Training nahc board

New Board Member Training

Alicia Osborne & Mary Thomas

Cooperative & Its Principles

Cooperative IDENTITY Statement

“An autonomous association of persons united voluntarily to meet their common economic, social, and cultural needs and aspirations through a jointly-owned and democratically-controlled enterprise.”

Cooperative VALUE Statement

“Self-help, self-responsibility, democracy, equality, equity and solidarity. In the tradition of their founders, cooperative members believe in the ethical values of honesty, openness, social responsibility, and caring for others.”

Rochdale Principles

All Cooperatives share a common set of principles adopted by the International Cooperative Alliance

The Rochdale Principles originated in 1844 in Rochdale, England by a group of weavers who opened a co-op store; this is considered the birthplace of modern cooperatives

These principles guide cooperative business today

1ST Rochdale Principle

Voluntary & Open Membership

Voluntary organizations open to all To become a Member, one must make an

informed decision based on accurate information

Cooperative operations are transparent to all Members

2nd Rochdale Principle

Democratic Member Control

Democratic organizations controlled by their Members

Voting rights – One Member = One Vote Proxy Voting – restrictions that make it near

impossible for an individual or small group to gain control

3rd Rochdale Principle

Member Economic Participation Members contribute equally to and

democratically control the Cooperative’s revenue

Member’s contractual obligation and responsibility to timely remit the monthly carrying charges

Member’s responsibility to properly use Cooperative resources

4th Rochdale Principle

Autonomy & Independence Self-help organizations required to provide

their own governance and accountability Volunteerism – Board of Directors Volunteerism – Committees Pride in Ownership – tasks or services that

would otherwise cost the Cooperative, performed by volunteerism

5th Rochdale Principle

Education, Training & Information

Providing education and training is an obligation

Good sales information, newsletters, open membership meetings, internet, orientation

6th Rochdale Principle

Cooperation Amongst Cooperatives

Organizations such as the National Cooperative Business Association are formed to represent Cooperative interests before Congress and federal agencies

NAHC represents housing cooperatives

7th Rochdale Principle

Concern for Community

Sustainable development of their communities

Policies approved by the Members The cooperative mandate stems from its

Members

Cooperative Firsts

New York – 1876; the Randolph

First Known Litigation – 1886; Barrington Apartment Assoc.

First outside of New York – 1909 in Chicago

Cooperative Foundation Stockholders The cooperative

corporation is owned by it’s Members or Stockholders

This is the highest level of accountability

Cooperative FoundationBoard of Directors

The Cooperative Corporation is governed by a Board of Directors

They have a duty to govern ethically

They are elected by and are responsible to the Stockholders

Cooperative FoundationManagement Agent The Management

Agent manages the assets, including enforcing policies & procedures

Provides oversight for the day-to-day operations

Cooperative FoundationDebt & Equity

Cooperatives operate with revenue generated from carrying charges and other miscellaneous items (i.e. interest income)

The Stockholders are the owners and consumers

The Cooperative Difference

Owners have collective Democratic Control Members are both the owner of their

resources & the consumer of their resources Liability Protection – The corporation protects

individual shareholders from the cooperative’s debt

Tax Benefits – Owners have tax benefits similar to that of homeowners

Types of Cooperatives

Limited Equity A corporation whose

deed or By-Laws places restrictions on equity growth and accrual in exchange for a form of subsidy or an insured mortgage

Limits on maximum resale price & limits on prospective Members income

Market Rate The opposite of the

Limited Equity Cooperative

No restrictions placed on equity growth and accrual

No restrictions or ceilings placed on prospective Members income

Types of Cooperatives

BMIR – Below Market Interest Rate A cooperative insured

under the Section 221 (d)(3) program providing market interest rate financing in the form of lower interest rates.

HUD pays difference between going rate and 3%

236 Cooperative Program replaced the

BMIR in 1968; HUD insured the interest rate subsidy on the outstanding mortgage resulting in an interest rate to the Cooperative of 1%

Types of Cooperatives

202 Cooperatives

Developed for exclusive use by the elderly and directly financed by HUD

Section 8 Cooperatives

Started in cooperatives when the existing mortgage was suffering and deeper subsidies were needed

Legal Cooperative Types

NOT FOR PROFIT Has a Board of Directors

and is formed for its Members only. It is a business not a charity and in most cases are not tax exempt

NONPROFIT Has a Board of Directors,

no shareholders, no profit, but officers and management may be paid reasonable salaries for services

It is tax exempt

Cooperative Documents

Articles of Incorporation

Constitute the legal document that establishes the cooperative as a business organization subject to laws of the state in which it is chartered. They state the name under which the Co-op will operate and the purpose of the Corporation: to provide housing to its Members on a non for profit basis.

Subscription Agreement

Documents the purchase of shares in the housing cooperative. It includes a record of the number of shares purchased, the value of the shares and the related monthly charges.

By-Laws

Written rules and regulations governing the operation of the co-op. They deal with Membership, meetings of members, the board of directors, officers of the corporation, rights of the regulatory agency, how by-laws shall be amended, and fiscal management of the Cooperative.

Regulatory Agreement

Federally insured co-ops agreement with HUD or FHA. Its stipulations require the co-op to:

Make payments due under the terms of the Mortgage Establish and maintain a General Operating Reserve Collect adequate housing charges not to exceed a HUD

approved schedule Limit Co-op Membership to low-to-middle income families Certify Members’ family income annually

Mortgage Agreement

Legal Document between Cooperative and the Financing Agency that provides the mortgage, usually a bank.

Conventional FHA

Usually has guidelines that need to be followed for Reserve and Escrow requirements, management, audit, property inspections, insurance, etc…

Occupancy Agreement

The contract between each member and the corporation, which gives the member the right to occupy a unit, participate in the governance of the cooperative and receive tax benefits.

Membership Certificate

Legal Document between Co-op and Member giving them their share in the cooperative.

Use Agreement

Properties that pre-pay their HUD mortgage

Takes the place of the regulatory agreeement

Usually for the remaining term of the original mortgage

Less Restrictive than Regulatory Agreement

Management Agreement

Agreement between the Cooperative and the Management Agent

Outlines the guidelines of management, term, pay, spending authority, employees, etc..

Financial Responsibilities

Roles & Responsibilities - Board The Board of Directors is responsible for the

financial solvency of the cooperative. They interview and hire a management

company Membership Selection Governing body of the cooperative, they set

all policies and procedures To keep the membership informed

Roles & Responsibilities-Management Accountable to the Board,

defining operating objectives, goals and policies within constraints defined by Board

Participates in long range planning

Decides how objectives will be achieved

Prepares budgets, and marketing plans for Board approval

Implements procedures to obtain goals and objectives

Monitors, reports and recommends member benefits

Develops job descriptions, performance standards, and compensation benefits for staff

Provide required financial monthly reports

Roles & Responsibilities - Membership Follow Policies &

Procedures Participate in Committees Attend open board

meetings Vote or Run for Board of

Directors at Annual Membership Meeting

Help keep operating costs low

Operating Budget

The annual budget is the financial roadmap the cooperative needs to follow during its fiscal year.

Operating Budget - Timing

Fiscal Year is your financial year according to the IRS Calendar – Jan thru

Dec Other 12 month period

Preparation should start 120-Days prior to fiscal year end

Operating Budget - Preparation

Budget is prepared by the management agent

Reviewed by the Budget Committee & Board of Directors

Approved by the Board of Directors

Operating Budget – YTD vs. Projected

When preparing the budget management will compare what you spent last year (audit) to your Year to Date figures this year (annualized) to come up with projected numbers for your new fiscal year

Step 1: Previous FY Figures Step 2: Actual To Date Figures Step 3: Projected Revenue &

Expenses

Begin with expenses and upon completion of expenses determine the revenue needed to meet expenses

Monthly Financial Report

Report Prepared by Management Agent Should Include the Following: Accounts Receivable Accounts Payable Occupancy Rates/ Vacancy Loss Budget Comparison Disbursement Register Schedule of Reserves

Monthly Financial Reporting -Accounts Receivable Collection Rate=

Actual Rent Collected/Gross Potential – Vacancy Loss in Dollars

Industry standard or “healthy property” is usually 95% by the due date

If carrying charges are not paid on time are people being turned over to your attorney within the same month for collection?

Collection Policy – does it support good asset management? Does it need revisited?

RED Flag = Members owing > one month of carrying charges or collections consistently below 95%.

Monthly Financial Reporting -Accounts Payable Money that you owe to your vendors and

suppliers each month for services and supplies

Do you have outstanding payables at the end of each month?

RED Flag = Payables older than 30 days

Occupancy Rates

How many of your units are occupied each month? Occupancy Rate = Number of Occupied Units / Total

Number of Units For example, 328 units occupied / 340 totals units =

96% Occupied Nationwide the current trend is 92% RED Flag = Occupancy Rate < 90% Vacancy Loss if applicable can never be recovered.

Monthly Financial Reporting -Budget Comparison Compares your monthly expense and income

budget to your actual monthly amounts Actual Monthly Revenue – Actual Monthly

Expenses = Is it positive or negative? Management should provide a variance

report to explain variances from the budget amount

Important tool for preparing the next annual budget……

Monthly Financial Reporting – Check/ Disbursement Register A check register

listing who was paid, check number, amount and date of payment

Should have memo’s notating units or descriptions

Monthly Financial Reporting – Schedule of Reserves/ Investments List of investment

accounts that the cooperative maintains at various banks/ institutions Held by Cooperative Held by Mortgage

Company

Cash Accounts Membership General Operating

Reserve – Savings Replacement Reserve Real Estate Tax Escrow Insurance Escrow Rehab Escrow

Cash Accounts & Membership Checking account that all of

your revenue gets banked into each month

It is used to pay all of your expenses each month.

You should be depositing enough each month to cover all of your expenses

Membership Account – Account that the membership & equity payments gets deposited and disbursed from

Both are Property Held

General Operating Reserve

Savings account required by HUD held Mortgages requirements listed in Regulatory Agreement Usually 15% of your Gross Potential in savings Need to fund 3% of your Gross Potential each year

Funding of the GOR at a given percentage drops and is eliminated when it reaches the level specified in the regulatory agreement

Cannot withdraw more than 20% of balance of GOR (fiscal year beginning balance) without prior HUD approval.

Held by Property

Replacement Reserve Account Funded at a regular monthly rate for the life

of the mortgage for capital improvements as needed.

HUD held and need HUD’s approval to withdrawal

After HUD mortgage is paid off funds are given back to the property for their control

Real Estate Taxes Escrow

Money used to pay your Real Estate Taxes Held by mortgage company -usually required

by your mortgage agreement Should be funding each month so that there

is enough to pay your real estate taxes when they are due.

Insurance Escrow

Money used to pay your Property & Liability Insurance

Held by mortgage company -usually required by your mortgage agreement

Should be funding each month so that there is enough to pay your property insurance when it is due

Mortgage company stipulates the amount of insurance coverage your property should keep

Tips/ Pointers for Reading the Financial Report Ask for the report prior to the Board meeting,

suggested at least 3 (three) days prior Review the report prior to the meeting and

have questions ready to ask Allocate time for management to review the

financials during the Board meeting Be sure to follow-up if an answer cannot be

provided to your question during the meeting

Fiscal Year Audit – Content

Summary of annual income and finances as audited by an independent third party

Usually required by HUD and your Mortgage Company

They are auditing to make sure checks and balances are in place and to give an overall snapshot of the financial well-being of the cooperative

Fiscal Year Audit – Reviewing

Review for Negative Findings Such As: Overage on GOR Withdrawals

w/out HUD Permission (20%) Open Findings From Previous Year Overage in a Particular Budget

Account Item ex: Conference Expenses

Failed REAC Scores Unresolved MOR findings

RED Flag = Any Negative Findings

Review & Analyze Expense Trends

Fiscal Year Audit – Bidding

Auditors are chose by a competitive bid process each year

Usually good to have the same auditor for multiple years

Reserve Analysis & Long Term Planning - What Reserves or

Investments are the cash that you have saved to replace your equipment and property as it ages

Reserve Analysis & Long Term Planning - Why

Needed to ensure that your property is properly maintained as it ages to preserve your property value and to remain marketable

Reserve Analysis & Long Term Planning - How Look at reserve balances each year Prepare an estimate of needs – “how much

do you plan to withdraw this year” Make sure you are funding at an amount that

will cover your needs and continue to increase your reserve balances

Reserve Analysis can be done for 5, 10 or 20 years

Needs to be updated annually to adjust for any changes and unexpected expenses

Effective Leadership

Listening

Do not interrupt Do not judge Face the speaker Watch all non-verbal

behavior including your own

Concentrate on what is being said and not rehearsing a response

Communication Skills

The best communicator is a good listener You must consider the personalities and

biases of every Member of the Board Always remain calm, speak in a normal, but

firm tone if faced with confrontation during a Meeting

Remember that each Board Member has an opinion but the Board speaks to the community and to Management in ONE voice

Team Building

Identify the Problem Identify the source

or sources of the Problem

Identify a solution or solutions

ACTION!

Parliamentary Procedures

These procedures are important as they entitle everyone to share their position and allows the Board to make informed decisions without confusion.

Always have an Agenda for your meeting Do not move on to another topic without

concluding the prior one Motions are made, seconded, and then can

be discussed prior to a final vote

Ethics

All Board Members must practice their responsibilities ethically

Ethics is the point where morality meets law

Morals are personal beliefs

Cooperative Operations

Eligibility

Membership Selection Plan – Each cooperative should have a written membership selection plan.

Membership Committee

Membership Orientation

Policies & Procedures

The board makes, approves, and implements the rules of the cooperative.

Rules need to be for the good of the entire membership, not to accommodate a few members

Maintenance Program

The board needs to make sure through their management agent or employees that a maintenance program is implemented. This includes: Work Order Policy Emergency Policy Annual Inspections Preventative Maintenance Program

Governance, Enforcement & Implementation

Defining goals and standards and ensuring effective structures and procedures to enable the Cooperative to achieve those goals

Creating policies used to administer the day-to-day operations

Oversight Duties

Responsibility to ensure that the created standards are being followed and that Cooperative affairs are properly administered

The Ideal Board Should…

Do its homework Be informed Be supportive of

Management Maintain a sense of

balance between needs of members and staff

Be aligned, work in the same direction

Exhibit trust and maturity

Be full of energy and ideas

Be honest and consistent

Develop a method for discussing internal governance and accountability

The Directors’ Golden Rule

Running a housing cooperative is a serious business. It is not an opportunity to play games, to

reward friends, to punish enemies, to push petty personal

projects, or to accumulate power.

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