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Reston Association Will Move $430K to Cover Lake House Deficit

by Karen Goff — May 27, 2016 at 9:15 am 51 Comments

 Lake House May 2016

The Reston Association Board of Directors voted on Thursday to move $430,000 from RA’s 2016 Operating Fund to cover the cost overrun from the Lake House project.

But before the vote, there were hours of discussion about how a nearly half-million dollar error occurred and what the organization can do to ensure such a mistake does not happen again.

RA purchased the building, formerly Reston’s Visitor Center, on the shores of Lake Newport for $2.6 million last summer. Acquiring the property would fend off commercial development and add to RA’s open and community space, RA said.

The purchase was narrowly approved by a member referendum, but there was lots of concern among community members that RA was overpaying for the building and its three acres of land, and that members would ultimately bear the burden — with higher annual assessments — of paying for the acquisition.

RA staff estimated that renovating the then 32-year-old building would cost $259,000. That number quickly jumped to $655,000.

“It was incredibly unfortunate the mistake that was made in the pro forma,” RA CEO Cate Fulkerson said at Thursday’s meeting. “I own that mistake, along with my staff. It was an error that should not have been made.”

Fulkerson outlined to the board some of the things that went wrong:

RA was counting on two six-month rentback periods from former owner Tetra Partners. That would have given RA more than $100,000 through 2016. But Tetra President Bill Lauer died in spring of 2015, and his widow chose not to continue at the space. Tetra, which had its offices at the building for more than 10 years, departed at the end of 2015.

That departure accelerated renovation plans by more than a year in order for RA to begin making money at the space.

Renovation costs that ended up being more expensive than estimated. Adding to expenses were LEED certification modifications ($60,000), preferences of the Lake House Working Group ($217,000), and Fairfax County requirements ($26,000), as well as construction inflation costs.

Fulkerson said value engineering — reusing some materials and redlining some planned changes — saved the association more than $200,000 as the Lake House budget was climbing towards $1 million earlier this year.

Fulkerson said she is trying to get RA to change habits — and that the Lake House situation shows the urgency for that.

“We have been licking a finger and sticking it in the air and taking a guess as to what something costs,” she said. “I recognized this last year. We are going to change the way we do business, but this is not an overnight process.”

Fulkerson also said she is going to work on identifying “permanent operating variances” that will save the association money and make up for the mistake. For instance, RA will put off plans to hire a land use assistant until 2017, she said.

She also said she will have a full list of money-saving ideas in June. She will also deliver the association’s 2015 audit next month. She continues to say that RA members will not see a rise in assessments (related to the Lake House) until 2018. However, assessments may rise routinely and markedly anyway, according to RA budget forecasts.

RA Board members said they had mixed feelings about the situation, which they called an error with no ill intent. Some said they may not have voted for the purchase if they knew how much the costs would climb.

They also said it was too late to turn back — RA has to find the money to do the renovations, followed by new systems to ensure it would not happen again.

“I feel extremely hoodwinked that I supported this,” said At-Large Director Ray Wedell, who was an enthusiastic advocate for the purchase a year ago. “We need to have a thorough look by accountants — separate people who have not been involved — to evaluate where we are and give us a recommendation.”

Said South Lakes Director Julie Bitzer: “I wish we all had a crystal ball and we all know more than we know. But I believe in the honesty and integrity and intent of folks. Now we must put in place new processes and procedures.”

Hunters Woods/Dogwood Director Lucinda Shannon said she feels the board and the community were misled.

“That’s a huge concern for me,” she said. “I am also concerned we can find an extra half-million in the operating budget. Assessments are $650. That is a lot of money for some people. For us to think we can go around buying lake houses is very concerning. … If we have made these mistakes, what other mistakes have we made? We need to accept the consequences, accept responsibility and look into what is really happening in our books.”

To that end, the board passed a motion to have the governance committee start the process to review the 2016 budgeting for the Lake House.

The board also approved a revised 2016 budget for the Lake House. When promoting the purchase in 2015, RA said it expected $55,000 net income in the first year. However, the latest budget proposal projects a $4,000 operating loss due to the unexpected expenses.

RA has projected income from the Lake House of more than $100,000 annually from after-school care and event rentals, which will begin in the next several months. Fulkerson said RA has already received 10 rental applications, though renovations on the building are not yet complete. At-Large Director Michael Sanio said he would also like to see a complete review of revenue projections.

The board turned down a request by members to speak after the long Lake House discussion. However, earlier in the meeting, several weighed in during the general member comment period.

“It saddens and angers me where we are,” said resident James Dean. “We are already at a place where we are $430,000 over budget. Many of us told the board not to rush into the referendum. This bears that out.”

He added that if the board has $430,000 available to move over “then the assessments the board voted for are too high.”

Resident Laura Calacci said the overrun is “gross malfeasance; it is sinful and shameful.”

“It blows my mind,” she said. “How does a project go from $260,000 to almost $700,000? RA has legal [staff and consultants], accounting, and countless studies, like we are running a big, rich business. We are not a business.”

“You talk about sustainable? This is the opposite. It is like a runaway freight train.”

  • Ming the Merciless

    “I own that mistake, along with my staff. It was an error that should not have been made.”

    So you all RESIGN, right? If not, how are you “owning” your mistake?

    Fulkerson also said she is going to work on identifying “permanent operating variances” that will save the association money and make up for the mistake.

    That will NOT make up for the mistake. Identifying ways to save money is something you should already have been doing anyway.

    At-Large Director Ray Wedell, who was an enthusiastic advocate for the purchase a year ago. “We need to have a thorough look by accountants — separate people who have not been involved — to evaluate where we are and give us a recommendation.”

    Gee, maybe we should have done that independent accounting review BEFORE we bought the place, eh? You should RESIGN too, Wedell.

    • LaureenMT

      Did any RA board members oppose Tetra? I need a reminder. Or are they all equally accountable for this Boondoggle?

    • Jamie MacDonald

      Thanks for saying everything I wanted to, Ming!

    • GStuart

      The vote to approve the purchase was unanimous. I agree with everything Ming said, time for a general house cleaning of Board and senior staff so that we, the members of the Reston Association, can have accountability for this fiasco.

  • james dean

    its going to get worse…CEO Fulkerson warned that they also want/need to do work to exterior & grounds…that work has not been priced out yet…so $430K and counting…CEO Fulkerson also blamed part of cost overruns on construction & related costs inflation that she said was running 20-30 %….but facts/truth are stubborn things…journal of american institutes of architects in Apr 2016 edition listed Wash DC region construction & related expenses to have only mildly increased by approx 4-6%

    • LakeNewportLady

      Well to be fair the construction company is the one telling her this. No different when a worker shows up at my house, looks at it and assumes I must have bottomless pockets and their rates suddenly become outrageous. I have no doubt these construction companies are taking advantage of folks who have never done anything like this before and the area the building is in and making assumptions on what can be afforded for their estimates. I don’t know the process for quotes but construction companies are pretty notorious for jacking rates however they see fit.

      • james dean

        Thanks… Understand what u r saying… But the info I quoted is readily avail… If our ceo doesn’t know then the ceo should do research & get expert assistance so that reston Assoc has correct & best info & best & lowest pricing

        • LakeNewportLady

          Agreed. I voted against the purchase because I thought the price was outrageous. I’m not aware of RA ever undertaking such a project as purchasing a piece of real estate and remodeling it. I truly don’t believe anyone thought they were doing things with negative intentions. I do feel they are now the victims of their own ignorance on such topics and learning the very hard way what can happen without due diligence prior to such an endeavor. I wonder if a purchase like this would ever occur again (even if everything went as predicted in the referendum) or if this was a once in a Reston lifetime opportunity that was entered into completely blindly.

          • Jamie MacDonald

            Easy to learn the hard way when spending other’s money to do it.

      • JoeInReston

        I expect for the head of the Reston Association to be knowledgeable on such topics or consult with somebody who is. I would expect her to be knowledgeable on any topic where the association is spending five figures or more.

        I couldn’t tell you the first thing about how to manufacture a car, but when I need a new car, I search the car journals meticulously.

      • Greg

        Wrong. It’s her job to question and push back the construction company. What the heck do we need LEED certification for? Is is required by law, rule, regulation or otherwise? What’s the benefit of spending (at least) $60,000 to obtain it? How much does it save to have it? What about the nearly quarter-million-dollar cost of whatever the working group wanted? Surely that should have been cut substantially.

        The RA is a homeowners’ association and has nothing but assets to manage. Cate, more than all, should know exactly how much it costs to own and manage properties — that’s her job, and she apparently does it very very poorly. At best.

        Moreover, there should be multiple bidders on every RA project, and every project should be carefully and thoroughly scoped and vetted by the RA board, (after being reviewed by competent RA staff) BEFORE any bids are solicited or any work commences or both.

    • Greg

      How could the costs have escalated at all if the renovations were accelerated and done sooner? The costs should have been less to do the work now rather than in the future, no?

      • LakeNewportLady

        I think they were saying the costs have gone up from referendum time to now…but not sure.

  • MJay

    As many of us have discussed, the Tetra debacle justifies a shakeup within RA. Based on last night’s comments from the board, the current group lacks vision and common sense when it comes to being responsible stewards of our money. RA as a whole needs to be reigned in.

    To this end, I volunteer to draft petitions to remove the current board members–for cause–pursuant to RA’s governing documents. Because I will be out of town for reserve military duty for much of June, if somebody can provide contact info I will connect with them and send the petition draft to them with proposed language. Once the language is finalized, we can seek volunteers and ultimately initiate a petition drive where we need 10 percent of members from each district, or 10 percent of all members for the at-large seats. Once I return from military duty, I will certainly assist in the petition drive. Obviously, if we move forward I will operate under my true name.

    If we can drum up a group to perform this task, I also want to look at the feasibility per the documents in conducting a simultaneous petition drive for the proposed replacement directors. If I recall, only Ms. Thompson’s at large seat was contested during the last election, so we will need to find good candidates for the other positions, and perhaps see if any of the previous candidates wants to seek the position again. I am happy to throw my hat in the ring for South Lakes or at large.

    Here’s a repost from an earlier comment:

    Once the board is replaced, among my initial goals before really getting
    down to business of reigning in the RA’s current scope are 1) remove
    the CEO if she doesn’t resign; 2) begin a search for an RA in-house
    attorney and staff as I believe this can cut the legal bill in half from
    600k to 300k while still being effective; and 3) go line by line,
    employee by employee and start cutting and prioritizing.

  • TheRealODB

    “You will not see a rise in assessments in regards to the Tetra property…. they will go up for operating expenses, however, and then we will just transfer those funds from the operating budget to the Tetra debacle…” but they didn’t TECHNICALLY go up due to Tetra… Fiscal management shell game. Vote them all out.

  • LaureenMT

    RA has no idea how angry their members are about this. The purchase of the lakehouse was never a good idea, as it benefited only a few RA members. The possibility of cost overruns was raised from the start, but our board members didn’t care. We see cuts to pool hours (prior to this debacle) that directly affect RA members, justified by the prospect of saving $10,000, while the board plunges ahead into a risky venture with little benefit. Now, they seem surprised that it blew up in their face. Mistakes happen, but this one was too costly to overlook.

    • I voted no

      If the members are angry, then why the heck didn’t they do their homework and vote no? Democracy doesn’t work unless people pay attention, do their research, and participate in decisions.

      • Paul

        Many people voted against the purchase after looking at the information provided by The association. More people voted yes based on the information provided by The Association….the information they provided was incorrect and poorly researched on their part. They are paid to do their job and they did not do it well. If they “own” the mistake and we want democracy why not have another vote about whether to cut our losses and sell it or spend our money to fix the issue? The reason The Board will not do that is because the vote may not be what they want. There is a very good chance that if the real costs were presented to all the people paying for it they would have voted against it.

        • Greg

          You are right, and the RA has a long history of either doing as you stated or asking the assessment-payers what they want and doing something else. For example, pool and tennis access fees were rolled into the general assessment despite the members saying no. For another, the RA bylaws were restated a few years ago, and the cost was much higher than we were told for benefits that were of very little value.

          Also, when it was time to leave the old RA HQ at Isaac Newton Square (most of which has yet to be redeveloped and sits fallow), the community authorized the RA to build its own HQ, but the RA rented (for a long time) a very expensive, out-of-the way, hard-to-find oversized space in an otherwise boring office park. A huge missed opportunity to own our own HQ in a showplace location.

          The RA also spends hundreds of thousands of dollars a year on legal fees for items that it will not fully disclose. RA could hire a few (or more) in-house attorneys for that money and get a lot more value for the assessment payers. The nature of an HOA is not so unique that we have to pay a boutique law firm hundreds of thousands of dollars a year to do whatever it is it does (collect debts, place liens write a few contracts?).

      • GStuart

        Very true. Many of us voted against this debacle, but the majority supported it. Now we have to live with the majority’s error in judgment and the consequences that flow from it.

  • james dean
  • Reston.All.Grown.Up

    Maybe, I don’t give RA enough credit? RA, again, is teaching us a lesson. They are showing us that we should have been happy with just complaining about rising assessments. So what they did they do? Bought the lakehouse! So now, we can all lament about the good ol’ days when all we had to worry about were just rising assessments and maintaining infrastructure. Kudos RA!! Lesson well taught!!

  • james dean

    since Reston Assoc may not be in the Tetra/Lake House mess if it was more open & transparent…Reston Assoc is finally developing a code of conduct…but meetings are being held on work wk days at approx 12 n & soon to be fri afternoons at 6 pm…next mtgs thur june 2 12n & fri june 3 6 pm….plus Reston Assoc is refusing to provide any materials stating….” the ‘RA Code of Conduct’ Task Force unanimously determined that the full Summary Report should be held in confidence and not publicly published until presented to the Board of Directors.”…so here goes Reston Assoc’s version of being open & transparent again

  • HoodWinked

    The whole idea that “we didn’t know” is complete BS. Many members complained during the referendum process that the numbers were too conservative. The RA board may have had good intentions, but completely blinded by OBVIOUS facts. They turned a deaf ear to member complaints during the referendum process. We were misled plain and simple.
    Getting rid of the current board is not sufficient to re-pay the damage done. The board members need to be held accountable and repay the members for the current and future cost overruns.

    Maybe we should vote to cut our losses now and re-sell the property.

  • Chuck Morningwood

    RA CEO Cate Fulkerson said at Thursday’s meeting. “I own that
    mistake, along with my staff. ”
    =-=-=-=-=-=-=-=-=-=-=
    No, it seems that RA owns this mistake. That is, unless you and your staff are willing to cough up millions of dollars to purchase (or reimburse RA) this mistake.

    • Guest

      Didn’t hear her offer to resign for her mistakes either.

    • Jamie MacDonald

      Yeah, right, she “owns that mistake”. I am sure she is loosing a lot of sleep over this. Sickening. Just as bad as elected officials on the national level.

    • Why do you bother?

      Whenever someone says “I take full responsibility for this debacle” I ask myself what that actually means…and it means nothing.

  • Alison Kamat

    How about a permanent operating variance on Cate’s salary?

    • Greg

      How about permanently firing Cate Fulkerson? She’s worked at RA for a long, long time –and this is not her first million-dollar boondoggle. The RA website cost nearly a million dollars and had to be redone (and it’s still awful). She hoarded outdated IT equipment (a roomful of CRT monitors she exclaimed at one meeting) and rather than discarding it, insisted that she needed space in the new RA HQ to store it.

      Fulkerson is incompetent and has a track record of these wasteful “mistakes.”

  • Disgusted With R.A.

    Julie Bitzer–shame on you–when you asked for my vote last year you were an enthusiastic supporter of the Tetra purchase. Only now do you say that you are disappointed , and that you didn’t see the whole picture. I did not vote for you then and will vote against you next time., You want it all ways, and want to duck yoiur responsibility for not doing the real due diligemce that was required. Resign.

    • Jamie MacDonald

      They had to buy it to see what was in it……..

  • Reston Resident

    Can someone fill me in on what the “Preferences of the Lake House Working Group” comprised of? Who gave them the authority to request over $200k of improvements?

    Seriously….at what point can people simply get out of this damn association? If I had know what a detriment it is to live within RA, I would never have bought a house here.

    • LakeNewportLady

      If you watch the meeting you will learn that the working group was just a group of citizens who were asked for their ideas for use of the space. That’s it. All budget decisions were left to RA & it seems the majority of budget is on bathrooms to meet county requirements for # of occupants, knocking down some interior walls, doing some plumbing for the kitchen. Also, I believe the HVAC had to be replaced to get it up to LEED certification. There are no gold chandeliers or anything extravagant.

  • Sue E

    Fulkerson should resign or be fired. I’m not saying this to be snarky or mean. I’ve worked for very large non-profit membership organizations, and this whole project has been mismanaged from the start. RA needs more competent senior staff. We are going to have to deal with the mess created by this purchase for years.

  • Greendayer

    This comes as no surprise. There were plenty of red flags, yet the RA ignored them to do this deal. Now that the predicted problems have occurred, it’s time for the Board supporters to rectify their mistakes. Fulkerson needs to be sacked for cause. She made a half million dollar mistake. Any director who supported this should resign (Wedell, Bitzer?) This was an obvious mistake from the start voted for by pie-in-the-sky morons.

  • TakingThe LongView

    No doubt there were errors in the costing of the renovations, but the notion of saving prime lakefront property from development remains the right decision. In 10 years, when developers have squeezed their pound of profit from over-building our community, we will be happy we voted to pull the Tetra property from their grasp.

    • JoeInReston

      “the notion of saving prime lakefront property from development remains the right decision.”

      – Even if state preservation restrictions would already in place to prevent development?
      – Even if they paid too much for the property

      Ignoring the above two points for the sake of discussion, a developer would be stupid to destroy the biggest value ad of the property – the beautiful open space. Quite frankly, a quaint quiet ‘farm to table’ restaurant ala Red’s table would not be the end of the world.

    • Jamie MacDonald

      Shouldn’t your name be “saving the lake view”?

    • Greg

      No doubt? Were those costing “errors” expected? Purchasing the dilapidated property at more than twice its value. Was that an error? Not securing the lease before closing on the deal, but promising us the revenue? What that an error?

      Clearly you’ve missed the picture. In ten years the lake house will need another million dollars worth of renovations and the revenues during that time will resolve be less than half of what what was promised. Mark my words.

      • Reston Watcher

        Since there was an “extra” $430,000 already in the budget, it sure looks like the overrun was expected.

      • BatAeon

        It should also be noted that the new Cedar Roof used shakes treated with arsenic. Over time the arsenic will leach into the lake. The only way to mitigate the leaching will be to hand roll or brush the shakes every 2 years with sealant. This is another maintenance item unaccounted for. Additionally, it was a very poor decision to use a roofing product preserved with arsenic to cover a building to be used for child care and overhangs a lake.

        • Greg

          Isn’t that “LEED” nonsense about the environment?

          Leadership in Energy and Environmental Design.

          The sealant is not made of milk and honey either, is it? Assuming it is applied properly and frequently enough, it will not totally eliminate arsenic leaching, will it? And the sealant itself will run off the roof, no?

          A good part of the lake house’s roof runoff will directly enter the lake and that that doesn’t will get into downstream Lake Anne, Colvin Run, the Potomac and Chesapeake. There are regulations and rules against this, no?

          Moreover, cedar shakes cost 5-6 (or more) times as much as conventional architectural shingles that the DRB itself recommends be used as replacements for cedar shakes. More money wasted by the RA.

    • Guest

      Any further development of the Lake Newport lakefront by anyone, including the homes around it, is now prevented by federal, state, & local law as part of the Chesapeake Bay Resource Protection Act (RPA).

      The fear of commercial building there is, in fact, one of the lies perpetrated and broadly shared by RA, the Board, and the lakefront owners.

    • Reston Watcher

      Plus, no developer had shown interest, which is why the owner was glad to get RA to buy the pig in a poke.

    • Reston Watcher

      And, RA told the appraiser to assume that all repairs would be made before a sale, instead of letting the appraiser assess the needed repairs as part of the appraisal process. That wasn’t an error, that was intentional.

  • Why do you bother?

    “We have been licking a finger and sticking it in the air and taking a guess as to what something costs,”

    This is a most horrifying statement.

  • Same Old

    Unless we have 1000 people stand in front of RA HQ Monday morning protesting this disaster, it’s business as usual. Brutal truth.

  • Joe Manseau

    own that mistake, along with my staff. It was an error that should not have been made.”

    This is meaningless, trite, and ridiculously cliche unless you plan on coughing up that variance yourselves.

  • Joe Manseau

    “I own that mistake, along with my staff. It was an error that should not have been made.”

    This is trite, meaningless, empty, vain appeasement. Ridiculously cliche. That is, unless you intend on coughing up the variance yourselves.

  • JoeInReston

    A potential irony would be if the boondoggler’s willful understatement of costs force the Reston Association to expand the use of the lakefront “asset” to make up for the understated costs.

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