Friday, September 20, 2019

Mailing List Sign-up

* indicates required

Oakmont News, Opinion & More

REBUTTAL: Do Membership Votes on Big Decisions Make Sense?

The fundamental concept is simple:  Any change in OVA property that is large enough to be considered a significant change in the nature of Oakmont, should be subject to the explicit consent of those who will fund it and who must live with the results.

In the January 15 issue of the Oakmont News, in an article entitled Frequently Asked Oakmont Questions [1], OVA Board President, Steve Spanier, provides answers to a number of important questions that give substantial insight into the philosophy of governance of himself and the current Board.  While I agree with much that he says, including his assertion that this Board has taken major steps toward implementing Board transparency, I take serious issue with his stand on membership voting as part of the decision making process.

For me, the central concept that is the most important in all of governance, at all levels, is popular sovereignty[2], the concept that all of the power and authority of the government derives from the people.  While this may be interpreted only to support representative democracy [3], I believe that it is practical and desirable in Oakmont to have the membership of OVA take a part in the most important decisions by allowing us a direct vote.  Everything I write concerning Oakmont is based on the all-important principle that governance depends on the consent of the governed, and, as was amply shown by the pickleball fiasco, electing Directors does not ensure that the decisions they make will have the membership’s consent!

In the Oakmont News article, one of the questions answered by Steve is “If transparency is truly a priority for you, why not just let the community vote on all big decisions?”.  The mere fact that he devotes over a column to explaining why he does not believe that membership voting makes sense, except for the election of directors and other cases where a vote is currently required by California state law, is an indication that there is substantial support for the concept in our community.  He makes a good argument – most of his examples make perfect sense.  But I believe that he intentionally leaves out the situations in which OVA members have a moral right to make decisions, through direct voting, on issues that will have a major impact on Oakmont.  The purpose of this article is both to rebut Steve’s argument on this issue and to identify a few scenarios in which I believe a membership vote should take place.  I will also spend a few words on what the roles should be of the OVA Board vs the OVA voting membership, in the scenarios mentioned.

Note that membership votes such as those proposed herein will not take place unless changes to our Bylaws are made to require them and to provide that directors’ fiduciary duty will have been met if they follow the will of the membership, as expressed in membership votes.

Rebuttal to Steve’s Arguments Concerning Membership Votes On Important Issues

Below, I will take a number of Steve’s contentions and respond to them, one by one.

“it’s very hard to change the bylaws” – True.  The Bylaws must be changed, if votes such as suggested herein are to take place and, without the full support of the Board, such Bylaws changes are unlikely to happen.  Furthermore, under the current Bylaws, no proposed Bylaws amendment will even be put to a vote unless the Board allows it to be.  One hope is that one of the proposed amendments by the Bylaws Revision Committee (BRC) will make it somewhat easier to amend the Bylaws in the future.  (They don’t want it to be too easy to change the Bylaws, but it should not be the near impossibility that it is today.)

“it may subject Directors to lawsuits” – True, but fixable.  Any Bylaws amendment to enable membership votes should also relieve Directors of responsibility for abiding by the results.

“defining the details for such a vote will be an enormous challenge” – False.  The BRC is currently working on defining criteria for requiring membership votes, and it is actually pretty simple.  The most common criteria will compare the planned capital improvement cost of a project against a threshold computed as a percentage of some historical OVA financial number, such as the average of the past three years’ OVA operating expenses.  The primary challenge is coming up with a basis that cannot easily be manipulated by some future Board.

“Wherever we draw [the line], people will be upset” – True, but don’t you think that people are upset now about not having any say at all?  I certainly am.

Where you set the threshold for requiring a membership vote is arbitrary, but all would probably agree that there is some point at which it a large project would become a significant change in the nature of Oakmont.  To take an extreme example, if $20M was spent over some period of years to add a major auditorium building and an indoor swimming pool (ignoring for the moment the issue of where to put such facilities), then the capital replacement cost as specified in the reserve study would jump from around $10M to around $30M.  The purpose of OVA would still be to provide recreational facilities to Oakmont, but the value of the facilities would have tripled and one would expect the cost of maintaining and operating the facilities to follow suit.  Many long-term owners in Oakmont would probably be driven out by the increased cost, and the very image of who we are as a community would have changed.  Whether such major changes are a good thing or a bad thing should be decided by a community vote.

“it is very important to me to have the opportunity to vote on an issue that will greatly impact my future in Oakmont; if I choose not to exercise my right to vote, then that is my problem, but if I have no right to vote, then something is seriously wrong with the system and it needs to be fixed!”

“how can anyone choose [which project option to vote on] without understanding all the details?” – False.  This is a ridiculous argument.  We make choices all of the time without understanding all the details.  Think about voting on a state bond issue, or voting for any candidate (including any Board candidate).  It would be the responsibility of the Board to provide the most important details to all OVA members, and to provide access to all the details to anyone who asks.  The Board would have more than enough power to influence the vote through their preparation of the ballot!  In fact, that will be a challenge which will need to be addressed, in the interest of fairness.

“it would cost the OVA significant money to prepare for and execute elections” – True, and a good reason not to set the threshold for requiring a vote too low.  It was announced that last year’s Board election cost around $15,000 to $17,000, and there is no reason to expect that a major-project election would be much different.  If we were voting on a $100,000 project, that would be a really significant cost, but on a million dollar project, not so much, especially considering the magnitude of the cost overruns that seem endemic to OVA projects.  In my opinion, the threshold will have been set poorly if it ends up requiring more than one or two major-project elections per year.  And if we could delay a major-project election to make it coincide with the Board election, the marginal cost of adding the major-project vote to the ballot should be much lower.

“it would stimulate lengthy marketing battles fought on social media, via email and in print” – And just how would that differ from now?  The arguments might be similar and of similar magnitude, but there would be a resolution in sight (a vote), after which almost all of us would stop discussing it.  The frustration at feeling powerless and ignored would be far lower, and thus lower hard feelings within Oakmont.  Compare that with the arguments over supporting OGC, which never go away because the issue is never resolved, and whatever resolution is eventually arrived at will leave many feeling agrieved.

“Perhaps the biggest problem with requiring a community vote for major decisions is ensuring participation” – It is true that a large percentage of eligible OVA members don’t vote, for the reasons that Steve alludes to.  The goal of an election would be to have a large enough sample of OVA members vote to be representative of the whole.  While that may be questionable if only 1900 out of 3200 eligible households vote, it is far more questionable if only 7 (i.e. the Board) vote.  The BRC has given considerable thought to setting the quorum for making a valid vote, and for ensuring that a vote is likely to fail if it does not represent the whole, by requiring a supermajority of those voting to vote in favor of a measure.  Beyond that, it is very important to me to have the opportunity to vote on an issue that will greatly impact my future in Oakmont; if I choose not to exercise my right to vote, then that is my problem, but if I have no right to vote, then something is seriously wrong with the system and it needs to be fixed!

___________________

Things That Should Not Be Voted On By Members

The OVA Board has a legal and fiduciary responsibility to maintain OVA facilities, and the laws requiring reserve studies and an Asset Reserve Fund support this responsibility.  Therefore, repairs and replacements that are costed within OVA reserve studies should not be subject to membership votes – they are not optional!

In addition to maintaining OVA facilities, and especially since many of our residents have various disabilities, the OVA Board has a moral imperative to become ADA compliant and to provide safety improvements against the possible natural disasters such as fire and earthquake.  This type of work should be considered mandatory and should not require votes of the OVA membership.

For building renovation projects, which involve both repair and replacement and capital improvements, project design should identify the projected cost of each category and only the cost of non-ADA, non-safety-related capital improvements should be considered when deciding whether or not a membership vote is required.

Fiscal Impact Statements

In order to provide information on which an OVA member may intelligently make a decision in scenarios such as those presented below, a “Fiscal Impact Statement” (FIS) should be prepared for any issue to be voted on that involves spending OVA funds.  This is similar in principle to the fiscal impact currently required by OVA Board policy for resolutions on which the Board votes, but it should be more detailed and should include the impact on member dues and any special assessments proposed.  The total cost of capital improvements, divided by the number of current OVA members and the number of months over which the cost may be distributed, should be provided; i.e. games wherein the impact on dues is hidden should not be allowed to obscure the true cost of a project to members, and all the calculation of member costs should be transparent and easy to understand.  If a loan is proposed as part or all of the funding for the project, then the member cost over the term of the loan and the planned term of the loan should be included in the FIS.  Finally, the FIS should include at least a crude estimate of the cost of maintaining and operating new capital improvements or real estate.  In some cases, e.g. providing some sort of support for the Oakmont Golf Club, providing an FIS for the case of not taking action might also be appropriate.

Example Scenarios Where Membership Votes Would Be Appropriate

Scenario:  major capital improvement projects — The nature of Oakmont is determined by many things, but a major determinant is the set of common facilities maintained and operated by OVA.  I contend that any capital improvement project that substantially increases the value of the OVA facilities will significantly change the nature of Oakmont, and therefore should only be undertaken with the explicit consent of those who will pay for and be affected by the improvements, i.e. OVA members.

The roles of the OVA Board in such projects are major.  The Board should, with the assistance of committees and essential contractors, design each project in sufficient detail that it can be well presented to the membership, including a detailed Fiscal Impact Statement.  They should make the case to the OVA membership why the project would benefit Oakmont and would be worth the proposed costs.  If the Board chooses to present more than one alternative to the membership (e.g. new Berger for $10M vs refurbish old Berger for $3M), it should present the same information for all alternatives, along with pros and cons of each choice.  If the membership votes down all alternatives, then the OVA Board should only do work provided for in the reserve study, plus ADA compliance and safety improvements, if applicable.  And, of course, the OVA Board must manage all projects carefully, consistent with its legal fiduciary duty.

The only role of the membership vote, therefore, is to decide whether or not such a major capital improvement project should proceed at all.  The dollar threshold, separating a project requiring a membership vote from one that can be approved solely by the OVA Board, is arbitrary, but I would advocate using a threshold that would limit Board-decided projects to those which would cost less than somewhere between 3% and 10% of the replacement value of OVA assets, or around $300,000 to $1M (using the total replacement cost of $10M from the latest reserve study [4]).  The capital improvement costs should be looked at as an increase in the total value of OVA assets, and an increase above the threshold will both change the nature of Oakmont and, inevitably, increase the future operating costs and, thus, dues cost.  The Fiscal Impact Statement is critical, because it will allow the voter to balance the benefits against the cost of any proposed project.

Scenario:  significant purchases of real estate or corporations (e.g. OGC) — This is very analogous to capital improvements, and the roles of the OVA Board and the OVA membership are the same.  As with major capital improvement projects, a Fiscal Impact Statement should be prepared for any purchase requiring a membership vote.

The legitimate concern has been raised that, should OGC foreclosure become imminent, the OVA Board would need to move quickly to purchase OGC property to avoid the lender selling it to someone else, such as a developer.  This could be handled by holding a vote well before the need, to authorize the OVA Board to purchase the specific property for up to some specified purchase price should they decide the purchase is in the best interests of Oakmont.  As with all the other cases covered herein, this would require Bylaws changes to allow such a vote and to make it binding, and the changes should allow such prior authorization, at least in the case of OGC.

Scenario:  long-term contractual commitments – If the OVA Board desired to commit OVA to a contract, obligating us to pay a large amount of money for years to come, this should be subject to obtaining membership consent.  Two specific hypothetical examples of current relevance come to mind:  borrowing money and making a contract with OGC to pay them an annual amount for maintaining drainage.  I haven’t thought through what a threshold should be for whether or not such a commitment should require a membership vote – the threshold might be different from the one used for capital improvements or real estate acquisition.  Fiscal Impact Statement required.

Scenario:  any decision which the Board chooses to allow the membership to decide — This may seem far-fetched, but I imagine a Board faced with a decision to go forward or not on a controversial project such as the Central Pickleball project.  Rather than make a decision which seems likely to anger half the constituents, no matter which choice is made, the Board would like to allow the membership to decide and is willing to live with the decision.  So the Board chooses to put the issue to a membership vote.  Fiscal Impact Statement required for each option to be voted on.

Scenario:  change in the nature of the relationship between OVA and OGC — If OVA were to purchase OGC, the corporation, or if it were to enter into a contract with OGC that made OVA responsible for OGC losses, or if OVA otherwise became financially entangled in OGC affairs, other than paying fees for specified services, then this would be a significant change in the nature of Oakmont, and should be subject to a membership vote.  Fiscal Impact Statement required for all alternatives, including that of taking no action.

Summary

The fundamental concept is simple:  Any change in OVA property that is large enough to be considered a significant change in the nature of Oakmont, should be subject to the explicit consent of those who will fund it and who must live with the results.

The OVA Board of Directors must be responsible for executing the will of the membership, and therefore must handle all of the lower-level decisions involved in design and execution, but the membership should be allowed to make the decision to go forward or not.

This principle, though requiring changes in the Bylaws, is both practical and consistent with popular sovereignty, and I believe that implementing it would improve both Oakmont governance and the civility of Oakmont discourse.

___________________

References and a Note

[1]  Frequently Asked Oakmont Questions, an article iIn the January 1, 2019 issue of the Oakmont News.

[2]  Popular Sovereignty, Wikipedia, https://en.wikipedia.org/wiki/Popular_sovereignty.

[3]  Representative Democracy, Wikipedia, https://en.wikipedia.org/wiki/Representative_democracy.

[4]  A note on calculating the threshold above which a membership vote is required:  In evaluating whether or not a capital improvement is significant, I wanted a measure of the total capital value of OVA facilities, not counting the value of the land itself, because it is easier to visualize the meaning of increasing the capital value by some percentage as being significant.  This capital value could be taken as either the total replacement cost from the most recent reserve study (a little over $10M) or the total replacement cost estimated by OVA’s insurance company (I believe that was announced to be around $14M sometime last year), and I used the lower $10M figure.  This does not mean that the threshold calculation should actually use the number from the reserve study, however – people who know more than I about such things have warned that the reserve study is too easy to manipulate.  One suggestion is to use the average of the most recent three years’ OVA operating expenses as a basis.  In this case, the actual calculation would use a different percentage, in order to arrive at about the same dollar value for the threshold.  E.g. if the average annual operating expenses for the past three years was $2.5M and you want a threshold of $1M, then  you would use 40%.

The reason for using a percentage of some such budgetary measure, of course, is to account for unknown future inflation.  Our current Bylaws, for example, still have a paragraph limiting OVA dues to no more than $10/member/month.  Since that language was written, inflation has made that dollar limit ridiculous, and state law has long since overridden it, but it would be better to anticipate inflation when we write Bylaws amendments.

Share this page:

4 Comments

  1. John MacInnis on January 27, 2019 at 8:29 am

    Just 3 words:

    YES and Thanks

  2. Elihu Smith on January 27, 2019 at 10:49 am

    Thank you Bruce !

    All candidates for the OVA Board in the next election should be asked their position on this matter.

    They should be asked to answer with either a for or against choice of options – otherwise we will get all sorts of hedging and waffling.

  3. Yvonne Frauenfelder on January 27, 2019 at 4:49 pm

    While the principles of direct democracy are worthy and noble, we, the Oakmont membership, are almost viscerally opposed to spending large amounts of money. Perhaps the traits of an older and more conservative generation.

    Before the BOD lies the urgent and all important issue dealing with the financial difficulties of the Oakmont Golf Club.

    Based on the inclinations of the residents a vote on the matter would likely turn down any assistance.

    Respective posts on Nextdoor have indicated such an outcome, which would carry negative and future implications for the entire community.

    Finally, a bankruptcy by the Golf Club would be 1) damaging to the reputation of the community, and 2) give, potentially, an outside entity (developer) the right to determine the future of the village’s status.

    • Bruce Bon on January 27, 2019 at 7:08 pm

      Personally, I believe that Oakmont residents, if presented with the information necessary to make a rational decision, will make a reasonable decision. The assertion that “a vote on the matter would likely turn down any assistance” is completely unproven, and based on the verbal support expressed in multiple OGC-related meetings last year, I think that a lot of folks are near panicked that the feared negative consequences will happen — that panic should be enough to make a lot of votes in favor of spending the necessary funds.

      The Golf Club is certainly a dilemma, and no action that I have heard proposed by the OVA Board is going to be enough to save them if the situation is as bad as it seems. The most likely result is that OGC will, indeed, become insolvent, and the OVA Board will urgently attempt to buy the property before the bank sells it to a developer. My guess, based on declarations by the few OGC members who will talk, is that this is going to happen far sooner than we could possibly make any of the Bylaws amendments that would be required to implement the changes I suggest in my article.

      But let’s say that OGC somehow survives another year or two, and Bylaws amendments happen, and OVA members vote down any attempt to buy the property or otherwise keep it out of the hands of the developer. I maintain that doing something like that, even if it is extremely unwise, is still our right. As a community, we will have to live with the consequences. I don’t believe that our election of directors gives them the moral right to make such a large decision without our consent, even though, until our Bylaws are changed, they have every legal right to do so.

Leave a Comment




IMG_9427.JPG

Never miss an article

Sign-up for The Oakmont Observer email list to keep up to date.