How Bill Masters Saved Lake Holiday $120,000

At the April board meeting, LHCC directors discussed a serious problem: they pledged the clubhouse (LHCC common area) as collateral for a loan from Wachovia without first obtaining owner consent. Several board members referred to this as a breach of their fiduciary duty, since common area can’t be mortgaged without first obtaining more than two-thirds consent of Lake Holiday’s owners and that consent was never obtained. GM Ray Sohl introduced the solution to this problem: “the board of directors has expressed an interest in re-collateralizing the existing clubhouse loan.”

The board’s solution: ask owners to retroactively approve mortgaging common area, and if approval were not obtained, to refinance the Wachovia loan at a great expense. Doing so would require paying about $18,000 in refinancing costs, paying approximately $20,000 more in annual debt service over 5 years, pledging 91 LHCC-owned lots, and allowing Wachovia to put a bank hold on $150,000 to $200,000 of LHCC’s cash. Add that up and you get a cash savings of $120,000.

That initial discussion of the problem was lengthy. Our nine video clips cover over an hour and ten minutes in Clubhouse Loan Pts 1-9:

By July, preparations were underway to put the re-financing to an owner vote. LHCC announced the upcoming vote on July 21st. At the July 28th board meeting VP Dave Buermeyer, guided by Wayne Poyer, proposed the specific language to describe the issue to owners. Right away he met with resistance from 2 board members, John Martel and Jo-anne Barnard. Martel claimed that the language gave the refinancing proposal an “air of legitimacy that it probably never really achieved.” Then, Martel did an abrupt about-face and retreated from that position when Poyer seemed to be bothered by his remark. Jo-anne Barnard called the referendum “meaningless” because despite the high cost, the board had already decided to do the refinancing even if owners didn’t approve it. Nevertheless, every other director was satisfied with the decision to proceed with the refinancing. Many felt no further discussion was necessary.

Barnard and Martel felt the significant cost of the refinancing did merit further discussion. Barnard corrected the cost estimate served up by Poyer and Buermeyer. She observed:

It doesn’t cost $20,000. It costs $20,000 and $18,000 in the near term every year at the same time that we have to do the dam.

Here’s the July discussion in clips Oct 08 Referenda Pts 1-5:

So what’s the biggest problem in refinancing the clubhouse balloon note to fix pledging the clubhouse without first obtaining owner approval? The clubhouse isn’t even pledged as collateral on that note. Either Poyer and Buermeyer weren’t being candid about their reasons for proposing the refinancing or they never even bothered to check the documents. If they had taken just a moment to read the collateral exhibit, they would have seen that it clearly contains a description of real estate that is not the clubhouse.

A cautionary word to the non-lawyers that try to comprehend an important legal document like the loan collateral exhibit: it’s a whopping 2 pages, and the description of the property used as collateral involves potentially hard-to-understand legal terms, such as “231 Redland Road.” Proceed carefully!

After watching the video of the July meeting, property owner Bill Masters did bother to check the documents, and the exhibit showing the collateral for the loan very clearly listed the collateral as 231 Redland Road, the location of Lake Holiday’s management office. Masters contacted GM Ray Sohl, and directors Barnard and Martel to understand how they missed this.

Sohl initially disputed Masters’ assessment and insisted the clubhouse was used as loan collateral. Masters had to show Sohl that the loan for which the clubhouse had been used as collateral was paid off and closed months ago. Keep in mind that Masters was making his argument to Sohl and several board members using documents he originally obtained from the Lake Holiday office in the first place.

Barnard and Martel were surprised by his claim but promised to investigate. To further support his contention, Masters supplied loan documents to Barnard and Martel and Frederick County tax maps, one of which appears nearby. In a few days, Sohl, Barnard, and Martel came to the same conclusion that Masters had: the clubhouse wasn’t pledged on the loan in the first place, so there’s no reason to spend all that money on the expensive refinancing supported by Poyer and Buermeyer.

The cash savings, as Barnard herself pointed out at the board meeting, is about $120,000 over 5 years. When Masters discussed with Barnard the significant cash savings, Barnard disputed her own number. Evidently, dollars that Masters saves don’t count as much as dollars that the board very nearly wasted. Beyond the cash savings, Lake Holiday retains clear title to its 91 lots and has unrestricted use of the $200,000 that it would have had to pledge to do the refinancing. Masters managed to accomplish all of this while holding down a full time job and not serving on the board.

Barnard’s attempt to discount the savings is just evidence of the board’s spin machine revving up. More evidence of that is Sohl’s email to Masters, thanking him for catching the “error,” but pointing the finger at Wachovia for not securing the loan with the right collateral. Maybe Wachovia’s Mike Wilkerson has a different opinion of who owns the “error.”

Much can be learned from this episode to improve Lake Holiday. LHCC directors voted to spend over $120,000 of the organization’s cash based on the erroneous belief that the clubhouse was pledged as collateral, a belief that reading the loan documents would have quickly corrected. While Barnard and Martel were against spending money on refinancing, at a minimum they and every other director are guilty of approving a significant expenditure without bothering to read the underlying documents. That’s wrong. If any director did read the collateral documents and recommended the refinancing based on a claim that he knew to be false, that would be far more troubling.

When Masters first called Ray Sohl, he encountered far too much resistance. Sohl spent too much time defending the position that the clubhouse was pledged as collateral, perhaps because the board had already invested so much time to approve the refinancing. If the clubhouse were not pledged, it would make all the resources devoted to the refinancing an embarrassing waste. Fortunately, Masters took the time to make the phone calls and send the emails to overcome Sohl’s resistance. Masters was in an exceptional position because he had previously requested the relevant documents and closely followed the board videos, two things for which he is often unjustly criticized. But it shouldn’t be that hard for owners to get the management office to reach an obvious conclusion. While this went from start to finish in about 3 days, that was too long because the loan collateral exhibit was so clear and unambiguous. The initial response involved too much defensive posturing. If Masters had not persisted after receiving Sohl’s initial response, the savings may have been lost.

Fortunately, Masters saved $120,000 of Lake Holiday’s cash. What the community learns from this affair may be even more valuable.

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Is There Any Hope?

At the February 23rd Round Table, a Membership Lot owner expressed concern about his prospects for being able to build on his lot in the future. The future that he had in mind: the year 2020. He had a question that is probably on the minds of many Membership Lot owners: “Is there any hope for me?”

LHCC President Wayne Poyer didn’t offer any promises and didn’t offer a lot of hope, but what he did offer came down to Rule 20, Aqua Virginia’s line extension policy. If, as Wayne Poyer described, Rule 20 is the source of salvation for Membership Lot owners, we thought it would be enlightening to review some of the history of LHCC’s treatment of Membership Lot owners and how this rule took shape.

There are a few facts that are important to understand utilities at Lake Holiday: the role of the SCC and the relationship between LHCC and LHEUC. Utilities in Virginia are regulated by the SCC, and utilities have tariffs approved by that Commission. These tariffs include both rates and rules, such as line extension policies. The SCC issues a certificate of public convenience and necessity to a utility. This certificate covers a specified area (often called the certificated area) and carries with it the obligation to serve all potential customers in that service area, subject to the line extension policy in the tariff. For LHEUC (and now for Aqua Virginia), that is the entire Lake Holiday community. LHCC owned 100% of the stock of the utility LHEUC. Under its Articles of Incorporation, LHCC was formed “to promote the…welfare of the members….” Logically, LHCC would be required to operate LHEUC to promote the welfare of members, which includes Membership Lot owners.

Some Lake Holiday critics of a utility’s contribution to a line extension make 2 false claims: that line extension credits (e. g., the old Rule 16 and now Rule 20 credits) would result in a “run on the bank,” and that the cost of the line extension work would raise utility rates. These critics exploit a lack of understanding of accounting and utility regulation to create fear of draining capital out of the Utility and higher rates. The truth is exactly the opposite of what line extension critics claim.

Line extensions provide utilities with new capital and they serve to help lower utility rates for existing homeowners. The Rule 16 credit was capped at an amount less than $3,000 per lot, and it is provided as a credit against the tap fee paid by the owner making the extension. Taps fees typically far exceed the amount of a line extension credit because the tap fee is intended to return capital to the utility for the investment required to build the system to which a new owner connects. In 2006, the tap fee was $8,868 and the Rule 16 credit was $2,861. Thus, every new line extension in 2006 would provide the utility with over $6,000 of fresh capital, less its cost to install the meter and finalize the connection.

In accounting terms, tap fee payments that come with line extensions are accounted for as a return of capital. For LHEUC, the return of capital would have boosted its interest income or helped lower its borrowing costs. With lower net expenses, LHEUC would have needed lower rates to operate. For Aqua Virginia, whose rates are set on a rate of return basis, the return of capital from a tap fee accompanying a line extension serves to lower Aqua Virginia’s investment. With a lower investment, the maximum profit that Aqua Virginia can earn is lower, and it is spread over 1 more rate-paying customer. These forces combine to lower homeowner utility rates, all other things being equal.

Up until the end of 2006, LHEUC’s line extension policy was embodied in Rule 16 of its tariff. Despite the fact that Rule 16 had been in effect for many years, it had been largely hidden from Membership Lot owners. Dave Ingegneri, the former GM of Lake Holiday, testified in a deposition that Chris Allison:

felt it was in the community’s best interest to not publicly announce Rule 16, but certainly, if somebody would request the information we would release it and certainly, Rule 16 is a public document, so if anybody really wanted to find the information they could.

In other words, the burden was on Membership Lot owners to discover Rule 16 completely on their own. But Chris Allison wanted to make that burden even harder. According to Dave Ingegneri, Chris Allison authored a document entitled Membership Lots and Water and Sewer Lots that was included in a number of disclosure packages to prospective buyers. The document falsely claimed that “LHEUC, the utility company, is not empowered by the SCC (VA State Utility Regulating Agency) to expand the current water and sewer infrastructure.” The truth is the exact opposite. LHEUC (and now Aqua VA) was obligated to extend the utility infrastructure in its certificated area, subject to its tariff.

Chris Allison is not the only LHCC leader that has acted against the interests of Membership Lot owners. Frank Heisey made false promises to Membership Lot owners and repeatedly failed to mention LHEUC’s Rule 16 obligations. In the February 2004 President’s Report, Frank Heisey wrote:

LHCC is responsible for expansion of the water and sewer system.

In January 2002, Frank Heisey replied to an email from a concerned Membership Lot owner. He wrote:

The issue with the future of membership lots is an issue of when and where we should extend water and sewer lines. We do not have the capital reserve to do this now based on all of the other issues facing us with the infrastructure….

Note that Frank Heisey was writing as the President of LHCC, and that he wrote “…when and where we should extend…” rather than “…if we should extend….” He wrote that LHCC didn’t have the money “now” rather than “we will never do that.” Tellingly, he didn’t breathe a word about LHEUC’s obligations under Rule 16, something that would have benefited this particular Membership Lot owner. Membership Lot owners were not seeking out Rule 16 precisely because the President of LHCC was telling them that LHCC was responsible for expansion and that LHCC would resolve the “when and where [it] should extend” once its finances improved.

As we previously discussed, in the 3 year period from 2004-2006, Membership Lot owners contributed about $1.4 million to LHCC. Much of this money was contributed because of representations from leaders like Frank Heisey.

But in a 2006 deposition, Frank Heisey discussed extending utilities to Membership Lots: “We had no plans for doing that.” Would Membership Lot owners have paid $1.4 million to LHCC if he had said “we have no plan and no obligation?” Did Frank Heisey make those representations because the money paid by Membership Lot owners was almost exclusively used for pay for benefits to homeowners like himself? To the best of our knowledge, not a single Membership Lot owner has ever made and completed a Rule 16 line extension request over more than 30 years. At least 1 of these owners so desperate for utility service would have pulled this off if LHCC had not concealed Rule 16 from them.

Former LHCC President Chris Allison described just what Rule 16 could mean to a Membership Lot owner in 2006. For a Membership Lot owner just 1 lot away from the end of the utility line, Rule 16 would mean that the Membership Lot owner was “probably not going to have to pay very much….” But to benefit from Rule 16, Membership Lot owners needed honest information about LHCC’s plans and LHEUC’s obligations. They never got it.

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Our references to representations from LHCC about its obligation to extend utilities are not isolated. In 2003, Frank Heisey wrote LHEUC President Jack Fastnaught and the entire LHEUC board that he had legal advice that “LHCC is responsible for new lines….” In 2004 LHCC President Heisey and LHEUC President Chuck Brewer jointly wrote to every property owner that “We must expand the water and sewer system to meet the on-going growth and development in our community.” Discussions in public meetings often went far beyond broad-brush, general statements. At a May 2005 joint LHCC Board and Master Planning Task Force meeting, engineers from Patton Harris Rust Associates (PHRA) presented a project to extend utilities to 70 lots in Section 8A near Dogwood Drive and Mill Court. The project had a specific per lot cost estimate of $13,000, and the LHCC Board approved a motion to “facilitate the Dogwood Project.” Today, those lots sit just as they did in 2005 – without utilities.

By the end of that same year, prospects for Membership Lot owners would take a bad turn. In September 2005, we filed a lawsuit against both LHCC and LHEUC that focused attention on the line extension issue. A little more than a month later, LHCC signed contracts to sell LHEUC’s assets to Aqua Virginia. The deal was never put to a member vote. When Lake Holiday was under a court-ordered building moratorium and the Circuit Court was overseeing LHEUC’s affairs, then LHCC President Frank Heisey wrote to members that “selling of the utility company would require a 2/3 majority vote of the eligible membership. This in itself would not be a quick or easy process, nor should it.” The sales contract with Aqua Virginia was hurriedly signed on the eve of LHCC’s 2005 annual election of directors, after which Heisey would no longer be on the board. One representation to members while the Circuit Court was involved; an opposite action when that oversight was gone.

Despite the fact that LHCC already had a deal in place to get out of the utility business, about 2 weeks after signing that deal, its subsidiary LHEUC filed a rate and rule change request in which it attempted to remove any obligation to extend utilities to Membership Lots. Why was LHCC rushing to eliminate the Rule 16 obligation when it would soon be out of the utility business? Were its directors concerned that line extension issues were now part of a lawsuit, and LHEUC’s Rule 16 line extension obligation would now come to light?

Had LHCC bothered to make one, a quick check with the SCC would have revealed that a utility is obligated to serve new customers in the service area covered by its certificate. When asked in a deposition about the SCC’s response to LHEUC’s effort to eliminate Rule 16, Dave Ingegneri testified that “it [the SCC] would in no way approve that, those tariff sheets without Rule 16.” Whose idea was it to eliminate Rule 16? According to Ingegneri: “Chris Allison’s.” Ingegneri went on to describe where LHEUC’s own board had problems with the proposed tariff changes, but Chris Allison went to a Utility board meeting to offer a dictate:

the outcome or the, the [sic] dictate was, if you guys [the LHEUC board] don’t approve it the Association board will.

We collected and filed with the SCC over 450 complaints to fight LHEUC’s effort to increase rates and eliminate its line extension obligations. In just 3 weeks, the SCC ruled that LHEUC’s changes were “defective and should be given no effect.” LHCC had concealed the existence of Rule 16 from Membership Lot owners for years. When it attempted to eliminate any obligation to extend utility lines, it didn’t even bother to provide notice of its plan to these same owners. Instead, LHEUC apparently hid behind the notion that no notice of utility rule changes needed to be sent to Membership Lot owners since they were not Utility customers at the time. All of this is old news to our regular blog readers. We’ve written about LHCC’s shabby treatment of Membership Lot owners during the tariff change effort, and the SCC’s initial rejection of LHEUC’s rate and rule change. LHCC made 2 efforts to undo the SCC’s initial ruling, but the Commission let its ruling stand.

In February 2006, at the same time that the SCC was reviewing LHEUC’s rate and rule change request, LHCC, LHEUC, and Aqua filed a Joint Petition with the SCC to sell LHEUC’s assets to Aqua. It took the parties about 3 1/2 months from signing the contract to file their petition with the SCC. That petition contained a new line extension policy, or the proposed Rule 20. This new proposal was materially different from the previous tariff. Under Rule 16, LHEUC contributed 3 1/2 times the estimated annual utility revenue per Membership Lot, or about $2861. Under the proposed Rule 20, that contribution would drop all the way to $0.

In March of that year, we joined the utility transfer case (PUE-2006-00013) as a Respondent in that proceeding. We were the only Respondent to join the proceeding. Many Membership Lot owners purchased their lots 30 years ago, expecting to have a second home at Lake Holiday. Most own 1 lot that is of little value. With the passage of time and the high cost involved to understand the facts and participate in a utility transfer case against one of the largest water utilities in the entire country, most have given up. Some twist the fact that we were the sole respondent into a characterization of us as trying to block the utility sale. The truth is that we urged the SCC to not approve the transfer as it was proposed, which is lawyer-speak for saying we wanted certain provisions of the original deal changed. That is exactly what happened. After our testimony, the original line extension deal was changed dramatically.

In June, we filed testimony, largely complaining about the line extension policy that LHCC and Aqua proposed. We encouraged adoption of a line extension policy where Aqua Virginia would contribute 3 1/2 times estimated annual utility revenue to the cost of line extensions. We argued simply for continuing the in-force Rule 16, a requirement for the utility to make an investment in line extensions that had been in place for more than 30 years. In July LHCC and LHEUC responded. Chis Allison on behalf of LHCC and Mark Kropilak on behalf of Aqua filed 30 pages of testimony to argue against our proposal. To the question of Aqua’s willingness to contribute 3 1/2 times revenue, Kropilak had an answer: “No.” Chris Allison was spending legal dollars to reduce Aqua Virginia’s contribution to line extensions. Why? Since Aqua Virginia is unrelated to Chris Allison, why was he spending LHCC’s money in this manner?

By August, the SCC staff had reviewed our testimony and LHCC’s rebuttal, and SCC staff members filed their own testimony on the line extension issue that we raised.

Here’s what the SCC had to say:

The proposed main extension rule also forms the main argument, or at least one that squarely falls within the jurisdiction of this Commission, by the Respondent [Ogunquit] in this proceeding.

All water and wastewater utilities currently contribute three and half times the annual revenue per customer to the cost of a main extension.

Staff is concerned that Aqua’s rule differs radically from all other water and wastewater utilities regulated by the Commission.

LHCC, its subsidiary LHEUC, and Aqua Virginia proposed a line extension policy that “differs radically” from the policy for “all other” water utilities regulated by the SCC. The policy proposed was different from just about every other water/wastewater utility in the entire state of Virginia. That’s the policy that LHCC put forward to the SCC to serve Membership Lot owners, whose interests LHCC was allegedly serving. We, quite reasonably, opposed that policy.

Less than a month later, Aqua Virginia filed new testimony, adopting the position that both we and the SCC recommended. Aqua wrote:

We have now moved to a position, consistent with the Staff testimony, for Aqua Lake Holiday (under the general provisions of its main extension rule) to invest in the applicant’s main extension in the amount of 3 1/2 times the estimated annual revenues anticipated to be generated by the home to be constructed on the applicant’s lot. In addition, regarding the payments for intervening lot connections, the payment of these refunds will be extended to ten years from the original five years that was proposed. These changes will cause an increase in the investment needed from Aqua.

We appreciated the opportunity to present our ideas in a public forum and play a role in persuading Aqua Virginia to improve its line extension policy. The changes for which we argued applied not just to us, but to all Membership Lot owners equally. The SCC and its staff played a central role in making Aqua Virginia’s line extension policy more typical of the policies in place for other utilities. What’s clear is that, despite its obligation to promote the welfare of Membership Lot owners, LHCC played no role in improving the line extension policy. Instead, LHCC spent Membership Lot owners’ own money to come up with a bad plan and then paid lawyers to block our efforts to improve it.

Even with all of our references to testimony, the resolution of the line extension issue was very swift. Most testimony in the case was filed in electronic form with follow-up paper copies. Once Aqua Virginia agreed to make its line extension policy more like every other water/wastewater utility in Virginia, we supported these changes, and our further participation was limited to expressing this support. We did not contest any element of the SCC staff testimony, and we did not even appear at the hearing in Richmond. If we were seeking to block the utility sale, we would have done both things.

It took just a couple of days to reach an agreement to stipulate into the record our pre-filed testimony, and we were “excused from participation…,” all of which is discussed in the SCC’s November 2006 order granting the transfer. LHCC’s directors have managed to spin our successful but limited involvement in the transfer case into the false notion that we fought hard to block the transfer itself and lost. Wayne Poyer repeats this worn-out lie in the April 2008 President’s Report, where he describes our involvement in the transfer case as “legal obstacles thrown up (unsuccessfully) by a Member of the Association.” The sale of LHEUC’s assets was not approved by the SCC on the terms proposed by LHCC; it was approved on terms very similar to the terms that we recommended. Wayne Poyer needs to recheck his definition of “unsuccessful.”

In the fall of 2006, the Utility sale was moving toward closing by the end of the year. But Chris Allison remained as unsympathetic to the plight of Membership Lot owners as ever. After working to conceal the Rule 16 obligation, Chris Allison responded via certified mail to a Rule 16 extension request from an owner in Section 6A. A summary of his response: LHEUC will contribute its required $2,861.46. You just need to send in your check for $1,499,713.59. The property owner in Section 6A had been waiting years for utilities, perhaps over 30 years, and probably only recently learned of LHEUC’s obligations under Rule 16. For Chris Allison, who worked to conceal and remove those Rule 16 obligations, to waste the postage to send a letter requesting a deposit check for nearly $1.5 million is far beyond mean-spirited. It’s petty and callous.

Under Chris Allison’s leadership, LHCC wasted thousands of dollars fighting our recommendations before the SCC. Chris Allison discussed just how much money LHCC spent at a board meeting in March 2007. In our video Allison Attacks Masters, Chris Allison said that LHCC spent $200,000 on the SCC proceeding, and that one half of that – or $100,000 – was to fight our recommendations. He claimed that our recommendations amounted to “only 2 lines” in the final SCC ruling. In a final stab at Membership Lot owners, Chris Allison wasted $100,000 fighting to make Aqua Virginia’s line extension policy unlike every other water/wastewater utility in the state. Unsurprisingly, he lost. Instead of recognizing his error of fighting black letter law, he tried to make us the scapegoat by suggesting that our actions triggered legal spending.

The following table summarizes LHEUC’s old Rule 16, the proposed Rule 20, and the Rule 20 actually adopted by the SCC:

Proposed & Adopted Rule 20 vs Old Rule 16
# Feature Old Rule 16 Proposed Rule 20 Adopted Rule 20
#1 Credit to original applicant 3.5 X avg annual utility revenue $0 3.5 X avg annual utility revenue
#2 Future credit for intervening lots that connect later 3.5 X avg annual utility revenue $1,000 $2,000
#3 Expiration of credit for intervening lots 10 years 5 years 10 years

In the summer of 2007, LHCC made a hasty, ill-conceived effort to amend the deeds of dedication in 4 sections where most Membership Lots are located. That effort, called the Utility Extension Program (UEP) was a big flop. At the February 2008 Round Table Wayne Poyer told the concerned Membership Lot owner that:

the best minds in this community contributed to that and in fact authored it.

Really? We’re one of the largest owners of Membership Lots, and we were never contacted about helping to develop a utility extension plan. We’ve spoken to hundreds of other Membership Lot owners, and none of them were contacted either. It’s not credible that “the best minds in this community contributed” when most Membership Lot owners were never even contacted. In fact, the plan was crafted by LHCC’s Development Executive Committee (or DEC, discussed in our video Only 3 For The DEC, which at the time (and still, as of this writing) included no Membership Lot owners. It did, however, include Chris Allison.

During the debate over the UEP kickoff, Wayne Poyer said Membership Lots had “virtually no value” (predictably in our video clip Virtually No Value). LHCC concealed the existence of LHEUC’s Rule 16 from Membership Lot owners for years; it went so far as to deny its obligations. It tried to eliminate those obligations under that rule without sending any notice to these owners. When it came time to sell the Utility’s assets, LHCC jointly proposed a new line extension policy that required Aqua to make no contribution to the cost of line extensions, and then blocked our efforts to secure a larger contribution from Aqua. Five of LHCC’s current directors (Wayne Poyer, Dave Buermeyer, John Martel, Noel O’Brien, and Pat Shields) were on the board in 2006 that fought to block what became Rule 20. In fact, for all the importance Wayne Poyer now attaches to Rule 20, there’s no link to it anywhere on LHCC’s official website.

On February 23rd, Wayne Poyer described the plight of Membership Lot owners as a “sorry situation” and for the Section 6A owner on the video, he had a harsher outlook: “tough.” It’s time for LHCC to own up to its deplorable behavior of thoroughly obstructing Membership Lot owners’ efforts to get utilities.

LHCC’s directors have spent a lot of time and money to insure Membership Lots have “virtually no value.” They have drained hundreds of thousands of dollars from LHCC. Yet the hope for Membership Lot owners, according to Wayne Poyer, is in the Rule 20 protections that LHCC obstructed at every turn.

It’s time for Membership Lot owners to ask themselves a hard question: have LHCC’s directors lived up to their responsibilities to serve the interests of those property owners? The answer can be found in another question with a simple, objective answer: Does my lot, after more than 30 years, have utilities yet?

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Silent Sitters Face The YouTube Era

One of the hot issues at the February 25th board meeting was videotaping board meetings. In fact, the issue made it on to the agenda for that meeting. However, when the board reviewed changes to that agenda, the videotaping topic wasn’t changed or dropped. It was just silently skipped during the meeting.

If the board wasn’t prepared to discuss videotaping, homeowner John Platt certainly was. Platt gave a nearly 10 minute presentation on the perils of videotaping that ranged from behavioral control to breaching personal security and identity theft. We can sum up Platt’s message in 2 words: stop videotaping.

Videotaping open meetings fosters good governance. Governance at Lake Holiday extends to committees and task forces, which are the principal advisors to the board. Together, the board, committees, and task forces make decisions that affect about 2700 lots and approximately $210 million of property value (based on February 2008 Frederick County tax valuations). The board, along with committee and task force members, opted to take on the responsibility of governing their community. That authority comes – and should come – with scrutiny.

Videotaping also helps to address something that LHCC Treasurer John Martel acknowledged:

We also have a lot of baggage that we have to overcome.

Homeowner Bill Masters records the meetings. Both Wayne Poyer and GM Ray Sohl have publicly acknowledged that Masters has a right to make these recordings. In fact, at the December 27th meeting, LHCC’s directors briefly discussed recording board meetings on their own.

Getting videos on the web quickly takes some work. To further his goal of fostering open governance, Masters gives the raw video tapes to us to take the most relevant or interesting portions of these meetings and get them on the web as quickly as possible. In many instances, we have video clips of important discussions available on YouTube before LHCC releases a written synopsis of what took place at a meeting. Anyone, including LHCC itself, is free to embed the codes to display any of these videos on a website. The videos are provided at no cost.

Some LHCC directors complain that we edit videos or provide clips that are not representative of what took place. That’s trying to bundle an obviously true statement with a crazy one, hoping that people can’t tell the difference between the two. A typical board meeting takes place over several hours, and the clips we make are no more than 10 minutes long. We don’t set or control this limit; it’s set by third-party video sharing services. It’s self-evident that we edit them. That much is true. In every case where we make an edit, we insert a clearly visible transition effect. If you don’t see a clearly visible transition effect, the video you see is an unmodified video stream.

The claim that something is unrepresentative or taken out of context is the crazy part. Lake Holiday’s board meetings are divided into tabs, as the agenda for the 2/25 meeting demonstrates. These tabs are discrete topics that often have little to do with one another. For example, on the 2/25 agenda, Tab 14 involves a roughly 3 minute discussion about selling a 1991 Ford pickup for $150. The very next tab is a roughly 26 minute discussion of a policy to fill board vacancies. One does not need the context of the old truck sale to understand a policy on filling board vacancies.

The videos we present are clips from a larger meeting. Given that the videos are made available at no charge, technological and practical considerations make it impossible to deliver a 3 hour watch-on-demand meeting video in rural Virginia. YouTube, backed by the multi-billion dollar resources of Google, doesn’t do it. Hollywood movie studios don’t do it. Those that attribute sinister motives to Masters or us for failing to deliver community association videos in their entirety for free display their technical ignorance. Maybe their motives are on display as well.

Dividing meetings into clips allows a viewer to watch what he wants, when he wants. We are not extracting unrepresentative comments from the video when there were opposite or contradictory comments readily available. When we quote John Martel as saying that “we also have a lot of baggage that we have to overcome,” he did not contradict this assertion before or after making that remark. In fact, after Pat Shields expressed an opposing point of view, Martel repeated his position more firmly and succinctly: “Lake Holiday has baggage.”

There are a lot of benefits to providing videos on the web. The majority of Lake Holiday owners do not live at Lake Holiday, so internet-hosted videos enable more owners to observe how their community is governed. Very few owners actually attend meetings, and those that do typically do not stay for the entire meeting. We’ve uploaded more than 100 videos to YouTube, and these videos have been watched over 4000 times. That’s roughly the equivalent of 40 people attending 45 minutes or more of every board meeting for a year. Since board meetings frequently draw no attendees outside open forum, videos create community involvement.

Many of our videos are informative, such as our series on the dam or the maintenance building (Dam Pt 1, Dam Pt 2, Dam Pt 3, Maint Bldg Pt 1, Maint Bldg Pt 2, and Maint Bldg Pt 3) available by clicking the nearby thumbnail or visiting our Videos page). Most videos show LHCC’s directors conducting routine business, such as reviewing the Treasurer’s Report or the GM’s Management Report. Unfortunately, too many videos show the board engaging in what we believe is inappropriate behavior or making a bad decision. A dramatic example of this is the Keep It Over Here Punk video, featuring the antics of director Steve Locke and Bob Fraser. In all cases, owners get to watch their board in action and form their own opinions. If board members find that their conduct appears unflattering when watched on video, the proper course is not to try to pull the plug on videotaping; the proper course is to change that conduct.

As a result of watching board videos, we’ve observed too many board members sitting in silence and then unanimously rubber-stamping a motion or resolution. Typically, we’ve given our Silent Sitter award to a director that we thought was especially passive. During the February meeting, directors Noel O’Brien and Robin Pedlar said very little. However, Noel O’Brien made a strong statement in favor of installing guard rails on West Masters Drive without delay. In light of the recent serious accident on that road, O’Brien is on the right track. Pedlar also voted against the recently adopted policy on filing board vacancies, an unnecessarily cumbersome procedure. These are positive steps, but we think they need to do more. Perhaps some directors are realizing that passivity is not such a good thing after all. Sorry, Robin and Noel. No award for you this month.

We’ve never given an officer our Silent Sitter award. In award terms, LHCC’s officers get off easy, since several have regular responsibilities at monthly meetings that force them to speak up. Sometimes, in the course of that speaking up, officers say things that hurt Lake Holiday. At the February 25th meeting Wayne Poyer complimented John Platt on his “excellent presentation” focused on putting an end to videotaping. Poyer offered this praise despite Poyer’s numerous acknowledgements of Masters’ right to make those recordings. We certainly support Poyer’s allowing Platt the time to make his point. But fueling Platt’s views, especially since they are contrary to opinions that Poyer has expressed, only increases political divisions at Lake Holiday. Poyer should have firmly conveyed that open governance, however uncomfortable it may be at times, is a good thing, and that it is supported by the LHCC board.

For keeping silent on this point, Wayne Poyer is our Silent Sitter for the February 25th board meeting. Congratulations, Wayne! You’re a Silent Sitter!

Making videos of public meetings is an issue that has been closely analyzed outside of Lake Holiday. In March of 2007, the New Jersey Supreme Court decided a case that raised issues similar to those in the discussion of videotaping at Lake Holiday. In the NJ Supreme Court case, Robert Wayne Tarus, a 15 year resident of the Borough of Pine Hill, was blocked from videotaping public meetings. Tarus was a frequent critic of the Borough Council. The court decision referred to remarks the mayor made to a local paper about Tarus: “If he was a decent resident, we would have no problem.”

The court also discussed the Borough’s concerns about how Tarus would use or edit the videos he made:

Finally, during oral argument before this Court, defense counsel for the Borough explained that a primary concern expressed by Council members was that ‘this political opponent . . . was going to take tapes and take them back to his basement and edit them around and turn us all into monsters.’ Thus, by their own admissions, when they blocked plaintiff from videotaping the meetings, the Mayor and Council acted on an impetus that found its genesis, to some degree, in animus against the plaintiff. In that context, we find those actions to be arbitrary and unreasonable.

The concerns that the Borough expressed against Tarus are nearly identical to those that LHCC board members have expressed about Masters’ recording the meetings and our editing the videotapes.

Tarus won his case, and the NJ Supreme Court ruled:

The law has embraced the undeniable fact that modern electronic devices are silent observers of history. These legal foundations support a finding that there is a common law right to videotape.

The NJ case also addressed the concerns expressed by John Platt that videotaping has a negative impact on other meeting attendees:

Video cameras and recorders have become a commonplace item in our every day life. They are a common security device and confront us at the bank, in stores and even in apartment houses. Exposure to video recording of all of us is a normal occurrence on the streets and in public gatherings such as athletic contests and sporting events where participants and spectators are under constant television surveillance. Such exposure is actively sought by all those running for public office in order to place their image and their ideas before the voters. … Today, hand-held video cameras are everywhere — attached to our computers, a common feature in consumer still-shot cameras, and even built into recent generations of mobile telephones. The broad and pervasive use of video cameras at public events evidences a societal acceptance of their use in public fora. … So too, we are not persuaded by fears that the use of video cameras in non-judicial settings will generate intimidation and harassment. … Trepidation over the effect of video cameras in public meetings is overstated. The prevalence of video cameras in society and the open nature of public meetings militate against such hyperbolic concerns. Although some citizens may be fearful of video cameras, we find that consideration insufficient to deny the right to videotape. … The legal foundations described above, with roots wide and deep, offer a glimpse into our evolved understanding of the right of public access and support our finding that there is a common law right to videotape.

Writing for a unanimous NJ Supreme Court, Chief Justice Zazzali referred to the ideas of Jeremy Bentham, Patrick Henry, and James Madison, offering these powerful words:

In short, our civic forefathers have long recognized that spores of corruption cannot survive the light of public scrutiny. … Openness is a hallmark of democracy — a sacred maxim of our government — and video is but a modern instrument in that evolving pursuit. … Arbitrary rules that curb the openness of a public meeting are barricades against effective democracy. The use of modern technology to record and review the activities of public bodies should marshal pride in our open system of government, not muster suspicion against citizens who conduct the recording.

Perhaps Poyer was less than firm in sending that message because openness and hallmarks of democracy do not really enjoy the support of LHCC’s board. Perhaps the disappearing agenda item on videotaping will resurface, and LHCC will seek to block such recording by a policy resolution. We hope not. Whatever happens, watch it play out on YouTube.

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Now Is Not The Time To Be Passive

We’ve finally gotten around to choosing the Silent Sitter for the January 28th board meeting. The meeting was held on a Monday, and it was some time before we could review the video tapes to pick a Silent Sitter award winner.

On the next Wednesday night, before we had reached any decision, LHCC reported that a director resigned. Oddly, it did not announce who resigned. The next day LHCC confirmed privately that Rick Bleck, who did not meet the 1 year ownership requirement for nomination set forth in LHCC’s bylaws and was invisible on the campaign trail but was elected anyway, had resigned but still did not publicly identify the resigned director.

Just who resigned was a hot topic on The Summit Advisor two weeks after Bleck resigned, and posters there repeated what we had announced earlier. Just before the 2/23 Round Table, LHCC updated its website with what was by then stale news, identifying Bleck as the resigned director. After all, there’s no sense being secretive about something that is common knowledge. It’s peculiar that LHCC would take so long to keep the community informed on basic governance issues. Directors have come and gone before.

Bleck’s resignation made us re-think our guidelines for the Silent Sitter award. After much reflection, we realized our original concept for the whole award needed an overhaul, or at least a clarification. Here’s what we came up with: to win the Silent Sitter award, a contender had to still actually be a director. A fundamental point, to be sure. But given that Bleck, a solid contender for another Silent Sitter award was no longer a director, that would mean he couldn’t win. If he had won, that would have meant that one director would have won 3 out of 4 Silent Sitter awards, and the only won he failed to win during that award-winning stretch was the meeting he skipped!

Even without Bleck, there were several solid contenders for the Silent Sitter award on January 28th. We’re getting the sense that LHCC directors love our Silent Sitter award. So many of them seem to be working overtime to win it. Suzy Marcus, winner of the award for the December meeting, had little to say. Specifically, she had nothing to say about her Realtor Outreach scheduled for the November meeting that she missed. It’s never been mentioned since.

Noel O’Brien, another potential winner in any given month, also had little to say. However, Noel did introduce a motion to move the regular monthly board meeting from Monday to Tuesday in order to give board members more time to review their board books. We support the notion of board members having ample review time, but by itself it’s not a meaningful improvement. If board members remain Silent Sitters, increasing review time is meaningless. Voting down Noel’s motion to switch board meetings from Monday to Tuesday took about 6 1/2 minutes.

By comparison, discussion of LHCC’s new proxy policy took about 3 1/2 minutes. The proxy policy is far more important than deciding whether to meet on Monday or Tuesday. Yet it got about half the time in a what was more than a 2 hour meeting. Generally speaking, when you have an important issue covered in 3 1/2 minutes, press the pause button on the video and look around. You’ll find your Silent Sitter.

We’ve covered why LHCC’s proxy policy is a bad idea. In the discussion in December, Jo-anne Barnard favored giving voters increased opportunities to express their opinions:

…I think we should provide the members every opportunity to vote whatever way they want.

However, despite our post and her initial opinion, Jo-anne voted in favor of LHCC’s new policy – which restricts how voters express their opinions. The policy was adopted at the January meeting. The policy restricts voter choice by requiring proxies be directed, something that is not in either LHCC’s Bylaws or Virginia statutes. It’s inappropriate for LHCC directors to effectively amend LHCC’s Bylaws by passing a board resolution.

The proxy policy also helps perpetuate the difficulty that Membership Lot owners have to revoke absentee ballots, a difficulty that proxies can fix. Restricting voter choice and making it hard for Membership Lot owners to revoke absentee ballots divides the community. Jo-anne pointed out in December that restricting proxies could be challenged, but directors didn’t vote on the proxy policy at that time. When it came time to vote in January, Jo-anne brought up none of this. Then again, it only was a 3 1/2 minute discussion of an important issue. Congratulations, Jo-anne Barnard! You’re our Silent Sitter for the January 28th meeting.

On a humorous note, one contribution Jo-anne did make at the January 28th meeting was attempting to correct Steve Locke after he mixed up the names “Platt” and “Pratt.” At least everyone had a good laugh about the incident.

Many in the community probably held high hopes for Barnard’s election in October. She’s a lawyer with an impressive resume. However, we understand that she didn’t attend the one candidates’ forum LHCC held before the 2007 election, and she skipped the 2/23 Round Table, an event all board members were asked to attend. We wonder if she’s reluctant to answer questions from property owners. Answering questions from those owners comes with the territory when you seek and win a board seat of an organization serving 2700 properties.

Based on her background, we assume that Jo-anne Barnard is familiar with the problems brought about by passive board members. One relatively recent example is the collapse of Worldcom. In June 2003, former US Attorney General Dick Thornburgh issued the Second Interim Report in the Worldcom bankruptcy proceedings. In his report, Mr. Thornburgh criticized board members who approved board actions:

with little or no information and almost no inquiry. A board vigilant about fiduciary duties would not have been so passive.

His report pointed to a “culture and internal processes that discourage or implicitly forbid scrutiny and detailed questioning” and the lack of “meaningful deliberation or analysis” by Worldcom’s board as big factors in Worldcom’s collapse. Mr. Thornburgh concluded:

In short, at a time when the Board should have been more assertive, it instead became increasingly passive and submissive.

To be sure, Lake Holiday is not Worldcom. Sometimes, examining the same problem on a dramatically bigger scale helps make the possible impact of that problem more clear. Passive board members weren’t good for Worldcom. Silent Sitters aren’t helping Lake Holiday.

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Twenty Certified Letters Later…

…can the President of LHCC just pick up the phone, call a homeowner, and say “Oops, we goofed. We’re truly sorry”? Apparently not.

That answer was hidden away in a tab of LHCC’s board book called “For Your Interest.” LHCC directors now bury letters and emails from property owners to the board in this tab instead of reading and discussing them during the open meeting. That’s one way of blocking criticism from making its way to video and onto the internet.

Fortunately for Lake Holiday property owners, this “don’t discuss criticism” technique flopped at the December 27th board meeting.

The first example of this involves homeowner Robert Middleton, whose property was hit with a lien of $1800 for alleged violations of Lake Holiday’s sign prohibitions. A hit of $1800 – ouch! As the board discussed in our Compliance Reporting video (it’s in our video gallery on our Videos page), if Middleton violated any sign prohibition, he didn’t do it on his own property. In that video, GM Ray Sohl said that the signs should have simply been taken down instead of placing liens on Middleton’s property. It’s possible that Middleton himself watched the video and used it to support an argument that the liens should be removed, which is something that the board did not acknowledge at the November meeting. At the December 27th board meeting, shown in the following video, the board finally decided that Middleton is “no longer liable for $1800.” It’s good that LHCC reversed course on this issue.

The board discussed how to communicate this good news to Middleton, who apparently refused to accept several recently-mailed certified letters from LHCC. Ray Sohl described that LHCC has sent 20 certified letters to Middleton over this alleged violation, which apparently turned out to be no violation at all. Perhaps Middleton grew tired of seeing his own money spent to send him certified letters to communicate the message “We are 100% right, you are 100% wrong, so we’ve put an additional lien on your property.” An unsurprising outcome.

Some directors were reluctant to communicate with Middleton directly. In the video the best option developed by LHCC President Wayne Poyer was to put a message in a plain, unmarked envelope addressed by hand. That only seems strange to someone who does not understand that the board prefers to sneak their good news to Middleton to avoid having to acknowledge their error. Director Pat Shields even recommended no further effort to reach out to Middleton, ignoring that LHCC decided to remove the lien. Shields tried to focus attention on Middleton as the culprit, rather than LHCC itself: “He’s played the rules since this whole thing started.”

We have a simple suggestion for LHCC: have a senior official pick up the phone and call the man. Try starting the conversation off with: “Ooops, we goofed. We’ve removed the liens. We’re truly sorry.” Stop trying to shift the focus to Middleton’s alleged wrongdoing and away from the fact that LHCC improperly filed liens. We’re sure a straightforward, sincere apology will go a long way toward addressing any bad feelings Middleton may have.

Ray Sohl supported further efforts to reach out to Middleton for a good reason:

…you want to encourage participation of all members. The more participation you have, the more responsible community you have.

The secretive “For Your Interest” tab also revealed the second example of the unwillingness of LHCC’s leaders to admit a mistake. In our post It’s Not Our Problem Anymore we criticized LHCC’s efforts to wash its hands of helping property owners deal with utility problems. Apparently, LHCC has reversed course on this issue. LHCC Secretary Ken Murphy, a former LHEUC board member, has initiated efforts to communicate with Aqua Virginia and the SCC about utility complaints from Lake Holiday homeowners. Judging from the discussion in the video, complaints continue to roll in. We don’t see entirely smooth sailing, based on Murphy’s comment that he has “yet to identify the person at Aqua who will listen to me.” A little more than 1 year ago, LHCC closed on the sale of LHEUC’s assets for more than $1 million, and Aqua Virginia continues to serve Lake Holiday. Given those facts, one would hope that the board identified some responsible people at Aqua Virginia who would listen. One would also hope the board kept the contact information of those people. Nevertheless, we applaud this long-overdue correction.

Burying these 2 fixes in a section of the board book that is not intended for open discussion shows just how hard it is for LHCC’s leaders to admit they made a mistake. When faced with having to admit its error in putting a lien on Middleton’s property, the board preferred to communicate via cold and impersonal certified letters rather than a simpler and cheaper phone call. The personal phone call is both simpler and more appropriate in this situation.

Lake Holiday property owners are justifiably concerned about utility problems, and the board has tried to distance themselves from these concerns. If the board abandoned that effort and plans to play an active role in resolving these problems, that’s a good thing. The proper response to both our post and the complaints raised by others would have been to publicly acknowledge the mistake and openly commit to a new course.

Stubbornly refusing to admit a mistake sends an “I’m unreasonable” message to the world.

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Why Are John Martel and Dave Buermeyer Afraid of Cameras?

At the November 26th board meeting, LHCC directors discussed John Martel’s proposal to hold “board workshop” meetings between some or all of the board members and Lake Holiday property owners with an open, unstructured agenda. Despite direction from GM Ray Sohl that members have a right to record meetings, VP Dave Buermeyer and director Noel O’Brien focused on prohibiting members from recording such meetings.

Ken Murphy commented that he doesn’t like:

the idea of any meetings where the board is fragmented and people are able to take the board on one-on-one and, you know, take statements out of context….

Dave Buermeyer expressed the opinion that a workshop meeting is “not a meeting.” Apparently, he’s never heard of the law of identity. If a meeting is not a meeting, what is it? A pretzel?

Pat Shields opined:

There’s a very small minority out there that wants to say that it’s all done in secret. You guys do all this stuff and we don’t know. We’re open. It’s recorded.

Pat Shields ignored that at the same he preached that meetings are open and recorded, a number of his fellow directors want to block recording of meetings. He seems to take credit for the fact that meetings are recorded, but ignores the fact that they are not recorded as a result of any board initiative or at community expense. Instead, recording meetings is an entirely private effort.

John Martel acknowledged widespread dissatisfaction with the board’s actions in his comment that “on the off chance that somebody might like something that the board does, it would be nice to have a compliment.” How can we connect this to Pat Shields’ view that there is only a “small minority” of disgruntled critics?

Behaving reasonably, Wayne Poyer expressed the view that the recording of meetings is acceptable:

I don’t really see any reason not to have them recorded. I don’t see any of you intimidated by that camera, frankly.

John Martel sheepishly replied: “I am.”

Board members having to face property owners one-on-one. Meetings that aren’t meetings. Nothing is secret but let’s obstruct recording it. Critics are a small minority, but it’s an “off chance” that somebody, anybody, likes something the board does.

Big, scary video cameras. They let others see and listen to what you actually do and say.

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Silent Sitters Vote Unanimously To Raise Dues

Have you ever read something and thought to yourself “Wow, that’s a great idea. Why didn’t I think of that?”

We had just such a reaction to the phrase coined by an anonymous poster on Bill Master’s website in a thread discussing LHCC’s then upcoming 2007 election of directors. The phrase: Silent Sitter. That phrase succinctly describes the conduct of too many of LHCC’s directors at board meetings. A Silent Sitter just occupies a chair during a board meeting, contributes very little and seriously questions even less, and ultimately votes in support of the decision already made by the powerful few.

We’re going to award a Silent Sitter award to that board member that contributes the least at each board meeting in the hope that highlighting this bad behavior prompts potential Silent Sitters to change their conduct. We make it in the spirit of Sen. William Proxmire’s Golden Fleece award.

The November 12th board meeting to review and approve the 2008 budget is a good place to start. After the organizational meeting on November 5th, this was the first meeting to take up the business of Lake Holiday. Despite the fact that the board was reviewing 2008 expenditures that will exceed $2.275 million, the board meeting on the budget was the shortest meeting that we’ve watched on video, coming in at 38 minutes. Most of the discussion for the entire budget focused on how a single, unbudgeted $9,000 dock repair expense could be deferred or delegated to a committee. This lack of debate shows that the Silent Sitter race will be a close one.

LHCC VP Dave Buermeyer said next to nothing at the November 12th meeting. But in light of the nearby photo from that meeting, we can’t be sure if Dave Buermeyer was actually awake throughout. We don’t want to turn the award into the Sleeping Sitter. We also don’t think it’s fair to the other board members vying for our award to credit what little he did say at the meeting in light of our uncertainty over his sleeping status.

We also had to seriously consider Jo-Anne Barnard. Among Jo-Anne’s many qualifications to serve on LHCC’s board, she is LHCC President Wayne Poyer’s neighbor. She recovered somewhat from the “deer in the headlights” look she displayed at the board’s organizational meeting and managed to ask several questions. One of her questions helped clarify a caption on a budget line item. Unfortunately, substantive contribution requires more than debating captions.

We also had to consider Suzy Marcus and Ken Murphy, who stayed true to their usual performances and contributed next to nothing. Had Noel O’Brien been in attendance, our decision may have been even more difficult since she’s expected to be a regular contender for our award. We’re sure these three will put up strong showings in future Silent Sitter contests.

Despite the close race, we give our first Silent Sitter award to LHCC board newcomer Rick Bleck, who did not meet the 1 year ownership requirement for nomination set forth in LHCC’s bylaws and was invisible on the campaign trail but was elected anyway. During the board’s organizational meeting, Rick Bleck managed to correct his own phone number on a board member contact sheet. That apparently talkative performance was not repeated on November 12th, when Rick Bleck was virtually silent. He didn’t question any element of the 2008 budget, nor did he suggest any change. When it came time to vote for the budget, he dutifully raised his hand. He fulfilled the role of a Silent Sitter to perfection. He questioned nothing and voted in favor of everything. Congratulations, Rick Bleck, the first recipient of our Silent Sitter award. We have to wonder: did his involvement peak very early?

We think LHCC’s board erroneously believes that unquestioned unanimity indicates a good decision. In contrast, we believe that open, thorough examination of alternate and sometimes opposing views is a better approach. At the very least, those holding the minority view can take comfort in the fact that their position was given careful consideration and had a fair chance to capture support.

For example, in an earlier post we reviewed LHCC’s administrative expenses and discussed the need to adjust these expenses downward by the portion reimbursed by LHEUC. This shows how dramatically LHCC’s administrative expenses have grown since 2006. After deducting LHEUC’s share, LHCC budgeted $182,826 for 5 administrative expense categories (office supplies, office equipment, printing/copying, administrative salaries, and telephone) in 2006. Based on the approved budget for 2008, these expenses are projected to jump to $297,429, an increase of $114,603 or about 63% in 2 years. That is one example of out-of-control spending. Yet no director had the common sense to ask: “Why are these expenses going up so much?” No director made any effort to discuss ways to reduce LHCC’s expenses at the November 12th meeting.

Another example of the perils of blind acceptance can be found in John Martel’s discussion of the balloon note used to finance the clubhouse remodeling, which is part of the above video clip. John Martel says that both he and the 2007 board have been criticized for committing LHCC to a balloon note. To directors operating reasonably, at a minimum criticism indicates an issue that should be carefully scrutinized. John Martel defends this decision:

We have a commitment from Wachovia that they will refinance the loan when it comes due in 5 years.

Unfortunately, the Promissory Note dated February 2, 2007 that John Martel himself signed doesn’t support his claim. That note provides for full repayment of all principal and interest by February 2, 2012 (which is less than 5 years away) and contains no language committing Wachovia to extend the loan. The Promissory Note itself states that:

This Note and the other Loan Documents represent the final agreement between the parties and may not be contradicted by evidence of prior, contemporaneous or subsequent oral agreements of the parties. There are no unwritten oral agreements between the parties.

Yet no director – especially not the Silent Sitters – saw fit to ask John Martel if he had that commitment in writing. Apparently, they accepted his unsupported statements as fact. LHCC’s board operates on the principle of “don’t question – just blindly accept.” Silent Sitters are an important component of this “question nothing-act unanimously” culture.

Lake Holiday owners pay a price for Silent Sitters. A portion of that price is the higher dues discussed in the above video and unanimously approved by LHCC’s board. Lake Holiday does not have a board of 11 people who independently and critically evaluate information. Instead, it has a board packed with Silent Sitters that gives the community the illusion of an independent and thoughtful governing body yet keeps power in the hands of a few.

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