The board of directors today announced an average maintenance hike of $1000 per year for each apartment in the coop to raise $1.7 million in revenue.
The coop’s budget for 2015-2016 inflated flip tax forecasts to cover the predictable deficit; now that flip tax revenue has indeed fallen short, the need to increase revenue is impossible to ignore.
Regular expenses like property taxes, labor, and insurance continue to increase year after year; it’s natural that our income would need to increase to match. Over the last five years, the board has relied on flip tax revenue and bank loans to cover the difference. With flip tax revenue not cooperating this year, the board decided it was finally time to increase maintenance.
Here is the memo from today announcing the increase:
April 18, 2016
As previously reported, the cost of repairing underground piping in the laundry rooms of Buildings 2, 3 and 4, and part of the roof over our commercial strip was approximately $2.2 million dollars. Building 1’s laundry room pipe structure is still holding up; however, if needed, it is expected that East River would incur an additional $500,000 in expenses. The repairs in many cases took months because rotting pipes were discovered in spaces that had been underground for 60 years. All work was performed in the best and most cost efficient manner and is expected to last decades into the future.
But now, and for the following additional reasons, we must pay for this expense. These include ever increasing real estate taxes, higher union labor costs, higher water rates and insurance, lower flip tax revenue, and ever-expanding new city mandates that require large expenditures. Therefore, after much discussion exploring many alternatives, the Board voted to increase the per room base maintenance by $19.50 a room (approximately 11.25-11.50%) on June 1, 2016. While the increase is not much over 2% a year over the past 5 years, the decision was not an easy one to make.
The Board wants to assure all cooperators that it regularly looks not only at all streams of revenue from various amenities our co-op offers, but also at cutting expenses if, when, and where possible. To be clear, however, the Board is not looking at cutting services to our cooperators despite what similar co-ops in our area and the city have done. As such, unlike Seward Park’s strategy for many years, we do not believe in taking away the monthly STAR credit, real estate tax abatement, veterans or enhanced senior STAR credit from any cooperator. This amount that the Seward Park Board takes away is substantially higher than the new increase announced here. Additionally, unlike Seward which charges maintenance fees to just walk in your door, we absolutely have no plan to start charging for maintenance services that have always been provided free to all our cooperators. We believe that this is “penny wise and pound foolish” as a problem left unresolved in one apartment, perhaps because the cooperator does not want to be charged for a service call, basic repair or infestation treatment, can soon cause damage, heartache, and expense to many other apartments.
The new carrying charge will result in about $1.7 million dollars yearly in new revenue to East River. It does not fully take into account the expected increase in real estate taxes, which only go up and never down, spiraling insurance costs, union contract increases that are citywide, and water rates which increase every year and are again being increased by the city on July 1. Last year’s flip tax revenue was very high at $6.8 million dollars. Ideally flip tax revenue should not be used to balance the budget as it is an ever changing number but, to keep carrying charges as low as possible, it has been relied on in the past. To be conservative, that amount was reduced by about 16% with this fiscal year’s budget at $5.7 million dollars. If we wanted to be super conservative we could have estimated it even lower at $5 million or $4 million dollars. That lower number would have necessitated an increase last year of around 10-12%. However, this would not have factored in the unexpected costs of the laundry rooms and roof repair. With many cooperators still in tight financial situations the Board had decided to hold off on any increases until the numbers showed whether or not it was absolutely necessary; as is the case now. The top issues facing all large city co-ops like ours are real estate and water taxes, and aging infrastructures.
The flip tax revenue is generated when cooperators move due to changing life factors such as job relocations or retirement full time to places like Florida. The other and saddest factor is death and is not something any of us will ever wish to gain revenue because of. At our last meeting 2 of the 3 sales were due to the passing away of cooperators. The flip tax this year, in spite of the recent large increases in the value of our apartments, is down by over $1.5 million dollars from our budgeted estimate. While it is obviously better to hope for the best and use a fair revenue projection to avoid an early, and hopefully unnecessary increase in carrying charges, once the numbers come into better focus we have to adjust and plan for the next year accordingly.
We have been seeing increased revenue from our new (6 months old) sublet policy which as its first year progresses is resulting in higher fees charged to those subletting. When fully implemented upon each renewal the new carrying charge, which at a minimum will be doubled for sublessors, is expected to bring in at least $50,000 a year in additional revenue. But more importantly, the new policy in a short period has already resulted in the sale of 2 sublet apartments whose owners did not want to pay the new higher fees upon their yearly renewal. This has brought in $75,000 in flip tax revenue. Upon seeing their increased renewal rates other sublessors have decided not to renew and have expressed their likely intention to put their apartments up for sale at new higher sale prices, that will eventually also increase revenue.
Some of you might think an increase of any amount is not necessary or believe that the millions of dollars in repairs and/or declining revenue can be made up by decreasing expenses. In fact, the Board takes cutting expenses very seriously, as evidenced by the settling of the pet litigation to end the spiraling cost of litigation initiated by pet-owner cooperators. Our lawyers advised that further litigation could have easily cost us another $1-2 million dollars. But in order to cut expenses in any meaningful manner, one has to decide – Do we provide less security or eliminate shifts? Hire, if allowed by union contracts, fewer maintenance men or porters, or cut back on evening or weekend services? Sharply cut back on our gardens? Let repairs linger until they become major repairs? Cut services for our seniors?… The Board says “NO!” to this.
The Board is prepared to and will be looking at every expense, but again, will not be looking at cutting services and will continue fully funding our NORC to benefit our cooperators. Parking, bike rooms, storage rooms, commercial spaces are also sources of revenue, which at some point will be looked at. For now all new equipment and televisions that are going into our fitness center in early June will be paid for by the monthly charges to cooperators using the room. The approximately $120,000 cost will be spread out over a period of years by increasing the monthly fee for the fitness center to $25 per member effective after the equipment is installed. This is the same fee being charged by our sister co-op Hillman Housing. The new and additional state of the art equipment will be a great enhancement to our fitness center and is an example of trying to have those that use an amenity pay over time for its upkeep.
Lastly, we want to note that every year the city is imposing new safety regulations, which in co-ops as large as ours cost from tens of thousands to millions of dollars. While Local Law 11 cost us almost $3 million dollars for facade repairs, every year we must still do certain additional inspections. This year it is balcony railings at a cost of $64,000 just for the scaffolding before any additional cost for found repairs. New elevator safety laws will now cost us additional tens of thousands of dollars. Although these laws are sometimes in response to a single accident or tragedy, we must and will always comply with all laws to ensure the safety of our cooperators.
Our cooperative remains one of the most affordable and beautiful places to reside in our great city. Despite ever increasing costs we pledge to continue to keep our carrying charges as reasonable as possible. This will be done while carrying out our fiduciary responsibility to balance our budget so banks will always continue to issue mortgages to prospective cooperators whose purchases will bring us additional revenue for the benefit of all of us.
East River Housing Corporation
Board of Directors