Expiry of Operating Agreements Planning
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This document discusses the expiry of operating agreements for non-profit housing projects. Key points include: - Many operating agreements will expire between 2013-2030, meaning projects will lose federal/provincial subsidies and mortgage payments. - Projects must prepare financially and operationally to remain viable after expiry by ensuring sufficient replacement reserves, affordable rents, and accountability. - A new tool is introduced to help projects assess their financial viability after expiry and plan replacement reserve funds for capital expenditures. - The importance of maintaining replacement reserves for repairs is emphasized, and guidelines are provided on eligible items and processes before and after expiry.
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Expiry of Operating Agreements Planning
- 1. Expiry of Operating Agreements May 2013
- 2. Outline for the day Expiry of Operating Agreement - Overview of Federal and Provincial Statistics - Operating differences before and after Expiry - Discuss & determine steps to be taken - Quick Reminder of the EOA Tool - Importance of the Replacement Reserve - Demonstration of the Replacement Reserve Planning Tool
- 3. As cited by Steve Pomeroy, Is Emperor Nero Fiddling as Rome Burns? Assessing Risk when Federal Subsidies End (2011) On the National Level
- 4. On the Provincial Level 19 11 31 23 60 36 63 74 57 21 2000-2012 2013-2014 2015-2016 2017-2018 2019-2020 2021-2022 2023-2024 2025-2026 2027-2028 2029-2030 Number of Expired Agreements 130 125 451 547 971 726 663 1140 461 158 2000-2012 2013-2014 2015-2016 2017-2018 2019-2020 2021-2022 2023-2024 2025-2026 2027-2028 2029-2030 Number of units involved * Includes Non-profits, Co-ops and Skigin-Elnoog Projects only
- 5. What Does EXPIRY Mean? – After Expiry, Projects no longer have: - Federal & Provincial Agreements (Sections 26, 27, 95) - Subsidies - Mortgage Payments – After Expiry, Projects continue to be governed by: - Rules of Operations - Letter Patents - By Laws, Policies - Other Agreements, Obligations
- 6. Provincial Property Tax Exemption Our proposal.. The exemption will remain available after Expiry conditional upon projects providing the following… - Confirmation of non-profit status - Annual Financial information - Attestation of rents being charged - SD will advise at Expiry (particulars / deadlines)
- 7. Things to Consider Continue to: - Operate as a Non Profit – Provincial Property Tax Exemption - Be Affordable - targeting low to moderate income clients - Be Viable - ensuring sufficient revenues for maintenance & repairs (Replacement Reserve) - Be Accountable – tenants, communities, lenders
- 8. Challenges after Expiry - Limited ability to house Low Income Seniors / Families - Financial Expertise - Technical Support - Access to programs such as Projects in Difficulty (forgivable loans,..)
- 9. Financial & Technical Preparation Checklist: - Physical condition of the building - Financial capacities - Viability - Management capabilities - Review the needs of the project on a regular basis
- 10. Suggestions to Remain Viable • Increase rent • Less Income testing • Rent spaces – Commercial • Rethink Clients’ needs (looking at aging in place) • Amalgamate several small projects (cut operating costs) • Engage municipalities – possibility of lowering taxes or service costs • Engage Local MPs and MLAs • Evaluate the Replacement Reserve • Engage Staff and Tenants
- 11. Quick reminder about the importance of using the Expiry of Operating Agreement (EOA) Tool - Provides a quick and simple picture of where your project would be after Expiry - Indicates… • if your project remains viable after Expiry and • if your project has a sufficient amount in the Replacement Reserve
- 14. Replacement Reserve Fund – Kept in a separate interest bearing bank account – Used for replacement of Capital Items when needed – Pre-determined annual allocation – Requires Departmental pre-approval
- 15. Replacement Reserve Fund Eligible Capital Items (approved at commitment) include .. – Fridge / Stoves – Roof – Windows / Doors – Flooring – Counters – Siding – ….
- 16. Replacement Reserve Before Expiry After Expiry Current Process Capital Item Fails: Determine Need for Replacement (Inspection) Obtain 3 Quotes Submit Request to PM Officer Receive Written Approval Purchase Item Recommended Practice Adopt Policy to maintain RR that includes: • List of items • # of quotes to obtain • Board approval / discussion Develop Replacement Reserve Plan
- 17. Introduction of the Replacement Reserve Tool You will need … Life Expectancy of Capital Items Remaining Life Expectancy of Capital Items in your Project
- 18. Where to find the Tools… Replacement Reserve Planning Tool.. http://www.nbnpha-alsblnb.ca/en/index.php/member- resources/replacement-reserve Expiry of Operating Agreements Assessment Tool… http://www.nbnpha-alsblnb.ca/en/index.php/news
Notes de l'éditeur
- Introductory remarksIntroduce .. Regional Staff Karla Skoutajan with the Cooperative Housing Federation of Canada (CHF).
- Impact of expiry at the federal and provincial levels. Promote awareness of issues surrounding expiry.Generate discussionLast fall’s workshopsEOA Tool and importance of RR FundRR Planning Tool
- Canadian Housing and Renewal Association (CHRA) – - national organization - 250 members - supporting sustainable housing - undertake research related to expiry - 2 assessment tools (early version and latest simplified tool600,000 units drop to 397,887 by 2020..Steeper decline from 2015 on..post’85
- In NB, we have the NBNPHA ..- 200 members - 20 13 is 20 year anniversary - N.B. 405 agreements, 5,384 units (non-profit, co- op and Skigin) - not including 5,000 public housing and RNH units - to April 2013 – 22 agreements affecting 154 units, mostly multiple agreements managed by 1 sponsor - big jump – 2019 – 2020 (pre’86) and then 2023- 2027 (post’85)
- Before expiry .. Agreements dictate rules of operation S. 26, 27, 95 of National Housing ActAfter expiry.. no subsidy, no mortgage payments Letters patent – non-profitBy-laws – guiding principles other obligations (rent supp, 2nd mortgages)
- Our goal is to continue to deliver the program after expiryThis is what we are proposing..Confirmation of NP status – annual return?Annual reporting – audit or review by independent auditing firmConfirmation of rents - provided annuallySent to PNB via SDSD will advise of particulars / deadlines at expiry
- Management needs to ensure.. - Remain as Non-profit entity- Affordable rents- Viable – sufficient reserves - Accountable – tenants, communities and lenders
- Pre-86 doing income-testing – need to examinePost-85 – all RGI, more significant changeNo F/S & budget review as we have nowNo cyclical inspections No Project in Difficulty funding – since 2000, projects benefited from over $38 million mostly as forgivable loans
- Full physical inspection before expiryEOA Tool can help with understanding financial capacities – knowing what no subsidy or mortgage payment means Viability – state of RR fund, need a planMgmt. capabilities – have Board in good shapePlan to review
- All suggestions brought forward at sessions last fall..-Can’t loose sight of mandate to provide housing to low-to-moderate income New BrunswickersAlso British Colombia Non-profit Housing Association (BCNPHA) conducted case studies and bullets shown here were part of their solutions as well.
- Assessment tool developed by Canadian Housing and Renewal Association (CHRA) in partnership with 6 non-profit housing associations across the country, including NBNPHA. Indicates ..if enough funds to meet expensesIf Replacement Reserve has enough monies to undertake replacements in the future.
- Enter data in middle column from last year’s F/SYear of statements # of unitsTotal revenues (without subsidyTotal expenses (without mortgage payment)Balance in RRAnnual Allocation to RR Already provided : inflation rate rent revenue growthrate of refinancing
- Test #1 Operating viability (assumes expiry this year..) – gives a NOI today and then NOI per unit per year (net operating income) – negative amount suggests unviable – if unviable today, likely unviable at expiry. Test #2 Projecting NOI to actual expiry year and then NOI per unit at expiryTest #3 Adequacy of RR – tells you how much is available to spend on capital items each year and how much per unit per year.$750 inadequate? Summary assessment: viable or not?Overall assessment matrix: which quadrant your project falls in..