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Background
Falkenberg, Gilliam and Associates, Inc. (FGA) has been the property management
company for the Morgan and Kimball Towers since 1995. Each year, an operating
budget for each building is prepared by the management company and is reviewed and
approved by the Community Development Commission (CDC). On June 5, 2012, all
CDC housing functions and assets were transferred to the Community Development
Commission Housing Authority of the City of National City (CDC -HA). As a result, the
fiscal year 2014-15 Morgan Tower and Kimball Towers will be considered for approval
by the CDC -HA.
Kimball Tower
Kimball Tower is a 151 unit complex located at 1317 D Avenue owned free and clear by
the Community Development Commission. Of the 151 total units, two (2) are reserved
for property management staff and 149 are rented to qualified households. Of the 149
rental units, 141 units receive rental subsidies from the U.S. Department of Housing and
Urban Development (HUD) through the City of National City's Section 8 program. Eight
units are market (unsubsidized) rate and do not receive HUD rental subsidies.
For the fiscal year ending June 30, 2015, the projected annual income is $1,101,631
and the total cost of operations total $1,052,459. Although this presents a net cash
surplus of $49,172, the property management company is required by the CDC -HA to
place $84,000 in the replacement reserve account ($7,000 per month). Replacement
reserves are funds that are restricted for the replacement of appliances, carpeting, or
other unbudgeted building maintenance charges. As of April 30, 2014, the balance of
the replacement reserve fund is $1,375,259.74. After funding the reserve account with
an additional $84,000, the net income of the Kimball Tower is estimated to be $2,533.
FGA does not propose a rent increase since we anticipate a budget surplus of $49,172.
Currently, residents pay 30% of income up to a maximum of $610 per month for rent.
Highlights of Kimball Tower Budget are:
• No rent increase proposed, which means rent will stay at $610 a month.
• Projected budget surplus of $49,172.
• GL #6320 (Management Fee): Management Fee of 7.5% did not change from
last year
• GL # 6450 (Electricity), #6451 (Water), #6452 (Gas), #6453 (Sewer):
Utility expenses increased from audit amount of $170,877 to budgeted amount of
$184,183.
• GL # 6310 (Office Salaries), #6330 (Manager's Salaries), #6510 (Payroll), #6723
(Health Insurance & Other Employee Benefits): Staff salary (including benefits)
costs continue to increase
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• GL # 6720 (Property & Liability Insurance): Property and Liability Insurance
increased from audit amount of $33,478 to $40,868.
• Carry forward the unexpended Capital Improvement Budget appropriation
established for FY2014 totaling approximately $425,000.
Morgan Tower
Morgan Tower is a 152-unit complex located at 1415 D Avenue. Of the 152- units, one
unit is reserved for property management staff and 151 are rented to qualified
households. Of the 151 rental units, 150 receive Section 231 rental assistance from
HUD. One unit is market (unsubsidized) rate and does not receive a rental subsidy.
For the fiscal year ending June 30, 2015, the projected annual income is $1,259,195
and total cost of operations total $1,276,840 which includes loan principal payments of
$265,396. Morgan Tower is projecting a deficit of $17,645. The Morgan Tower deficit
is due to the ongoing maintenance such as unit flooring, bed bug treatment, plumbing,
and installation of a new fire alarm. FGA is proposing a rent increase of $10 from $688
to $698, which would be possible based on HUD's Annual Adjustment Factor (AAF).
Households receiving a Section 8 subsidy will not feel the impact of this rental increase
due to the fact that the proposed rent increase will be covered by the rent subsidy.
However, market renters/non-Section 8 tenants are affected since they do not
participate in Section 8 programs. Currently, there are two (2) tenants who are not
participating in Section 8 and will be affected by this rent increase. Despite the deficit,
Morgan Tower has sufficient funds in its reserve for replacement account as well as in
the residual receipts accounts to meet its financial obligations.
This building has a mortgage balance of approximately $1,597,881.12 with a mortgage
maturity date of August 1, 2019.
Morgan Tower is depositing $3,127 per month or $37,524 per year into the Berkadia
Money Market Account, which is a replacement reserve fund. As of April 30, 2014, the
balance of the replacement reserve fund is $416,036.81. Attached to the operating
budget is a FY 2015 capital improvement budget for Morgan Tower that includes:
• Morgan Tower plumbing maintenance with a projected estimate of $11,563.
• Morgan Tower bed bug treatment with a projected estimate of $14,850.
• Morgan Tower unit flooring with a projected estimate of $9,680.
• Increase of security cost due to the Morgan Tower fire alarm replacement with a
projected estimate of $54,107.
Notable items of the Morgan Tower budget are:
• The only method that Morgan Towers can increase rents is based on HUD's
Annual Adjustment Factor (AAF). The calculation resulted in a proposed $10
rent increase, from $688 to $698.
• GL # 6330 (Manager's Salaries), #6510 (Payroll), #6723 (Health Insurance &
Other Employee Benefits): Staff salary (including benefits) costs keep increasing.
• GL # 6720 (Property & Liability Insurance): Property and Liability Insurance
increased from audit amount of $34,019 to $41,547.
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• Even though the budget is showing a deficit, the building has funds in the reserve
for replacement account as well as in the residual receipts account to meet its
obligations.
• Carry forward the unexpended Capital Improvement Budget appropriation
established for FY2014 totaling approximately $225,000.
Staff recommends adopting the Morgan Tower and Kimball Tower budgets for the FY
2014-2015.
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