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New Board Member Training
Alicia Osborne & Mary Thomas
I. 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 only 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
II. Cooperative Documents
a. 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 nonprofit basis.
b. 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.
c. 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.
d. 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
e. 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…
f. 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.
g. 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
h. Management Agreement
Agreement between the Cooperative and the Management Agent
Outlines the guidelines of management, term, pay, spending authority, employees, etc..
III. Financial Responsibilities
a. 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
a. 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
a. 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
b. Operating Budget
The annual budget is the financial roadmap the cooperative needs to follow during its fiscal year.
b. 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
b. Operating Budget - Preparation
Budget is prepared by the management agent
Reviewed by the Budget Committee & Board of Directors
Approved by the Board of Directors
b. 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
c. 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
c. 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%.
c. 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.
c. 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……
c. 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
c. 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
d. 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
d. 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
d. Fiscal Year Audit – Bidding
Auditors are chose by a competitive bid process each year
Usually good to have the same auditor for multiple years
e. 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
e. 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
e. 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 annual to adjust for any changes and unexpected expenses
IV. 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
V. Cooperative Operations
a. Eligibility
Membership Selection Plan – Each cooperative should have a written membership selection plan.
Membership Committee
Membership Orientation
b. 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
c. 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
d. 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.