The Facts About Stern Village Finances and Rent

Much debate and letters to the editor have been used to present opinions of the state of Stern Village and the actions of the current administration.  Most of it has dealt with the environment in the complex and there can be no doubt that significant improvements have been made to the community room and emergency planning.  For those Executive Director Polansky should receive credit from everyone.

However, there is a tremendous amount of misinformation and misunderstanding of the financial health of the complex before and after the change in administration.  Mrs. Polansky’s supporters allege that she inherited “a rat’s nest” that required the hiring of additional staff at significant expense.  Let’s look at that assertion:

1)      The last audit of the prior THA and Executive Director showed no deficiencies whatsoever in financial practices or accounting.  A call to the state confirmed that earlier audits were similarly “clean.”

2)      The last fiscal year completed under the prior director showed a profit of $83,000.  That is compared to a loss of $98,000 this past fiscal year that included extra salary, pension and legal costs to buy out the previous director and the hiring (without any vote by the THA) in the spring of a costly financial consultant.

3)      Mrs. Polansky spoke at the July THA meeting about the strong financial position of the complex, with over $1.700,000 in reserves at the close of FY13.  However, all of those reserves were accumulated by the previous Executive Director (it was about $50,000 higher at the end of FY12).

In short, by objective measures rather than anecdotal claims that could only have come from the new administration, Stern Village was in good financial shape when Mrs. Polansky took over.

So, how have things changed in terms of Stern Village’s finances?  Mrs. Polansky’s first budget includes the new $70,000 part time financial consultant and an $11,000 increase in legal services.  This resulted in a 39% increase in administrative overhead (from $225,200 to $313,400) for Stern Village, including the Congregate Housing building. That’s an extra $400 for every lease holder in the facility.  One has to wonder how most tenants would answer if asked, “Would you support diverting $400 of your annual rent payments to the hiring of additional accounting and legal staff?”

Since the Stern Village budget is intended to balance annually, the additional overhead funds had to come from some other account.  Mrs. Polansky chose to cut the Provision for Repairs, Maintenance and Replacement line item by 70%.  That’s right, while talking about the urgent capital needs of the complex, the Executive Director cut the line item that funds present and future capital projects from the $211,000 in the previous director’s combined budget to $63,000.  Again, would the tenants prefer that their rent be reinvested in the property or spent on accountants and lawyers?

So, what about capital projects and spending requirements?  The state completed a comprehensive “Capital Needs Assessment” of Stern Village a couple of months ago.  Interestingly, it has yet to be presented or discussed at the THA public meetings.  It calls for slightly more than $1,300,000 in work over the next 3 years after which costs decline rapidly because the major projects will be complete.  The THA has more than $1,400,000 in its provision for maintenance reserves.  If the Executive Director continued to budget for maintenance as her predecessor did (about $200,000 per year), those reserves would be sufficient to pay for all of the work required and still leave about $700,000 when the major work is complete.  That’s an indication of good health and planning – except the THA voted, without asking a single question or making a single comment, to approve the proposed budget that prioritized new administrative expenses over capital funding for facilities.

The strong financial position of the THA should have limited rent increases, but the authority approved a near tripling of the base rents for new tenants to $300 or $310 depending on unit size.  Each leaseholder pays the greater of 27% of adjusted income (after removing medical expenses) or the base rent.  So, increasing the base rent is the most regressive move possible since it affects only the poorest tenants.  Nearly 20% of current tenants pay the prior base rent of $110 or $125, which means they have roughly $400 per month to live.  Furthermore, the average rent in the apartments is $289. 

 In short, the minimum rent for new tenants is greater than that paid by the majority of existing tenants.  Many of the current tenants, while unaffected today, would be unable to live in Stern Village if they were new applicants.  What about new applicants with low incomes or large medical expenses?  What if applicants that qualify today have a large increase in medical expenses as they age that put them in that $400 per month to live category.  They are out of luck because, unlike Monroe’s complex that Mrs. Polansky used as a reference point to justify the new rent, Stern Village tenants receive no subsidy if they cannot pay.

What about the current tenants?  They have happily avoided a rent increase this year, most likely because the state required 120 day notification and hearings period wasn’t available given the new Executive Director’s appointment in February.  However, she has publicly stated and was quoted in the CT Post as saying that they will receive a rent increase of $25 next year.  CHFA regulations permit up to $100 increase over three years (Harriet stated that it is $25 per year for 3 years but I believe that’s incorrect) after which the process could be repeated.  How much of an increase we’ll have at Stern Village and over what time period will be determined in the future.  How the increase will be allocated between base rent ($25 would be a huge increase to tenants with $400 monthly available income so hopefully that won’t happen) and an increase in the percentage of income contribution has also not been disclosed.  We’ll watch the proposal carefully.

Finally, it’s been stated, including by a THA member as recently as their last meeting, that Stern Village receives no tax money.  That is true in the sense that Stern Village’s operating budget is not subsidized by the town or state, nor are tenant rents as stated earlier.  However, Stern Village has received and continues to receive a lot of state and local support.  As a non-profit facility Stern Village is tax exempt (as it should be) but makes a $20,000 PILOT (payment in lieu of taxes) payment to the town that is a small fraction of what the tax burden would be for a similar private property.  The facility has received multiple state capital grants totaling about $7,000,000 for construction and improvements and receives many services from the town, including comprehensive emergency and senior services.  That also includes a contract that makes the town liable for road clearing, maintenance and repair of the primary street, Hedgehog Circle.  So any implication that Stern Village has been and is independent of state and town tax dollars is false and a THA member should know better.     

So there you have the facts obtained from THA financials, audits, budgets and capital plans - increased overhead, reduced provisions for major improvements and a generally strong financial position to pay for future maintenance and improvements.  While some rental increase was probably inevitable to address the general trend of increasing costs, the figures don’t seem to support the option the THA chose, a drastic increase in the base rent.  It will keep out most prospective tenants with finances similar to those that were helped in the past.  Why?