In addition, the report shows an operating income loss of $35,987 already this year (four months). The 2016 budget for this period shows an expectation of $31,008 in net losses through four months, so current losses exceed budget projections by almost $5,000. As reported below, the now year-old Voter's Guide projected a $55,000 net income this year while the latest budget proposal projects a $4,000 operating loss.
A presentation to be made to the RA Board of Directors this Thursday, May 25, 2016, shows that efforts to rehabilitate the Tetra "lake house" Restonians agreed to buy in a referendum last year are over budget by $451,000--approaching a half-million single-year deficit. (The presentation comprises pp. 67-86 of this week's Board Meeting Agenda Packet.)
- $24,000 of that overrun is in operating income and expenses, which includes an unlikely high estimate for income this years (more than $100,000), so that number is likely to increase before the end of the year--even if the Board increases income by adding an after-school program (a $4,000 income "potential"). In short, RA foresees a $59,000 shift in net income from positive to negative during 2016.
- The vast majority of the overage is, however, in the capital budget where the latest estimate skyrockets capital costs this year from $259,000 to $687,000, an increase of $428,000 or 165%!
The net additional cost to Restonians this year will be $451,000 over this year’s earlier draft budgets for the Tetra fiasco. The overage represents a 125% increase from the 2016 referendum proforma budget.
But, in fact, the cash flow deficit is $486,269 based on the “final” RA pro forma statement in its Voters’ Guide sales pitch for approval of the referendum last spring, the difference coming from the $59,000 forecast cut in revenues. Here is how the costs of the Tetra fiasco have escalated:
The most important numbers reported above are the added impact on cost per household: RA voters foresaw an additional likely assessment fee cost of about $18 for this year alone, but not that additional costs per household for 2016 appears to be about $40. The RA Board will have a hard time living up to its commitment during the referendum to not increase RA assessment fees in 2016 and 2017 due to Tetra costs without jeopardizing other activities or needed reserves.
Nonetheless, that hasn’t stopped the RA Tetra Working Group (aka “Lake House Working Group”) from calling upon the RA Board to add $430,000 to its 2016 budget from RA's Operating Fund this year to make of for the shortfall according to the RA Board materials. No explanation is remotely offered for why an added capital cost should be taken from the RA operating budget. In fact, that is absurd and dangerous: There are good reasons why the two funds are kept separate in any business organization.
More importantly, if funding to cover the massive spending deficit is approved, the Tetra fiasco would add about $22 more per RA member household than was estimated just a year ago—before we voted.
Watch for the substantial increase in your assessment fee next year! And given the pathetic misinformation offered in the original referendum, we anticipate continuing large deficits in the Tetra fiasco project budget for several years—neither revenues nor operating and capital costs will come close to meeting their targets we believe, meaning Restonians can expect continuing large increases in their annual assessment fee to bail out the Tetra fiasco.
In a broader context, the obviously dubious referendum proforma financials make us wonder about RA’s overall financial condition. Some points to ponder:
- Where is RA’s 2015 Annual Financial Report? This report is normally released to the public by May the following year. The end of May is approaching and the report is not even on the RA Board’s agenda. What is wrong with the report to cause the delay?
- Similarly, where is the auditor’s report on the 2014-2015 RA Annual Financial Report? This annual report is usually completed in late March or April and presented in early May with the annual financial report. Yet it is not available even at the late May date of theRA Board meeting. What do the auditors have to say about RA’s accounting and its financial condition?
- Why does the RA Board approved budget for 2016-2017 show that funds from the Comstock contribution in RA’s capital account will be used to offset expected losses of $98,254 in Tetra’s operating account in 2016? Why is such a loss anticipated (this in November 2015) when the April 2015 Board-endorsed voter’s guide anticipates a 2016 net operating income of $55,085? Even the most recent iteration forecasts only a $4,000 shortfall in operating income for 2016. How are such conflicting values possible? What is the real state of operations at Tetra?
- How can the December 2015 Fiscal Committee report show that Tetra’s 2015 budget and expenditures for the year were exactly equal—to the dollar? Note 3 on the table below says the expenditures include “Loan Interest of $37,512 and property Taxes of $7,754.” These are the only recorded expenditures. Were there no other expenditures on the Tetra project? Why does the report not include nearly $50,000 in costs the Fiscal Committee attributed to Corporate and Board expenses (see p. 1) that mostly relates to the Tetra Referendum expenses not budgeted for of $39,467 and Community Projects of $10,300 (sic)?” What was the real budget for Tetra in 2015—or were its costs simply a bucket to be filled? If the Fiscal Committee is using Comstock’s capital contribution against operating costs, why are the capital costs of repairs and improvements on the Tetra property through December not included in this calculation?
- And the questions go on….
At this juncture, virtually every financial figure that RA has presented to the community concerning the forecasting and actual costs of remediating and programming the Tetra property for useful RA functions appear to be questionable. Indeed, we do not know even the exact sums RA spent in 2015 on Tetra and where those funds came from (as well as the actual revenues) to make the Tetra property suitable for RA use. Given the poor state of RA’s financial reporting on this project (and who knows what other financial discrepancies may exist), we recommend the following:
- Those senior RA staff members who played a significant role in the development of the referendum proforma statements should not receive a performance award for 2016. In fact, if the performance awards for 2015 have not yet been awarded, they should be rescinded. This is called accountability for misleading, whether by ignorance, incompetence, or intent, Restonians on the costs of the Tetra property. At the minimum, the CEO, CFO, and C/PRC should not receive bonuses. We defer to the Board on what other staff members should not receive bonuses. The scope of future additional reductions in staff bonuses should be tied to the accuracy of RA forecasts and completeness of public reporting on the costs of the Tetra project henceforth.
- The RA Board of Directors should not approve the $430,000 budget addition request by the Tetra Working Group until a full independent investigation of the causes of the massive cost overruns has been completed. Besides examining the failures in recent budget forecasting, this panel should re-calculate anticipated costs and revenues, operating and capital, through at least 2020. No RA staff members, Fiscal Committee members, or members of the RA Board who served on the Board last year should be on the panel. The panel should comprise Restonians with a reasonable degree of financial understanding. They should have access to all RA financial transactions and other records pertaining to the Tetra project through the CFO.
- The RA Board of Directors must make public as soon as possible the RA Annual Financial Report for 2015 and the auditor’s statement on that report and explain the delay in their publication. It is unconscionable that these reports have not already been made public and leave all Restonians to doubt the ability of RA to properly handle the management of their assessments fees.