeted for each revenue line item (monthly parkers, car washes, transient parking (including online sales), coupon and late fees) as well as number of overnight cars vs. capacity;
  • Expenses: total fixed expenses (mostly payroll), income taxes and parking taxes;
  • Garage Staff: via customer service surveys and/or feedback; and
  • Quarterly garage inspection (for cleanliness and damages);

At the upcoming board meeting, board of directors needs to reconsider its ill-advised February 5, 2018, rejection of sp+’s Online Parking Proposal when it discusses the garage service agreement.

Before I begin, allow me to state the following:

  • The basis for State Parkway’s first ever qualified opinion on its most recent audited financial statements was due to garage operations.*
  • State Parkway’s garage operations has never been audited in the Association’s 26-year history.
  • The board of directors, however, recently voted not to have 2018 garage operations audited during the 2018 audit.
  • State Parkway’s assessments are high due to the fact 100% of garage operations losses are improperly passed along to unit owners.**
  • State Parkway’s board of directors continues to evade the payment of federal and state income taxes on garage operations profit by claiming falsely inflated deductions. Specifically, the board had approved corrupt CondoCPA’s allocation 45% of garage operations expenses, instead of 29%, to non-exempt by falsely assuming there was an average of 90 non-exempt cars, instead of 49, parked overnight in the garage during 2017.
  • sp+ recently credited State Parkway’s account over $10K for overcharging 2017 vacation accruals. However, CondoCPA neglected to pick up $30K of accrued payroll expenses at the end of 2017.
  • I had been hearing about the popularity of parking apps such as Spot Hero and Parking Whiz. Unlike our neighbors, State Parkway does not participate in the opportunity to sell available parking spaces via the apps.
  • It is a breach of fiduciary duty for a board of directors to reject a professional consultant’s advice.
  • On Wednesday, January 2, 2019, the Sun-Times published an article: https://chicago.suntimes.com/news/preckwinkle-back-taxes-parking-lot-operators-audits-apartment-lease-chicago-mayor-election-2019/ about Cook County conducting audits and may try to collect back taxes from parking lot operators.

Last Thursday, while waiting an unprecedented three hours for my cancer treatment to begin, after I read the aforementioned Sun-Times article, I started crunching the numbers on my iPhone calculator. The key assumptions I used for my back of the envelope calculations are as follows:

  • Average transient parking ticket revenue (including local taxes): $25.00 (from garage study I did between October 2015 and January 2016);
  • Cook County Tax Rate: 6%
  • Chicago Parking Tax Rate: 20%
  • Spot Hero Commission Rate: 20%
  • Marginal Federal Income Tax Rate: 21%
  • Marginal State Income Tax Rate: 7%
  • Calculated Effective Income Tax Rate (federal and state): 26.530%
  • Incremental variable cost: $0.00
  • Calculated Incremental gross profit from using Spot Hero: $10.90
  • Calculated Gross profit as percent of sales: 43.616%

However, since State Parkway’s board of directors unlawfully evade the payment of federal and state income taxes on garage operations, the “income tax evasion” model assumptions are as follows:

  • Average transient parking ticket revenue (including local taxes): $25.00 (from garage study I did between October 2015 and January 2016);
  • Cook County Tax Rate: 6%
  • Chicago Parking Tax Rate: 20%
  • Spot Hero Commission Rate: 20%
  • Marginal Federal Income Tax Rate: 0%
  • Marginal State Income Tax Rate: 0%
  • Calculated Effective Income Tax Rate (federal and state): 0%
  • Incremental variable cost: $0.00
  • Calculated Incremental gross profit from using Spot Hero: $14.84
  • Calculated Gross profit as a percent of sales: 59.365%

As you can see from the aforementioned calculations, State Parkway is missing the opportunity to make between 43.616% to 59.365% of total online sales of its available parking spaces through parking apps. What was the board thinking when it rejected sp+ online parking proposal last February?

I had seen revenue examples from one of the parking apps as a result of selling a certain number of parking spaces throughout the year. I cannot find this article but will post it to this blog once I do.

State Parkway’s board of directors needs to, during open board meetings, start paying closer attention to all aspects of garage operations, especially since the $580K budget for garage expenses makes this the lion’s share, or over 26%, of the 2019 Assessment Budget. More importantly, the board needs to retain a new independent CPA and have the Association’s garage operations audited for the first time.

*Source: Independent Auditor’s Report in State Parkway’s 2017 Audited Financial Statements.

**The 2019 Budget includes at least $180K, or 8.2% of 2019 Assessments, of garage operations and maintenance expenses improperly passed on to unit owners due to double counting.

Published by mnovak431

Bullied At State Parkway Condominium Association is a blog that details the very serious financial, management and litigation issues at State Parkway Condominium.

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