Silver’s appeal set for this week

Disgraced former assemblyman Sheldon Silver has been home on Grand Street even after his 2015 federal conviction on corruption charges, pending appeal. Well, that appeal is finally set for this Thursday in front of the U.S. Court of Appeals for the Second Circuit.

At issue is whether Silver’s help getting state funding for cancer specialist Dr. Robert N. Taub in exchange for litigation cases for Silver’s law firm (and referral fees for Silver) constituted “official acts” according to a narrow definition of that term adopted by the Supreme Court last year (McDonnell v. United States).

By the way, the Lo-Down helpfully pointed out that Assistant U.S. Attorney Andrew Goldstein, who took the lead in prosecuting Silver in 2015, is still in charge of the case even after Preet Bharara’s dismissal last week as U.S. Attorney.

Red flag raised in delay of audited financials

On January 11, general manager Shulie Wollman answered a cooperator’s question about the late distribution of audited financials by saying the report was imminent:

We are hopping to have the audited reporters completed and distributed to all shareholders by the end of January and a financial meeting scheduled for the 2 weeks into February.

A month later, Mr. Wollman had a different expectation:

Although the auditors expected to complete the audit by the end of January, they now have indicated that solely based on their work schedule it will take them longer to complete as tax season has intervened. We have strongly expressed our disappointment that other company obligations and business are keeping them from the completion of our financials on the schedule they previously announced. Because only the auditors can at this point control the completion date, I can only say that hopefully all will be finished this month as they are now claiming is their target time schedule.

We followed up with Marks Paneth, the accounting firm engaged to review East River financials. Here’s what partner Michael Saul had to say:

Please be assured that “tax season commitments” have NOTHING to do with the finalization of the financial statements as we treat EVERY SINGLE CLIENT as the most important client we have.

Rest assured that it is our competence and diligence and desire to get the shareholders fair financials that is holding up the process. The only thing that would diminish the reputation of this firm would be to perform shoddy work. Our firm represents some of the most notable cooperatives in NYC so we are well aware the timing and obligations involved.

He went on to quote Marks Paneth’s engagement letter with the coop:

We will issue a written report upon completion of our audit of the Corporation’s financial statements. Our report will be addressed to the management and board of directors of the Corporation. We cannot provide assurance that an unmodified opinion will be expressed. Circumstances may arise in which it is necessary for us to modify our opinion or add an emphasis-of-matter or other-matter paragraph. If our opinion is other than unmodified, we will discuss the reasons with you in advance. If, for any reason, we are unable to complete the audit or are unable to form or have not formed an opinion, we may decline to express an opinion or withdraw from this engagement.

That last bit sounds like a warning — that the auditors might not offer a good opinion of our financials, or might not be getting sufficient information from management to form an opinion at all. Either one could be have disastrous effect on potential buyers’ ability to get mortgages which in turn would push us further into debt.

Mr. Wollman and the board should offer a better explanation for why the financials are so late, and finally take responsibility for the problem themselves.

Coop looking at another deficit this year

The management office released the budget yesterday for the fiscal year ending 6/30/17, showing an expected deficit of $970,000, a little better than last year’s (unaudited) $1.4 million shortfall.

A few notable items from the full budget:

  • As the accompanying memo from management points out, increase in expenses this year of $900,000 is entirely due to our real estate taxes going up by that amount.
  • You can thank last year’s 11% maintenance increase for the $1.3 million increase in revenues expected this year.
  • Aside from carrying charges, other revenue is expected to go down.

Despite starting off the first 7 months of the fiscal year lower than last year, the budget expects flip tax revenue to remain just about even from last year. But without a big spring bump, flip tax revenue will be $400,000 – $500,000 less than projected. The board is again using inflated flip tax projections to mask what is likely an even larger deficit.

On another note, while memos from board president Gary Altman and management often find ways to praise our local councilmembers, state reps, or governor, the memo announcing the budget’s release made a pointed dig at the mayor: “The city’s budget has risen $12 billion dollars since the Mayor took office 3 years ago and East River’s real estate taxes have risen by millions of dollars.” In an election year, no less!

More specifically, East River’s RE taxes were down slightly during Di Blasio’s first two years, but have risen sharply ($1.8 million or 30%) since. That’s a tough increase to cover without even more maintenance increases. Borrowing more money would help for one year or two, but taxes won’t be going down. This is a recurring and growing expense that will need to be met by recurring income.

So how’s the flip tax so far this year?

We looked last week at how the instability of flip tax revenue keeps our coop’s total revenue unstable. This is significant because (a) we have little control over the health of the real estate market, and (b) flip tax revenue represents between 15% and 28% of our total revenue, depending on the year — it’s our second largest revenue line item (next to monthly maintenance, which is by far our largest).

Flip tax is a significant revenue source that we have no control over and which can vary widely from year to year. That’s very important when understanding the coop’s financial picture.

So while the management office is still struggling to produce financials from last year that our auditors will approve, and while the finance committee of our board has yet to produce an operating budget for the current fiscal year, we can already get a pretty good idea of how the year is going by looking at flip tax revenue so far. And the answer right now is: not too good.

Based on public sales records, flip tax revenue through the first half of the fiscal year is near a low point compared to the past five years:

So far, this year’s flip tax revenue is not even keeping pace with last year’s, which was the worst in while. Will the board need to raise maintenance again to make up another deficit?

The good news is that this year’s flip tax revenue is tracking closely the path of 2013 — the blue line above — which had a nice spring bump. This year may yet turn out fine.

That’s the thing about flip tax revenue: you just never know.

Why are coop revenues unstable?

In anticipation of our audited financials being released … someday … I was taking a look at a chart we published in December when the unaudited numbers were distributed just before our annual meeting:

Take a look at that blue line for revenue — why is it so wavy? Our revenue largely comes from maintenance fees, which, until the end of the 2016 fiscal year, hadn’t changed in several years. Most of the rest of the revenue categories are similarly fixed year-to-year: commercial rent, laundry room income, and parking fees. So why the instability?

I took all those stable revenue categories and plotted a line — operational revenue — that looks more predictable:

Compare this stable income to our expenses, which are similarly predictable:

That’s too bad — when you take all our predictable revenue and expenses, it looks like the coop is running a significant deficit every year. Over 13 years, that’s an accumulated deficit of over $46 million.

Now in my old coop — a much smaller building in the west village — that would be the end of the story, and we’d be in big trouble. We did have additional revenue from flip tax, but we did not count that revenue in our operational budget because it was highly unpredictable. Some years it was a windfall that we put away into our reserve fund, but other years it was a big fat zero.

But East River is much larger, and we have apartment sales every year. The flip tax from those sales is considerable — it’s our second largest revenue category — and has been built into our annual expectations, filling in the gap between operational revenue and expenses.

In this chart, I’ve added another revenue line for the flip tax, and the surplus/deficit line has been adjusted to include this additional revenue. (If you were to add these two blue revenue lines together, you would get the original chart at the top of this post.)

Now we can see where the instability of our total arevenue comes from: it directly mirrors the instability of our flip tax revenue. Even more clearly, the wavy line showing our surplus/deficit also rides the flip tax wave.

This dependence on flip tax revenue is not likely to change, it’s baked in to our financial outlook. The only way this coop has ever been in the black is to use that flip tax revenue for operational expenses. In good years we do well, in bad years we don’t, overall it evens out.*

It’s good to keep in mind that the health of the coop is directly related to the health of the real estate market, something we have little to no control over.

*I haven’t included in this analysis the additional $10 million in debt the coop has acquired over the past 13 years. But that’s another story.

Silver’s $79,222 state pension is safe

Pension forfeiture will be on the ballot in November in the form of a proposed amendment to the state constitution. Two successive sessions in Albany have now passed a resolution subjecting the pension benefits of convicted legislators and state officers to court-reviewed reduction, meaning that voters now have the chance to directly approve the measure.

But there’s a loophole for our neighbor Sheldon Silver, convicted in 2015 on federal corruption charges: the new rules would apply only to crimes committed on or after January 1, 2018.

Sheldon Silver currently lives at home, awaiting appeal, collecting a state pension of $79,222. Even if this constitutional amendment is approved, and even if Silver starts to serve out his 12-year prison sentence, New York taxpayers will continue to pay.

LES reacts to executive orders

After spontaneous protests at JFK on Saturday and a large planned rally at Battery Park Sunday, Monday’s Tompkins Square rally was a relatively tame affair — but was still a defiant protest by hundreds of lower east siders in a location of significance to waves of immigrants and various resistance movements.

Speakers included local elected officials — Councilmembers Margaret Chin and Rosie Mendez (who together represent East River Coop); Manhattan Borough President Gale Brewer; Public Advocate Tish James; and District Leaders Carlina Rivera and Anthony Feliciano. Religious leaders from east village churches, synagogues, and mosques also gave moving testimonials to the neighborhood’s history with immigrant communities, refugees, and outsiders.

The Lo-Down posted videos from the rally here:


Someone also shared with me today a post from the beautiful Museum at Eldridge Street housed in the old Eldridge Street Synagogue. It’s a statement of support for immigrants and refugees, as well as reaffirmation of the importance of immigration to the LES: “Our gateway Lower East Side neighborhood — once home to the largest Jewish community in the world — is today a part of a vibrant Chinatown.”

Click for larger image.

Rally in Tompkins Square Park: Monday 6:30 pm

Any way you look at it, it’s been an eventful first week for President Trump, with bombshell executive actions from the Oval Office and unprecedented protests around the country. If you missed last week’s Women’s March, or today’s big rally downtown, or you just can’t get enough, Councilmember Rosie Mendez is promoting a neighborhood rally in Tompkins Square starting at 6:30 pm Monday evening: “Rally Against Hate.”

Community leaders and elected officials will be in attendance. Grand Street residents who oppose the President’s agenda will make ourselves be heard too. If you want to join a contingent of activists from East River, meet at the bus stop on Grand and Columbia at 5:45 — we’ll be taking an M14A bus up to the rally.

If you’re coming on your own, the rally will be in the south end of the Square.