RA expects to spend more than $1,000,000 on Tetra this year alone.

RA CEO Cate Fulkerson will report to the RA Board of Directors this Thursday on the financial situation of Tetra.  The bottom line of the costs to date and forecast until the end of the year is that RA expects to spend more than one million dollars on Tetra by the end of the year.  In broad terms, that includes:

• $700K on renovation of the interior and exterior of the Tetra building.  That sum could have built a new building the size of the Tetra building.
• More than $107K on operating expenses, some $95K comprises employee-related expenses.  In fact, we understand that RA has hired several full- and part-time employees to operate its programs there.
• And, of course, there are always the mortgage payments which will total nearly $184K this year.

Below is the full RA spreadsheet with several rows added at the bottom (light blue and yellow) that bring some of these totals to the surface.  

To facilitate a comparison with RA’s “fact sheet” published March 2015 to help sell the referendum, here is the pro forma spreadsheet it offered then:

This total cost for the Tetra effort is more than double the total cost RA projected for Tetra in its March 2015 “fact sheet” on the Tetra purchase.   Here are the costs as RA projected them then and now:

• Operating expenses would be $45,011 in 2016.  RA’s latest report puts operating expenses at $107,303—more than double RA’s “fact sheet” projection.
• No program expenses because RA anticipated that the building would be leased back to Tetra developers through 2016.  Now RA anticipates $107,303 in operating/programming expenses for this year.
•  Overhead expenses, including “existence cost” expenses and loan costs, were expected to reach $228,623 in the “fact sheet.”  They are now projected to grow slightly to $247,072 this year.
• The big change, of course, is in the costs of renovating the Tetra building, which was in horrible shape, and the grounds.  Last year, RA put 2016 costs (in fact, the total cost) at $259,000.  That cost has now risen to $699,531.

The total projected costs in the "fact" sheet were  $487,623.

Yet somehow, despite losing the $100K lease on the Tetra building this year, RA is forecasting operating revenues of $171,753 this year.  That forecast program revenue comes from an RA effort to accelerate the renovation of Tetra to enable the launch of some programs as of about mid-year.   For what it’s worth, RA’s project income this month is down $20K from last month, and we expect similar cuts in projected income next month when RA reviews its forecasts to end of the year.  

The proverbial bottom line is that RA told Restonians last year that the “net cash flow” for 2016 would be a -$387,527.  Now RA is telling Reston the “net cash flow” for 2016 will be -$882,152—a 128% increase in losses.   And we frankly expect that the net cash flow will show greater losses by the end of year.  

This is pathetic management of an unjustifiable project.  We hope that the “independent” audit team can provide some explanation of how Restonians were so badly misled by their leaders. 

 

Did RA commit to spending hundreds of thousands of dollars on Tetra without Board authorization?

Below is a spreadsheet provided by Reston Association showing RA costs it has budgeted and incurred ("Actuals" in green) on Tetra as of May 2016.  As we all think we know at this time, the RA Board of Directors authorized $259,000 towards the renovation and re-purposing of the Tetra office building to RA uses in 2016.

What the table appears to show by way of the green cells extended across the calendar year is that RA committed to spending $625K on Tetra before the May 2016 meeting at which the Board added $430K to cover cost overruns above the $259K budget, including $504.5K to the general contractor for interior work.  The single line, covering actual and expected payments to "Construction--General Contractor, Interior" suggests that RA knew by March (when the first payment was made) that it had a contract or other agreement with this contractor to pay nearly double what the RA Board had budgeted for work on Tetra.  Actually, RA had made payments on eight of these contractual arrangements before the May RA Board meeting, all pointing to contracts or agreements reached months in advance of Board approval to commit to this spending.  In fact, the RA staff had to get the RA Board of Directors' approval at the May Board meeting because more than $249K was due in that month--which would have blown up the budget--alone on top of the $139K spent already this year. 

If we are reading this spreadsheet correctly, it appears that RA staff committed RA and Restonians to spending some $366K that the Board had not approved and, in fact, may not have even been aware of.  Of course, this all occurred in RA Board election season, so it would have been impolitic for RA or the Board to let the public know of these known large cost overruns on a timely basis.  It could have been very costly to incumbents trying to be re-elected.

If the above is true, shouldn't those RA staff who were not authorized to commit these funds be removed from their positions for this egregious breach of trust?   And if members of the Board of Directors knew about these unauthorized financial commitments before the May Board meeting, shouldn't they be removed from office?

Tetra just keeps swallowing Restonians' money.

As RestonNow reported, two weeks ago RA CEO Cate Fulkerson told the RA Board of Directors that renovations for the interior of the Tetra building were more than $428,000 over the budget used to sell the Tetra purchase to Restonians in last year’s referendum, nearly tripling the original $259,000 budget allocated for that purpose.   

To add fuel to the costly fire, the RA Board of Directors moved forward approving a $430,000 Tetra budget increase without examining causes or remedies, other budgetary shortfalls, future spending requirements, or likely cost recovery, much less holding those accountable who were responsible for the inaccuracies leading to this gross cost overrun.  

Unfortunately, a more thorough cash flow analysis shows the hole is much deeper than so far reported by RA (and we still lack significant cost information).  For those of you who don’t want to read all 2,000 words of this post, here are the key points:

•  Not counting the Tetra subsidy of $275,000 for external repairs, the Tetra budget will be $624,640 over budget by year-end.  That’s $28-$30 per RA household; not an absence of impact on assessment fees as reported in RA’s Pro Forma Financial statement in RA’s referendum marketing  “Property Purchase Fact Sheet” no matter how cleverly disguised by cuts elsewhere in RA spending.

• As a result, the entire Tetra effort will be in the hole more than $562,000 by year-end versus the Pro Forma Financial statement’s prospective surplus of more than $208,000. 

• Still uncompleted repairs, particularly improvements to Tetra’s grounds, and the need for new furnishings will add to the growing cost next year and beyond.

• By the end of 2020—the final date presented in RA’s Pro Forma Financial in the Voter’s Guide—RA will probably be more than one-million dollars in the hole, costing Restonians $40-$50 per household instead of the $10-$12 projected by RA.

• Beyond that timeframe, a published pre-referendum analysis showed that RA will not operate Tetra in the black until 2048 using RA’s own assumptions and other conservative ones the beyond 2020 endpoint of RA’s Pro Forma Financial statement.

• In fact, it is unlikely Tetra will ever be profitable given RA’s track record of recovering less than 27% of the costs on all the other facilities it operates from swimming pools to the Nature House.  Our assessment fees pay the other 73% of those costs.

• An independent, realistic, and thorough re-examination of Tetra’s costs and prospects should be conducted by some entity other than RA and, until that is completed, work on Tetra should stop.

• Such an examination would probably conclude that the most cost-effective way to cope with this situation is to tear down the building and turn it into a nature area—even if we would still be paying off a promissory note.

Now on to the many ugly details.

As shown in spreadsheet appended to this post (including explanatory notes) based on official RA reports, the Tetragate budget through this year is more than $624,640 over budget, not the $428,000 RA reported to the Board two weeks ago.  That’s a cost of $28-$30 per RA household, not the no impact forecast of the RA Pro Forma Financial statement.  Half of that nearly $200,000 extra expense is the $100,000 in Tetra rental income budgeted for 2016 that disappeared with the previous Tetra property owners in December.  

The rest of the added $200,000 overrun comes from bits and pieces large and small. 

The biggest chunk may be the “unbudgeted cost of $39,467” discovered in a footnote in the unaudited Fiscal Committee 2015 year-end report.  That “unbudgeted cost” may (or may not) include the $16,414 in loan costs and recordation taxes listed as “Acquisition Costs” in the Financial Pro Forma that was used to sell the Tetra deal and was a driver of RA’s 2015 and 2016 Tetra budgets. 

That’s an added loss of $23,035 unless, of course, the “unbudgeted costs” are in addition to the budgeted $16,414 in which case another $40,000 should be added to the overrun.  For the moment, we’ll give RA the benefit of the doubt.  Still, we wonder how much “unbudgeted” RA staff time and money was spent putting together the Voter’s Guide, including its outrageous Pro Forma Financial statement.

For no readily identifiable reason, real Tetra promissory note payments for 2015 appear to have been $15,000 (a month’s payment) greater than shown in the original Pro Forma Financials.  We just read the promissory note. 

The other cost overruns are just chump change with you and me being the chumps. 

The bottom line, as they say, is that instead of being $208,000 to the good by the end of this year as the RA Pro Forma Financials project, the Tetragate fiasco will put RA more than $562,000 in the hole—and the hole will get deeper in the future.

Even with one million dollars spent repairing Tetra by year-end, including Tetra’s $275,000 subsidy, the renovations will not be complete.  What about the property grounds?  An RA-prepared spreadsheet supporting the just approved $430,000 in additional capital expenditures includes an entry early this year of $11,000 for “Property Park Concept Planning.”  (For the record:  It is not clear that RA staff shared this spreadsheet with the Board.  It was not in the publicly-shared “packet” for the Board meeting two weeks ago.)  So we should have a plan soon to improve the grounds that already exceeds the total RA’s Pro Forma Financial originally allocated for a capital improvement of “$9K on initial grounds maintenance.” 

That’s real “initial grounds maintenance”—not a new “concept,” not a new “plan,” not a new “park” as stated in the RA spreadsheet.  As a WAG (the budget-building approach RA’s CEO said RA used in its Pro Forma Financial statement—waving a wet finger in the air), the actual grounds renovation could add another $50,000 - $100,000 to the overall cost of the Tetra property in the next year or so.  When will RA choose to disclose the projected cost of that exterior effort and other needed, but so far deferred and undisclosed, Tetragate costs?

Speaking of WAGs, the same detailed RA spreadsheet used to build the just-approved budget supplemental has an entry of $20,000 for “furniture” purchases this year.  What furniture? The building will need a large amount and diversity of furniture and equipment (electronic equipment is budgeted separately) to serve the multiplicity of uses envisioned for it from weddings to daycare.  $20,000 just won’t get you there.  RA could limit its expenditures on furniture to just $20,000 this year—to get the daycare off the ground with mini-chairs and tables for starters--and spend more, quite possibly doubling that sum, next year and beyond.

Another added cost for this year not disclosed in the Pro Forma Financial statement or the recent capital addition is the cost of utilities this year.  According to RA’s Pro Forma Financial statement, RA shouldn’t be paying anything this year for gas, electricity, and water because Tetra should be paying for these utilities under the lease terminated in December 2015.  Nope, now we are paying those costs which will be about $10,000 this year using RA’s estimating methodology.

With just these added, but as yet undisclosed Tetra costs, the $624,000 shortfall deficit we will find ourselves in by the end of the year, and RA’s forecast cumulative cash flow deficit of $250,000 in 2020, we are likely to find ourselves approaching a cumulative Tetragate hole of one-million dollars by the end of the decade—four times that projected in the RA Pro Forma Financials.  That will require an added $40-$50 in annual assessment fees for every RA member household in Reston over the next four years. 

And that brings us to the greatest unknown about the future:  How much net income will RA actually generate from programs and activities held at the Tetra facility and, in particular, how much of Tetra’s continuing costs will be covered by revenues generated by programs operating the Tetra facility?

RA’s Pro Forma Financial statement projects a rosy future with Tetra programs generating a net operating income of more than $82,000 in 2018 and growing steadily (at the assumed 3% inflation rate) thereafter.  Still, with mortgage payments, the property will operate at a more than $100,000 loss from 2018 through 2020—the far end of the Pro Forma Financial—with that loss shrinking slowly as forecast operating income grows. 

Even if income grows are RA projects, RA will continue to operate Tetra in the red well beyond the time it has to re-finance its mortgage in 2025 at who-knows-what interest rate, plus closing charges.  In a RestonNow op-ed on April 20, 2015, I provided a chart that showed RA would operate Tetra in the red until 2048—and that was extrapolating from everything RA said in its pro forma and using conservative cost forecasts to cover gaps in the Pro Forma beyond 2020!  Presumably, Restonians will make up for that continuing shortfall through additions to their annual assessment fees.   

What is worse is that RA has a horrendous record of cost recovery for all its facilities from swimming pools to the Nature House, much less making a profit.  There is little chance that Tetra will ever pay for itself, much less contribute to RA’s net income. 

In preparing for the most recent RA budget season, Larry Butler, Chief, RA/PRC, presented the Board with a briefing that spoke to cost recovery among RA’s various facilities at its July 30th meeting.  What an ugly picture he presented. 

The bottom line is that RA recovers only 26.9% of its costs for all its various facilities.  The other 73% of the costs are covered by our assessment fees.  In its benchmarking, RA ranked itself second to worst in cost recovery among Arlington County (the worst), Vienna, City of Fairfax, and the FCPA.  Based on this record, why should we believe Tetra will ever even break even, much less be an RA profit center easing our growing assessment fee burden?

How did this happen?  Why is the RA Board in the position now, less than a year after buying Tetra, of realizing suddenly—or at least begin to share with RA members—that virtually everything they and the RA staff told us about the cost and revenue prospects for Tetra is untrue or, at best, extremely unrealistic? 

A number of Restonians, including myself, pointed out the many faults in the pre-referendum financial work RA did, the horrible condition of the structure, the limits on alternative construction and uses, and the grotesque sales price prior to the signing of the Tetra agreement.  Yet the RA Board, staff, and outside legal counsel failed miserably to do their due diligence on assessing and reporting fairly the limited prospects of the Tetra property.   Instead, they turned themselves into a marketing machine of misleading and inaccurate information to sell Restonians on the referendum. 

Reston needs to re-examine every element of its anticipated Tetra facility program costs and revenues (as well as other operating and capital costs) in a realistic and systematic manner.  In so doing it must use explicit and publicly shared assumptions fitting the now limited allowable Tetra hours of use and the planned re-configuration of the Tetra facility.   RA needs to present the results to Restonians and before the next RA budget preparation cycle in a revised and more realistic pro forma financial statement running to at least 2025 when Tetra faces re-financing and including a full report on what has happened and recommendations for handling future such investments.

Such an examination must be thorough, realistic, and independent—which means it must be conducted by someone other than RA, possibly by a committee selected by, say, the Reston Citizens Association’s (RCA’s) Board of Directors.  If such a re-examination of the Tetra purchase and use is conducted, a highly unlikely event in my expectation, I wouldn’t be surprised if its conclusion is that the most cost-effective way to proceed with Tetragate is to tear down the building and turn the property into a natural area even as we continue to pay off the promissory note.  

In the meantime, until the RA staff, the RA Board, and the Reston public knows the true costs of moving forward on Tetra, work on its renovation and programming should stop.  We are just pouring money down a rat hole that we are unlikely to ever recover.  

That is the ugly financial truth of Tetragate.  

   Preliminary Tetra Budget Cash Flow Analysis:  Approved Budget vs. RA Pro Forma Financial Statement, 2015-20... by Terry Maynard

Op-Ed: RA’s Lake House Financial Fiasco, Terry Maynard, RestonNow, May 25, 2016

The following is a re-post of the Mr. Maynard's op-ed in yesterday's RestonNow.  

This is a commentary from Reston resident Terry Maynard. It does not represent the opinion of Reston Now.
 
As RestonNow readers know by now, RA has at least a $451,000 budget shortfall in its operating income and capital investment for renovations of the Tetra property to bring it up to County code and other standards that make it usable for its intended purposes.

If I am reading the Board of Directors and Fiscal Committee agenda packages for this week correctly, the so-called Lake House Working Group is asking for an additional $428,000 for renovation of the property in addition to the $259,000 —  increasing the projected renovation costs by 165 percent — apparently budgeted for Tetra property renovations this year although it is unclear that the previous sum was ever approved by the Board of Directors. (See the “Lake House” presentation to be given to the Board in the agenda packet, p. 11.)

That’s a total of $687,000 in renovations to be put into a building that, at a $2.65 million purchase price, was already a $1.5 million above fair market value. So if the supplementary capital budget is approved, through this year RA will have spent $3.35 million for a building worth about one-third of that. And that will probably not be the end of what of the investment needed to make the Tetra property usable.


At the risk of overusing a catchphrase, this is Tetragate with all that suffix implies. Everything about the Tetra purchase effort is wrong — and some of it possibly illegal — from the initial RA proposal to purchase the Tetra property through this week’s request for nearly another half-million dollars just to fix what’s wrong at Tetra.

The Tetra Referendum Information Guide (the voter’s guide) forecast that total “capital improvements” needed for the property would be the $259,000 to be spent this year. According to the guide, RA based that forecast cost figure simple-mindedly on an $80 per square foot cost (3,125 SF) plus $9,000 for work on the grounds. It is left unsaid why RA thought $80/SF would be enough to fix the Tetra fiasco.

No doubt one of the reasons RA thought the forecast that $80/SF would be sufficient is that RA implicitly assumed it would receive the building in good condition, yet in a RestonNow op-ed at the time of the referendum, I noted the poor condition of the building. In fact, RA told the appraisers to assume “deferred maintenance has been corrected.” By whom, the tooth fairy? This is the fantasy world RA and the Board of Directors was selling Restonians a year ago.

Instead, now the residents of Reston find themselves likely tagged with up to a $700,000 bill to bring the building up to standards and re-design its interior for RA needs. That’s a cost of more than $220 per square foot — a nearly three-fold increase in the now-estimated cost of renovating this growing money pit. It is also a cost of more than $30 per RA household this year.

How is RA going to hide that renovation cost and say the Tetra project did not affect RA assessment fees next year? What programs, staff, etc., will have to be cut to pay the Tetra bill? Already RestonNow reports early season swimming pool hours are being reduced. What’s next?

RA, specifically CEO Cate Fulkerson in her interview with RestonNow, attributed the huge capital renovation shortfall to unexpected operating revenue losses caused by the Tetra Group’s early departure.

Aside from the fact that the $428,000 request for added funds is for the capital fund for Tetra renovations, not the operating fund where Tetra’s revenues would have been recorded, RA’s mismanagement of the lease arrangement with Tetra was absolutely spectacular on so many levels.

Moreover, even if Tetra had remained another full year, the funding deficit now would still be some $300,000–more than double the total forecast (and possibly budgeted) costs of all required Tetra renovations.

Moreover, Fulkerson tries to save the Tetra effort and herself by saying “she scaled them (the renovation costs) down in an effort to save money,” according to the RestonNow article. Wow, she scaled them down from $1  million dollars to a mere $687,000 when RA and the Board told the community that the total cost would be $259,000.

Instead of a four-fold budget overrun, we are now looking at less than a three-fold overrun. That’s chutzpah; it is not responsible budget management. I doubt her household runs the same way, but now she, RA, and the Board are spending other people’s money — so who cares?

And the Tetra operating budget/outlook for 2016 is all over the place. Here is what I can find on operating revenues and expenses leading to net operating income/loss for the Tetra property in 2016:

• The voter’s guide above anticipated $100,096 in facility revenues (net of program costs and including the rent back fiasco with Tetra) and expenses of $45,011 for a net operating income of $55,085 in 2016.
• The so-called “Board Approved” budget for 2016 created on November 20, 2015, shows operating revenues of $105,110 and operating expenses ballooning to, get this, $203,364 for 2016. That’s a reported net operating loss of $98,254 in 2016 to be offset by a drawdown of Comstock’s $650,000 donation. What this document is saying is that (a) RA and the Board did not know of Tetra’s planned departure six weeks later or hid that fact in its budget approval process and (b) somehow found an additional $158,353 in operating expenses for 2016 which, because they are operating expenses, one would presume would carry on through 2017 and beyond. The only potentially legitimate explanation for the huge expense increase is including mortgage payments ($183,000 per year) as an operating expense, but neither the principal nor interest portion of the mortgage payment should be part of operating income. The alternative is that RA and the Board are really trying to hide one-time capital costs of Tetra’s renovation as operational expenses.
• Then, in February 2016 (and other early 2016 meetings), the Lake House Working group reviewed a “DRAFT 2016 Lake House Budget.” (Wait, I thought the budget was “Board Approved” in November per above. Oh, never mind.) Anyway, that “DRAFT” budget anticipates $174,262 in operating revenues (and that is without Tetra lease income!) less a little over $7,139 in programming expenses for net facility revenues of $167,123. Other operating expenses total $71,465 leading to a “planned” net operating income of $95,658.
• The latest incarnation of the operating budget in this week’s Board agenda package (p. 7) shows the “2016 Plan” (not the budget? a plan we’ve never seen?) calls for operating revenues of $58,000 and expenses of $62,000 for a net operating loss of $4,000. It also refers to a “Referendum” operating budget that foresaw a $20,000 net operating profit this year.   As detailed above, the only “referendum” pro forma we saw called for a $55,085 operating profit this year.

So how much does RA really expect the Tetra property to generate in operating income in 2016 now that we are more than one-third of the way through the year–+$55,000, -$98,000, +$95,000, -$4,000, or +$20,000???

From all indications, RA and the Board of Directors are playing a three-card monte con game with Restonians assessment fees, shifting revenues and costs to whatever category best fits their argument at the moment. In fact, I challenge RA to explain fully all the above budget/plan operating income inconsistencies in a manner reasonably consistent with generally accepted accounting practices (and there are others but this op-ed is already too long).

The entire Tetra project smacks of misfeasance if not malfeasance and, in my opinion, those responsible should be held accountable and measures taken to prevent further financial abuses. But none of that can occur unless and until the RA Board of Directors takes the time to examine thoroughly what has happened and, in particular, does not sweep the matter under the rug again by rushing immediately to approve the $428,000 budget supplemental that is being put before it for the first time this Thursday.

In this regard, I strongly support the recommendations laid out in a Reston 20/20 blog post published on Monday. To summarize, it states:

• 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 by a panel of Restonians. 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. It should have full access to RA financial records and communications about them.
• Those senior RA staff members who played a significant role in the development of the referendum pro forma statements should not receive a performance award for 2016–nor should they have for 2015. At the minimum, this includes the CEO, CFO, and C/PRC plus other senior RA staff at the Board of Directors discretion.
• Going beyond Tetragate to the broader picture, the RA Board of Directors must make public immediately the RA Annual Financial Report for 2015 and the auditor’s statement on that report. If they can not be produced immediately, RA needs to issue a full public statement on the causes of the delay and the adjustments that are required. These reports are now two months overdue and, according to recent information, may not be available to the Board (much less Restonians) before the June Board meeting.

Corporations worth hundreds of billions of dollars with billions in assets all over the world and hundreds of thousands of employees can produce an annual financial report in less than three months, not the six months RA is taking for what should be a routine annual task. The greater the delay, the greater the belief that something is seriously wrong with RA’s financial policies and practices.

As this op-ed highlights, nothing happening now in Tetragate ameliorates those concerns about the way RA and the Board are handling our money.

Tetra renovation nearly half a million dollars over budget this year alone.

UPDATE, Noon, May 23:  RA financial data through April 2016 just now available to us from RA's Fiscal Committee showindicates s that NO capital budget has been approved by the Board for the Tetra fiasco this year.  We are concerned that the Tetra expenditures so far have not been authorized by the Board of Directors.

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.

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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. 

Not until the RA Board of Directors clarifies to the community the state of RA’s finances, especially the funding and costs of the Tetra project, does the Reston community have any reason to believe that RA’s financial reporting is accurate.  More seriously, the longer the delay in understanding these multiple unanswered questions, the greater the suspicion will be that RA records are being manipulated in an unprofessional manner.