The USA’s oldest senior housing cooperative, Berkeley Town House, got a fiscal shock yesterday as its manager told the board of directors that their corporation’s operating account had a negative balance. This, he said, was the result of the co-op’s expenses for the last 10 months being $29,000 over budget.
Manager Christopher Stanley told the board that he was now paying bills only to the vendors who “scream the loudest”, and even then the co-op’s bank was advancing the funds to pay checks, since the co-op had no money left in the bank. He warned that the bank’s patience would wear out before long.
One resident attending the meeting also claimed that $20,000 had already been lent by the co-op’s reserve account to the operating account and would need to be repaid. The officials at the meeting neither confirmed nor denied that claim. But Stanley stated that he had suspended the mandatory monthly payments into the reserve fund, a move that one shareholder described as the equivalent of yet another loan from the reserve fund.
According to Stanley, the board faced a choice between two unpalatable alternatives. It must, he said, either increase the monthly assessments paid by the co-op’s resident shareholders in order to cover the deficit and future expense increases, such as rising utility costs, or slash expenses. And, he said, the board must make this choice immediately by adopting a budget for the next fiscal year, starting in April.
Stanley stated that he had given the board a proposed budget leaving assessments unchanged but eliminating the position of the co-op’s half-time facility manager. Maintenance and repairs would henceforth be handled by a weekly contractor visit, resulting in longer waits for repairs and less personal service.
In explaining his proposal, Stanley said he was convinced that, on the whole, the co-op’s senior shareholders would prefer fiscal austerity to an increase in their assessments and that some of them simply couldn’t afford to pay more. He acknowledged, however, that the board had the power to reject his proposal and adopt a different budget.
After brief discussion, the board unanimously adopted Stanley’s budget proposal without change.
Comments from officials and from the floor revealed major disagreements about how the cooperative had fallen into its fiscal distress. Stanley described the problem as one of uncontrolled costs. Among these, he said, the lion’s share was legal costs far exceeding what had been budgeted because of the co-op’s involvement in an ongoing lawsuit. “Your legal costs are out of control”, Stanley said. Asked for a further explanation, Stanley said that the co-op’s insurer, Travelers, had appointed and was paying for an attorney to defend the officials being sued, but that the corporation had hired its own attorney, Stephanie J. Hayes, to “supervise” the other attorney’s work. Stanley didn’t explain who in the corporation had made that decision or why a supervising attorney had been judged necessary. Stanley said that Travelers was not willing to pay the fees charged by Hayes, but that after the conclusion of the lawsuit he would fight to force Travelers to compensate the co-op for those fees. Several attendees decried the lawsuit as an unnecessary and destructive act against the will of the majority and the spirit of cooperation. One of the defendants, former co-op president Charles Tuggle, described the suit as a “soap opera”. Other attendees countered that (1) the board had recklessly exposed the corporation to high legal costs by spurning offers to settle the issues out of court before a suit was filed, (2) the corporation’s officials had begun to imperil the corporation’s finances well before any litigation by making major imprudent spending decisions, and (3) they were continuing to waste funds by incurring expenses for the corporation without the approval of the board and neglecting resource conservation. Stanley said his budget proposal did not anticipate a continuation of extraordinary legal expenses in the coming fiscal year, because he believed it was likely that the lawsuit would be settled.
Angry denunciations from the floor also revealed a sharp split in opinion about the wisdom of the budget decision that the board had just made. Two attendees warned that the refusal to raise assessments to keep the facility manager on board was short-sighted and would demoralize volunteers and cause the facility long-term harm. One shareholder cited incredible numbers from the latest monthly financial statement and said the management company (Bay Area Property Services) was clearly not providing usable information for financial decisionmaking. One shareholder told Stanley, “If you were working for me, you’d have been fired by now.”
Stanley indicated that the budgetary pressure may not be relieved for long, because of a possible escalation in insurance costs. Travelers, he said, had announced it would not renew the co-op’s insurance policy because of the disastrous losses it was experiencing with the co-op, and he was at work trying to find another insurer. This, he said, would be difficult, because old buildings like the co-op’s (started in 1960) are not an attractive risk to insurers and this co-op’s recent loss history would be a red flag. Insurance, he said, would be hard to get and likely expensive. Stanley didn’t disclose how large an insurance premium increase he had included in his draft budget.
The other side of co-op budgeting, the reserve account, played a bit part at the meeting. Attendees were invited to a meeting on Monday to discuss an annual revision to the study that forecasts major expenditures from the account for repairs and replacements.
In other business, the board appointed Rita Zwerdling (a lawsuit defendant) to fill the directorship recently vacated by Raymond Dirodis and transfered the office of treasurer from Dirodis to Lydia Gans.
The board also acted on a proposal to adopt a schedule of fines to be imposed on shareholders for violations of rules. This proposal had been drafted by the corporation’s attorney, Stephanie J. Hayes, without, as one attendee pointed out, the required pre-authorization of the board of directors. In other words, the officer who had Hayes do the work on rule violations was committing a rule violation. The board voted unanimously to propose the rules and distribute them to the shareholders for comments. Manager Stanley claimed that the directors were free to not even “listen to” any comments they might receive and said that the rules would automatically go into effect 30 days after distribution without any further action by the board. In both of these statements, Stanley flatly contradicted the plain language of the California Civil Code, which requires the board to give “consideration” to any comments received and to wait until the comment period ends before it votes to adopt rules. Stanley also said that he couldn’t “imagine” why anybody would object to anything in the proposal, since it was a standard fine policy. Stanley suffers from imagination malfunction. Anybody with his experience should know that in a senior housing co-op nothing is immune from controversy.
Much of the period reserved for comments from the floor was occupied by discussion of a proposed replacement for the co-op’s antique (1990s) large-screen television and video monitor system. One shareholder proposed that the corporation buy a new system for about $1500. Others supported this as a wise investment and a creative way not only to show movies but to project presentation slides and conduct physical-fitness exercises. Others argued against spending the co-op’s funds on such optional equipment and urged those who wanted it to collect donations among themselves or to buy it and charge admission fees to movies until they are repaid.
Other comments from the floor dealt with claimed misuse of the common areas, including leaving furniture in disarray, staining the carpet, leaving lights on, and leaving exterior doors unlocked. One attendee advocated a regime under which food could be consumed only in one of the common-area rooms, all groups using the common areas would be required to pay a deposit, and all groups consuming food in common areas would be required to pay two deposits.
A refrain at this meeting was that there was once a golden age at Berkeley Town House, when resources were ample, the rules were obeyed, and everybody behaved cooperatively, but now the anti-social behavior of a few has plunged the community into poverty and chaos. Perusal of the last 53 years of records of this co-op casts doubt on the accuracy of this description. In fact, the co-op has passed through several periods of harmony and strife, competent governance and misrule. There have been, at various times in the co-op’s history, racial discrimination, physical violence, denunciations, sit-ins at board meetings, lawsuits against the corporation, and severe conflict among residents. As people come and go, so do phases in the co-op’s social, political, and economic life. The current anguish will pass. Whether it passes quickly or with agonizing delays will depend on the members of the community as they practice the art of self-government.