The DACHA Board of Directors In Action
by Luke Watkins –
DACHA was formed in 2002 by my firm Neighborhood Partners. We recruited a group of community members to serve as the initial board of directors. The plan was for resident board members to be added to the board over time as the cooperative grew from its initial 7 units to an intended size of approximately 60 units. The founding board president was Dallas Kassing. Dallas was a UCD research scientist, who previously served as the president of the Davis Food Co-op, and is a long-time DJ at KDVS.
In order to move into the co-op, Sally should have been required to purchase a share for a price of approximately $18,000. But since she could only contribute $5,000 towards her share purchase, DACHA provided an approximately $13,000 “share loan” to cover the balance of purchasing Sally’s share from the departing member. This is a very common situation in the financing of housing cooperatives.
Since DACHA had borrowed the approximately $13,000 on Sally’s behalf, then Sally needed to cover the interest cost that DACHA was incurring to borrow that $13,000. Otherwise the rest of the DACHA members would have to collectively pay that interest expense within the organization’s annual budget, which means they would be subsidizing Sally’s housing cost. Therefore at initial occupancy Sally’s monthly carrying charge (the term for “rent” in a cooperative) was set at a level that included the cost of paying the interest on that approx. $13,000 loan.
In early 2005, the DACHA board directed the management agent to prepare an annual budget that broke down each household’s carrying charge into specific line items. This was done so that members living in different locations around town could better understand why their charges differed from other members. The major three reasons for the differences in carry charge amounts were 1) that some units were two bedroom units and others were three bedroom units, which have different sale prices in the city’s affordable housing program; 2) that the city’s affordable unit purchase price had increased periodically, resulting in units purchased in 2002 being lower than units purchased in each subsequent year; and 3) the financing for each cluster of units was arranged as those units were acquired, resulting in interest rates and loan terms unique to that cluster. In addition some lots were smaller, which lowered their city utility bill amount, some areas of town have higher property assessments than others, some houses have more square feet and therefore a higher insurance cost, etc.
When Sally was provided with the breakdown for her unit’s carrying charge, she complained that she should not have to pay the interest on that approx. $13,000 loan. Eventually she refused to pay that portion of her monthly carrying charge. As a result, the management agent for DACHA had to threaten Sally with eviction if she did not catch up on her past due interest payments on that $13,000 loan.
Sally appealed the management agent’s decision to the DACHA board of directors. At its meeting in September 2005, the DACHA board affirmed the management agent’s position.
Sally then went to the rest of the DACHA members and, using a safety clause in the DACHA bylaws, arranged for a vote of the membership to remove Dallas Kassing, the board president, from the board. Sally was then elected to serve as the new president.
At a subsequent board meeting on August 24, 2006, Sally was chairing the meeting, in her role as president. The meeting was held at the City of Davis Hunt Boyer conference room. The meeting was an “executive session” which means that only board members could be present. The following actions were taken:
1. The board voted to direct the management agent to enter into an agreement with one of the residents, whom we shall call “Alice” for this article, to pay an additional $90 per month toward her delinquent carrying charges in the amount of $4,703.07. Alice, who was the board treasurer at that time, was more than three months behind in her carrying charge payments.
2. The board voted to direct the management agent to enter into an agreement with another one of the residents, whom we shall call “Mary” for this article, to pay an additional $250 per month toward her delinquent carrying charges, plus an immediate payment of $6,000. Mary was not a member of the board.
3. The board voted to direct the management agent to initiate a court eviction action against another resident, whom we shall call Karen for this article. But Karen was going to also be offered an alternative option to voluntarily turn over possession of her share (which essentially means vacating her residence) and enter into a court stipulated payment plan. Karen was also not a member of the board.
4. The board voted to excuse Sally (the board president described above) from making any further payments on the approx. $13,000 share loan, and refund to her the amount of interest already paid.
5. The board voted to have DACHA refund a portion of the share amount to three of its DACHA members. This was done in response to a belief that these members had been charged too much for their shares when they had initially occupied their units. One of these members was a board member.
Decisions 1, 4 and 5 above involved voting on matters that would financially benefit a specific member of the DACHA board. State law governing organizations like DACHA considers these to be “self dealing transactions”. The law requires that if a board of directors is engaging in a self dealing transaction, then it must notify each member of that organization that it is considering taking a vote on that self dealing transaction, with a thorough description of the proposed transaction, and that the entire membership be allowed to attend that board meeting. This law is intended to prevent the board of a homeowners association from secretly voting to charge themselves lower assessments than the rest of the association’s members.
Instead of notifying the DACHA membership of these potential self dealing transactions, the DACHA board held the 8/24/06 meeting in executive session, where none of the other members could attend or subsequently receive copies of the board meeting minutes.
Furthermore you can see that the terms offered in Decision 1 above to Alice, the board treasurer, were far more generous than the terms offered to Mary and Karen, the two non-board members in Decisions 2 and 3. This disparity appears to me to be a serious violation of federal fair housing law.
Conclude what you wish from this snap shot look at DACHA’s board of directors.
In 2008, the City of Davis made a $4,153,428.62 loan to DACHA, despite the fact that its staff had a copy of the above meeting minutes in its possession. City staff also had a copy of the DACHA bylaws, which require that any board member who is delinquent more than 30 days in their carrying charges must be immediately removed from the board of directors. Sally signed the city loan documents on behalf of DACHA, asserting that she was lawfully entitled to do so.
The Davis City Council has been asked to initiate a third party investigation of the above actions and other matters concerning DACHA. So far, only Lamar Heystek and Don Saylor have been willing to support such an investigation.
As a foot note, according to the September 2009 DACHA financial statement (more than three years after this board meeting), Sally was more than $3,400 delinquent in her carrying charges. Alice was more than $4,000 behind in hers. The board had never voted to take an eviction action against either party during the three previous years, and both remained on the board of directors, continuing to serve in their roles as president and treasurer. Karen, who the board voted to evict in Decision 3 above, was apparently never evicted, and according to that same September 2009 financial statement was more than $9,000 in arrears in her carrying charges. All three still reside in their DACHA homes today.
Luke Watkins is a Principle of Neighborhood Partners LLP.
you give a mouse a cookie…
I think the entire concept is flawed. Home ownership is not a fundamental right, it is an investment no different from a stock an exotic car or a mutual fund. Some people simply are not capable of managing investments and that is why they are called “renters” Let me know when the exotic car investment subsidy comes out- I’m in!
Giving these clowns the ability to vote themselves bread and circuses is going to end up with these inevitable results time and again.
Another example of the failure of our city council to exert its oversight responsibilities. Add it to the list…
What about the role of the City of Davis in all of these violations? The three hour meeting took place at a city office and was attended by a city staff member. The City of Davis also had an Appointee board member attend the meeting who was the Vice President of DACHA. The city appointee either made the motion or seconded the motion for each of the instances where there is a potential violation of California law and the bylaws of the organization.
The city staff member was absent for some portions of the meeting. However, the set of minutes that Luke used was obtained from the city and was un-redacted when read at City Hall. The city staff therefore had the un-redacted minutes of the meeting and knew everything that had happened at the meeting. At the meeting there are potential violations of California Law, Davis Sterling Act, two loan agreements, the City Regulatory Agreement, conflicts of interest and self dealing transactions. Even after having the information about all of this, the same city staff, recommended that over $4 million in public funds be loaned to DACHA.
This was all done under a Regulatory Agreement from the City of Davis that required DACHA to follow state law (Davis Sterling Act, Nonprofit Corporations Code and Limited Equity Cooperative Housing Law) and its own bylaws.
The City had the right to enforce their agreement but never did.
So, can any organization in this position borrow from the City of Davis?
Where is the due diligence that a lender should be exercising for the use of public funds?
The city should look into these violations and enforce the law.
David Thompson, Neighborhood Partners, LLC.
There has been a lot of talk on this blog about how the city budget is on an unsustainable path, that we have to have fiscal reforms or else. Maybe these warnings make sense and maybe they don’t; I wouldn’t know. But I don’t understand how someone who thinks so wouldn’t run screaming from an experiment like DACHA.
Greg:
That’s a reasonable point.
DACHA wasn’t originally supposed to use city money
DACHA did borrow $4.15 million in city money as a loan to be repaid, that was redevelopment money not general fund money, there is a big difference there.
Should we run screaming? I know some were concerned about the viability from the start. I don’t know in hindsight if we shouldn’t have done it or not.
The City was forewarned of these many legal violations when it received the Yolo County Court Appointed Arbitrator’s decision in Neighbourhod Partners LLC v DACHA (Kenneth Malovos) in June 2009.
See following quotes by Mr. Malovos, Esq. in italics.
Role of the City of Davis
“What is curious is that representatives of the City of Davis were present throughout this entire time when the new Board took these untoward actions and they did little to discourage the Board.” (Page 5)
Actions by the New Board as to its Members
“Also the new Board forgave obligations to its member and did not pursue delinquencies, all of which worked to the financial detriment of DACHA.” (page 4)
“The new board allowed members of the Board to remain on the Board, even though some of them were delinquent with their payments in direct violation of its own bylaws.” (page 5)
[i]DACHA did borrow $4.15 million in city money as a loan to be repaid, that was redevelopment money not general fund money, there is a big difference there.[/i]
I agree that you could argue that distinction, but you erased it by opposing the city’s sales tax. In so doing, you moved the issue from sustainability to the taxpayer’s wallet. In the former issue, money might lie in different pots; in the latter, all money is the same.
Greg: I’m not following you here. The city’s sales tax does not fund the Redevelopment Agency, that comes from property taxes.
[i]Greg: I’m not following you here. The city’s sales tax does not fund the Redevelopment Agency, that comes from property taxes.[/i]
But the taxes are paid by the same people. In opposing the sales tax, you redefined the issue from fiscal sustainability to not wasting the taxpayers’ money. If I’m a city taxpayer (which I am), what difference does it make to me whether the city “wastes” my sales taxes or my property taxes? I don’t see why I should be any more up in arms about the firefighters than about DACHA.
I’m still not following you, there is a set of money that can only be spent on redevelopment as opposed to money that is spent on salaries. The money to be spent on redevelopment, a subportion of that was lent to DACHA. Not to form DACHA but rather to stabilize it. If you’re asking if I support that stabilization, at the time I probably would have but in retrospect it has been poorly accounted for and there appears to be some machinations by city staff that we need to get to the bottom of.
I’m not sure if that’s what you are getting at here or are you suggesting that if I oppose the surplus half cent sales tax extension – I must oppose all taxes and uses of tax money.
I’m really struggling to understand your point here, help me out and hopefully I can address it better.
David: Is it that the city is using the taxpayers’ money, but maybe not sustainably? Or is it that the city is abusing the taxpayers’ money and doesn’t deserve to have the money to spend? In the case of the fire department contract, you crossed the line from the former to the latter. Because, you can’t use budget sustainability to justify a tax cut.
If the problem is not just tax use, but tax abuse, then I don’t see how DACHA is any better than anything that the firefighters are doing. Even if one is property taxes and the other is sales taxes, so what, it’s my tax money either way.
David Greenwald: HELP!
Watkins & Thompson ask for an independent investigation; I thought that this was supposed to be, in some part, the role of the press.
David Greenwald: Are you avoiding your responsibility for impartiality here by only covering one side of the story? (This is not a critique of Mr. Watkins’ article, necessarily, except in the context of previous coverage.)
Watkins and Thompson are biased in their opinions. They are the creators of this project, and very angry about how it has turned out…to the tune of several lawsuits (one of which has been settled in their favor). This does not invalidate their opinions…from what I’ve seen of their testimony before the City Council, they have some very valid concerns.
As in most disputes, however, there are [u]at least[/u] two sides of the story…and likely a good deal more. What position do the current residents hold, for instance, vs. the position of those accused of corruption. Has there been any action within DACHA to clean up their board? Watkins and Thompson allege that the residents as a group should not have been forced to eat the debts “illegally” forgiven to board officers in 2006. I agree, but the question that follows is: should the residents, as a group, see the demise of their housing co-op because of the ethically questionable activities of a few members?
Some sort of impartial discourse needs to be brought to the table, here. I don’t believe that the City is the best party to undertake either the effort or the cost. D. Greenwald – can you help us out here? What about the stories from the side of DACHA?
I would love to cover DACHA’s side of the story, I met with them last summer when I was doing my original investigation that was published in the fall. However, given the legal battle and judgment, DACHA did not feel that they could really talk to me and I respect that.
My focus has been from the start to try to get the council to get an outside party to look at what happened.
For me, the concern is what city staff did here, not the mostly private dispute between Neighborhood Partners and the tenants.
Now Watkins and Thompson submitted this piece and I have yet to turn down a piece, if DACHA wants to submit their own piece, they are entitled to do it.
I understand your frustrations and if DACHA members are reading this, I’d be happy to tell their story. I’m hoping that if council investigates the truth will come out.
I want to address this point separately:
“should the residents, as a group, see the demise of their housing co-op because of the ethically questionable activities of a few members?”
The demise of the housing co-op here is imminent and it is due to the city’s actions of foreclosure. I don’t understand that. The city at this point seems more concerned with recouping their money than they are with making sure that the real victims here, the residents of DACHA do not lose their homes. I for one want to know why that is.
Greg: “I don’t see how DACHA is any better than anything that the firefighters are doing.”
I’m not sure I disagree with you on that point.
[i]should the residents, as a group, see the demise of their housing co-op because of the ethically questionable activities of a few members?[/i]
If you wanted to avoid this outcome, then the side of the story that should have been told was a credible payment plan. Not, who is a bad apple and who is a good apple; that’s not the most important question right now. When the city loaned DACHA $4 million, it was a loan that banks wouldn’t touch with a ten-foot pole. The city has decided that the banks were right.
The city’s “for sale” affordable program is an abuse and loss of over $20 million dollars.
There would not be this level of abuse if city staff were to actively enforce California law, city regulations, the city’s regulatory agreements or the bylaws of borrowing organizations.
I have blown the whistle on;
•70+ homes that should have had a community equity second placed on which was either forgotten or neglected to be done by city staff. This was a loss of $14 million that was meant to be shared with the city for our affordable housing program. These homes had no income requirement, no first time home buyer requirement, no lottery, etc.
•6 of the Wildhorse homes were sold before the two year limit and city staff did nothing about the almost million dollars of illegal gain.
•60 units at Southfield Park that were supposed to be a limited equity housing cooperative and got approved under that policy and then suddenly became condos. Even so, the 60 condos were required by city agreement to be owner occupied and many of them were not. Investors bought the units pocketed the gain and rented them to students. This went on for more than a decade. The city had a regulatory agreement on all 60 but never ever enforced it until I blew the whistle.
•30-40 plus units that were approved as self-help and never were. They were built by builders and the owners put in some shelves so I called it shelf-help. Nobody knew that staff were allowing shelf-help to occur until I blew the whistle.
•8 units at Marden that were set aside by the developer for their relatives even under the management of a local nonprofit who let it go on.
•20 units at DACHA where the residents wanted to dissolve the co-op and over time gain $200,000 each in private gain. Want to know the DACHA story follow the money.
The list is a long one with the common denominator that almost every for sale affordable housing program in the City of Davis has become a scandal. And at the core of the scandal has been the fact that city staff have never (in almost every one of the almost 200 “for sale affordable” homes) enforced the law or taken enforcement action.
Were city staff to have used their enforcement tools we would have ample resources to achieve many of our affordable housing goals. If the city staff will not enforce we cannot have a program that works and all of the millions of dollars of subsidy become an individual private windfall and what was meant to be a community asset goes to waste.
The next developer who is asked to include an “affordable income” component to their plan should laugh in the face of any loser from the city making that request.
Low-income housing is a complete scam and if the people involved in it wore dark sunglasses and suits the “progressive” morons of our city would recognize it for the criminal enterprise it really is…
STOP PRETENDING THIS HAS ANYTHING TO DO WITH HELPING POOR PEOPLE!!!
“The next developer who is asked to include an “affordable income” component to their plan should laugh in the face of any loser from the city making that request. “
There’s the pesky affordable housing ordinance…
[i]There’s the pesky affordable housing ordinance[/i]
I hope you understand how bad it looks when an affordable housing ordinance becomes yet another obstacle to development. “We won’t build a house for you, because if we did build it, it wouldn’t be affordable.” Maybe in Davis it’s a non-issue, but I’m sure that many urban planners outside of Davis are a little disgusted. On the outside, people see West Sac as doing what Davis is unwilling to do.
As you understand, one reason that DACHA is so expensive for the city is the gap between its prices and the other, similar houses in Davis. There may be ways to make off-market housing work, but that gap is at least the kindling for the fire. But I think you have been meek about the fact that gap also makes DACHA politically palatable. People who own DACHA-class houses may want to see some affordable houses, but they don’t want their own houses to become affordable.
A more respectable affordable housing ordinance would be one that creates low-end housing, and not one that hamstrings development or leads to expensive subsidies.
[i]”A more respectable affordable housing ordinance would be one that creates low-end housing, and not one that hamstrings development or leads to expensive subsidies.”[/i]
A more respectable affordable housing ordinance would be one …. in my opinion …. which zones more land for high-density, for-rent market-rate apartment complexes …. so that the supply and demand equation would help all renters (not just the few in subsidized units) …. and one which takes HUD funds and any other outside monies and gives the money in rent vouchers to all poor residents … instead of giving that money to middlemen like Thompson and Watkins. (I don’t mean suggest that Neighborhood Partners is corrupt. I mean to suggest that middle men are not needed and ultimately reduce money available to the poor.)
The critical feature of the over $20 million dollars in omissions are that city staff take no action when they discover possible violations.
The city staff have the rent rolls of DACHA which they will not make public or seemingly share with the City Council. The rent rolls show that from about 2006 through 2009 almost every member of the board was ineligible to serve on the board because they were all behind in their carrying charges. Any board member behind more than 30 days under the bylaws had to be removed from office. The city staff know this fact and will not share it. The City Attorney knows this fact and will not divulge it.
How can we be a nation of laws if they are not upheld. So ineligible people sit on the DACHA board and conduct activity although they are unduly constituted. They borrow $4 million dollars of public funds and no one at the city wants to do anything about it.
The unwillingness to enforce is a puzzle.
David Thompson, Neighborhood Partners,LLC.
[i]The critical feature of the over $20 million dollars in omissions are that city staff take no action when they discover possible violations.[/i]
I get the message, David. You’ve only said it about 20 times. From the beginning, your side of it seemed relatively credible. But you keep repeating it in such an obsessive, zealous style that somehow I feel unsettled. I hope you don’t respond to that by explaining again how your case is 110% correct. It looks like DACHA could be a financial mess, and obviously you have money at stake. I’m just wondering now what sort of relationship you will have with the city, as DACHA owes money to both you and the city.
Taking all these arguments at face value, and not taking a closer look at the underlying problems, it would seem there is only one conclusion one can draw – the co-op housing model like DACHA in Davis will not work, was a bad experiment gone wrong, and should not be tried again.
The co-op housing model does work in Davis and deos work well.
The first affordable housing that occurred due to city housing policy was in 1985 and was the Dos Pinos Housing Cooperative on Sycamore Lane. I gave guidance on how to develop the co-op and assisted with its financing through the National Cooperative Bank.
Dos Pinos was done without any city subsidy, there is no city role in Dos Pinos and there is no city cost to monitor Dos Pinos working.
The Board of Directors have not tried to dissolve the co-op for private gain, The Board of Directors have not broken California law, or distributed over $200,000 in transfer value to themselves, or broken their loan agreements or their own bylaws. Their Board of Directors have followed the law.
Affordable Housing Facts about Dos Pinos
•By price/mortgage cost Dos Pinos units are the lowest cost in
Davis
•By monthly housing cost it is the lowest cost ownership housing
in Davis
•Unlike all other ownership housing in Davis there are no costs
associated with joining Dos Pinos. No real estate commissions, no
title company costs, no financing costs, no closing costs, no
insurance costs
•Unlike all other ownership housing in Davis there are none of the
following costs for a departing member; no real estate
commissions, no title company costs, no financing costs, no
closing costs, no insurance costs and no transfer fees. There is
only a $50 administrative fee charged to a departing member.
•It is the only ownership housing program in Davis that has not
violated the rules
•Of the affordable ownership programs in the city it has the
lowest annual turnover
•It is the only ownership housing in Davis that is lower today in
cost relative to average apartment rental than when it opened
•When begun in 1986 the 3 bedroom unit at Dos Pinos was affordable
to a family of four earning 100% of median income. Today, that
same 3 bedroom unit is available to the same family of four at
50% of median income.
So without any city cost it has worked for over 20 years.
The co-op housing model does work in Davis and deos work well.
The first affordable housing that occurred due to city housing policy was in 1985 and was the Dos Pinos Housing Cooperative on Sycamore Lane. I gave guidance on how to develop the co-op and assisted with its financing through the National Cooperative Bank.
Dos Pinos was done without any city subsidy, there is no city role in Dos Pinos and there is no city cost to monitor Dos Pinos working.
The Board of Directors have not tried to dissolve the co-op for private gain, The Board of Directors have not broken California law, or distributed over $200,000 in transfer value to themselves, or broken their loan agreements or their own bylaws. Their Board of Directors have followed the law.
Affordable Housing Facts about Dos Pinos
•By price/mortgage cost Dos Pinos units are the lowest cost in
Davis
•By monthly housing cost it is the lowest cost ownership housing
in Davis
•Unlike all other ownership housing in Davis there are no costs
associated with joining Dos Pinos. No real estate commissions, no
title company costs, no financing costs, no closing costs, no
insurance costs
•Unlike all other ownership housing in Davis there are none of the
following costs for a departing member; no real estate
commissions, no title company costs, no financing costs, no
closing costs, no insurance costs and no transfer fees. There is
only a $50 administrative fee charged to a departing member.
•It is the only ownership housing program in Davis that has not
violated the rules
•Of the affordable ownership programs in the city it has the
lowest annual turnover
•It is the only ownership housing in Davis that is lower today in
cost relative to average apartment rental than when it opened
•When begun in 1986 the 3 bedroom unit at Dos Pinos was affordable
to a family of four earning 100% of median income. Today, that
same 3 bedroom unit is available to the same family of four at
50% of median income.
So without any city cost it has worked for over 20 years.
“The co-op housing model does work in Davis and deos work well.”
Not if the city is involved, by your own admission.