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Board announces another maintenance increase

The board announced a new maintenance increase today, just two weeks after distributing audited financials showing an even greater deficit for the last fiscal year than previously reported.

This is the second increase in a year.

In addition to monthly maintenance for everyone, rates for parking are going up for the first time in years, as are the fees for storage rooms and bike storage.

The board is also promising to recertify the parking lot — which is a fancy way of saying they will make sure that the cars parked in our lots are the ones that are supposed to be there. They also promise a crackdown on motorcycles and storage units that take up extra space in the parking lots.

The board’s memo today says “It is expected that these increases will raise revenue by around $1.2 million a year.” You can read the whole memo here.

Last year’s deficit clocked in at $2.4 million. That won’t be effected at all by this increase.

This year’s budget expects a deficit of $970,000. The new maintenance increases going into effect May 1 would reduce that deficit by approximately $200,000. That’s a $3.2 million shortfall over two years that the board has no plan to cover.

Just for good measure, the board will impose new penalties on owners with pets who defecate or urinate anywhere on coop property. $250 each time your pooch can’t hold it in from the front door to the curb.

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.

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.

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.

Neighborhood crime rate stays low in 2016

Mayor De Blasio is promoting 2016 statistics showing New York City crime rates at an all-time low. Meanwhile, the Lo-Down this week covered crime on the lower east side — rape and robbery are up in the 7th precinct, covering the East River to Essex and up to Houston.

But NYPD statistics still paint the 7th precinct as one of the safest in NYC:

Precinct-by-precinct crime rates. (Lighter color is lower.)

And, looking closer, most of those crimes happen along high-traffic areas around Essex and Delancey. Our end of Grand Street is relatively free of crime:

Reported crime locations in 2016.

Annual report shows $3 million swing from surplus to deficit

A partial, unaudited financial report has been distributed to apartment doors this evening revealing a $3 million swing from last year’s $1.7 million surplus to a $1.4 million deficit this year. An additional $700,000 expense was amortized — ten times more than usual — presumably for last year’s costly laundry room repairs.

This represents the worst financial report for the coop in at least a dozen years.

2016-deficit

No balance sheet was included in the report, nor was cash flow statement included, as is normally the case. And the numbers were presented unaudited, more than five months after the close of our fiscal year.

I spoke with board member Lee Berman, who confirmed that he and other board members had not been able to review even these unaudited financial reports before they were distributed this evening. He wrote me, “The board does not always receive financials at its monthly meetings, and if the board is lucky enough to receive financials some random month, they are never provided in advance. Board members simply cannot exercise their proper fiduciary responsibilities to the corporation and to you the shareholders without this financial information, along with detailed analysis. It is inexplicable why the majority of board members do not find it troublesome that critically important timely detailed financial information is withheld from them, or from you.”

Berman also said that receiving these numbers less than 24 hours before our annual meeting makes it “impossible for [shareholders] to fully review and digest the material, or even afford them the opportunity to discuss it with their financial advisers so they could ask intelligent and informed questions regarding the finances at the meeting.”

Can we please have a civil board election this year?

A neighbor sent me an article last Wednesday about the election. No, not that election, this one — our upcoming coop election. This article quotes realtors and management professionals and even an attorney from East River’s own counsel about how coop board elections in NYC can get so dirty that what just passed for a presidential campaign would seem tame in comparison.

In one story, the managing agent ran off with the ballots to protect the incumbents. In another, two board members carried a playground grudge for decades. In another, a smear campaign against the board president led to accusations of Nazism and a defamation suit.

Sound familiar?

Since 2014, when our members urged us to run candidates to challenge the board incumbents, Cooperatively Yours has been a lightening rod. We’ve asked pointed questions, challenged coop orthodoxy, and exposed the thin skin of incumbents. We’ve also made neighbors feel harassed by flyers, turned peaceful gatherings into political rallies, and antagonized the status quo.

In return, the status quo has not sat still. They’ve smeared our candidates with anonymous flyers, belittled our efforts at dialogue, and mocked our defeat. In the end, many more shareholders are now participating in our annual election — a 40% increase in the past three years — but the whole thing feels dispiriting and ugly.

Will this year be any different? We hope so. We live here, just as you do, and we don’t want our elevators and lobbies and playgrounds to be places of malice and distrust. We will continue to ask questions, but we’ll try to lower the volume, and focus on the positive. We hope the other side sings a new tune too, and finds a more gracious way to win votes.

With that settled, I’m pleased to introduce you to our endorsed candidates for the board this year, Mary Jo Burke and Julian Swearengin. Mary Jo is an architect and a graduate of Columbia University’s Sustainability Management program. She served on the house committee and helped to establish the community garden behind building 1. Julian is an attorney and MBA with extensive experience serving on and advising corporate and non-profit boards. He also served a stint on the house committee here, helping to write the house committee newsletter and cooperator’s guide for new owners. They will both be keen advocates for transparency from the board and for greater opportunity for input from shareholders. Please give them your strong consideration.

If you’d like to support them, and Cooperatively Yours, you can do one thing right away: add your name to their campaign.