The East Blair Housing Cooperative (EBHC) was a difficult organization to put together financially. Through the efforts of the Neighborhood Economic Development Corporation (NEDCO), with the financial support of the Whiteaker Community Council, over $164,000 of down payment money (equity) was raised to make the EBHC eligible for a loan from the National Consumer Cooperative Bank, now the National Cooperative Bank (NCB).
The equity funds came from both the City of Eugene and the Housing & Urban Development (HUD) Department of the U.S. government. The funds from HUD were a grant to NEDCO for the Co-op project. NEDCO’s application for a grant from HUD had to compete with 1,500 other neighborhood grant applications from around the country; only 120 applications were accepted and NEDCO’s was one of them.
The information that follows is presented to help you understand that the EBHC is a business. The finances of the business need to be understood by you the owners. Coming to an understanding of the information may take a while, so don’t be discouraged. Questions about the information can be asked of the EBHC Treasurer, the Office Manager, and others on the Management Committee who must particularly familiarize themselves with this information.
EBHC is required by the Oregon State Corporate Commissioner to make known to all applicants for Membership and to all Members the types of financial risk they are being exposed to:
- EBHC could go into default on its loans because Members do not make their payments or because of mismanagement or fraud. In this case, EBHC could be taken over by the lender, and the share-holders (Members) might be required to move out without their equity (Membership Fee) being returned.
- If a member on the HACSA Section 8 program no longer qualifies for the program they may have to vacate the unit. Vacating the unit will depend on HACSA rules and whether the Member wishes to pay the full amount of the carrying charges.
- If a member on the EBHC Subsidy program no longer qualifies for the program they may have to vacate the unit. Vacating the unit will depend on EBHC Subsidy rules and whether the Member wishes to pay the full amount of the carrying charges.
- The EBHC has the right to enforce the Occupancy Agreement, Policies & Procedures, and any other legally adopted rules and regulations. If a Members fails to comply with any of these documents and/or rules, EBHC has the right to enforce those Agreements and rules and terminate the Membership of any Member in violation. Termination (eviction) has to be according to the rules set down in the Occupancy Agreement.
Annual Budget Process
The Annual Budget is the document which shows how much money EBHC will take in from your payments, HACSA payments, the laundry rooms, and any other sources of income over a one-year period. It also shows what this money is to be spent on during the next year. The first budget proposed by the Board of Directors and accepted by the Membership was for only six months (January 1, 1982 to June 30, 1982); since then they have been for a full year.
The budget year runs from July 1 through June 30th and is approved by the General Membership after individual committees have submitted their portions. The budget is initially prepared from this information by the Office Manager and the Management Committee reviews a preliminary draft which is then voted on by the General Membership.
From January to March committees should start planning the projects that will take place during the next budget year and determine the cost of each. Ideally committees already have projects planned out for several years, and it is simply a matter of which one/s will happen next and how much they will cost.
These project costs must be turned in to the Office Manager by March 31st.
The Office Manager will then:
- Review the projected income for the year, the fixed and operating expenses for
the year, and the money requested by each committee for the year.
2) Prepare a proposed budget for the April Management meeting.
The Management Committee will review the budget, discuss possible changes, and propose the budget to the April GM.
The GM will review the budget, discuss possible changes, and approve the budget or send it back to committee.
If sent back to committee Management will make as many of the changes requested by the GM as possible or determine that no changes can be made and send it back to the May GM for approval.
A proposed budget (or revised budget) must be approved by the June GM.
The total expenses for any budget year should not exceed the total income for the year.
We must spend to zero every year. In other words when preparing the budget we should not show a profit.
The EBHC maintains several bank accounts, a PayPal account, as well as a 12 month CD account. The accounts are directed into reserves updated either on a monthly, quarterly, or annual basis as needed, or left in the general fund.
General Fund: Each month, carrying charges are paid to the EBHC by its Members and HUD. This money is put into the general checking account and PayPal account. Each month the Office Manager prepares the checks to pay the bills from these accounts, books to the appropriate committee, and uses these funds at month end to direct to the reserve accounts.
Energy Fund Reserve: Rotating work fines are directed into the Energy Fund Reserve and are used as prescribed by the general membership.
Operating Reserve: 25% of annual income is to be reserved in the event of a disaster, or an un-budgeted, unexpected and unforeseen expense. It may also be used in the event that vacancy loss goes beyond the budgeted annual allotment of half of one month of every unit’s potential income. If the operating reserve goes below 25% of the annual income, 2-3% of the annual income is to be directed to the reserve until it reaches 25%, and then additions may be suspended.
Repair Replacement Reserve (RRR): 4.5% of annual income is to be added to this account on a monthly or quarterly basis. This reserve is used to pay for large repairs and replacements that are outside of the regular House & Grounds budget as specified by the general membership.
Property Tax Reserve: Property tax is the largest bill EBHC pays each year. The amount reserved is calculated at a 3-6% increase from previous year’s property tax bill. This depends on the current housing market and current bonds. Funds are to be directed at this reserve on a monthly or quarterly basis; the bill is due in November of each year.
Balloon Payment Reserve: If EBHC has any balloon payments due in the future, this reserve is utilized to set funds aside in preparation for the balloon payment. If the balloon payment is over a year away, the funds may be held in EBHC’s CD account. If there is no future balloon payment, then no funds need be reserved.
There are several types of investment accounts that EBHC has used or will use in the future. The purpose of these accounts is to earn a higher interest rate than the typical checking or savings account yet not expose EBHC to undue risk. Like all regular accounts, EBHC chooses socially responsible investment accounts. Below is a list of the types of investment accounts EBHC has used in the past or are currently using:
- CD (Certificate of Deposit): This is a higher interest “short term” savings account that many local banks offer with a “lock-in” interest rate. This means that when you invest into a CD you choose the amount of time you want to leave your money in the account (3 months to 5 years) and based on that time frame you are guaranteed a specific interest rate. As long as you don’t withdraw your money before the time frame you agreed to your interest rate will not go up or down. RISK LEVEL: There is no risk of loss as long as the bank chosen is federally insured. The only risk is if EBHC were to invest in, for example, a six month CD and needed to withdraw the money during those six months. There are penalties for early withdrawal which are usually a drop in the interest rate.
- MONEY MARKET ACCOUNTS: These are a kind of glorified checking account, or hybrid between checking and savings account. They usually have a lower interest rate compared to CD’s, but with a money market you can withdraw money up to a certain amount (like a checking account). Money market interest rates will also change with the most current interest rates which would avoid the investor being locked into a certain rate.
- MUTUAL FUNDS: These are direct investments in the stock and bond market. An investment advisor or manager creates a portfolio of stocks and bonds that, ideally, are varied enough that when one or more stocks or bonds are low in value, the others are higher in value which ensures a continual growth in the investment
- All withdrawal transactions on all accounts require two (2) signatures.
- At the end of each fiscal year any surplus House & Grounds expense budget not spent that year will be transferred to the Replacement Reserve. (H&G 12/00)
- At the end of each fiscal year any surplus expense budget (other than H & G) not spent that year will be transferred to the Operating Reserve until it reaches 25% of the annual income.
- Any accounts (bank, investment, etc….) EBHC chooses to deposit money in to must be FDIC insured for at least a $100,000.
- EBHC may invest no more than 15% of its cash assets in a variable rate investment balanced fund with an A rating or better, and which has no more than 50% of its holdings in the stock market.
- Any funds in the excess of a $1,000 that will not need to be accessed for 61 days or more may be invested in a 60 day or less CD at the same institution that the funds are currently held in. The purpose being to earn a higher rate of return as well as ensure that at maturity of the CD the money can be placed back in its original account.
- Any funds in the excess of a $1,000 that will not need to be accessed for 91 days or more may be invested in a 90 day or less CD at the same institution that the funds are currently held in. The purpose being to earn a higher rate of return as well as ensure that at maturity of the CD the money can be placed back in its original account.
- Any funds in the excess of a $1,000 that will not need to be accessed for 6 months and 1 day or more may be invested in a 6 month or less CD at the same institution that the funds are currently held in. The purpose being to earn a higher rate of return as well as ensure that at maturity of the CD the money can be placed back in its original account.