On the Real Cost of Greening Recreation Center 3
On October 16th, board and Pulte representatives were available at the Town Hall meeting to discuss the design features of our new recreation center. Below are some highlights of that meeting and my commentary on the real cost of greening of RC3.
While we should all be happy to learn that RC3 will soon restart construction, not everyone is rushing to applaud this imminent event. Listening to the responses of board members at the RC3 Town Hall meeting this week was not very reassuring or comforting. Some board members even appeared to be confused or merely coy, or possibly embarrassed when homeowners inquired about the cost of greening the building.
For example, responding to a resident’s inquiry, one such response was that the cost of greening the building was borne by our homeowners from the price they paid for their home. While that may be one way of looking at the cost issue, the impression given was that, like with the Anthem Center and Independence Center buildings, the added cost of greening RC3 would be borne by the Developer, Pulte. That would be just great if that were true, but it’s not true. I believe it would be more accurate to say that the added cost of greening RC3, about $1.2 million, will be coming out of our own pockets from future assessments we all are obligated to pay to support the association’s reserve fund.
Said another way, of the roughly 9 million dollars Pulte said they will be spending in constructing RC3, Pulte will contribute about 87% of the building’s cost while Sun City homeowners will be effectively contributing about 13% of that cost as I will explain below. In other words, the cost of greening RC3 will cost us, not Pulte, about 13% of the total cost of the building. Pulte, our developer, will not be contributing one red cent towards the construction costs of greening RC3. On the other hand, we homeowners will be contributing the full cost of greening RC3.
The issue of whether to green or not to green RC3 was clearly and ultimately a board decision to make. So that no one is mislead, the association was never required to green RC3. The extent of Pulte’s sole building obligation to the community is to construct RC3, which they are willing and prepared to do. However, Pulte had no obligation to green RC3 unless the board asked Pulte to do so. While it’s unclear when this board made that decision, it is clear that Pulte was willing to build RC3 without greening, i.e., without our homeowners having to incur the added building cost of greening.
At some point in the not too distant past, the board agreed to proceed with the greening project. In so doing, the association, and not Pulte, would bear the entire cost of greening RC3, up to $1.375 million. The money to pay for greening RC3 would come from those so called co-generation funds that we understood were promised pursuant to a 2002 negotiated settlement agreement in connection with Pulte’s proposal to modify the Anthem master plan and the then sale of the existing golf courses to Troon Golf, an act that preclude construction of the promised third golf course. Those master plan changes substantially reduced the size of Sun City and brought us RC3, and the Solera and Anthem Highlands communities, among other changes. Here is how Pulte describes their obligation regarding those funds :1/
"In lieu of a third golf course within Sun City Anthem, Del Webb makes the following commitments:"
“6. Del Webb will fund up to $1,375,000 for the development and construction of a co-generation plant for the Towne Center recreational amenities, and if practical, for the satellite amenities as well. Any monies remaining after the construction of this/these co-generation plants will be placed in Sun City Anthem Community Association’s reserve fund at transition. Should the co-generation plant/plants prove unfeasible or if for some reason it is agreed not to proceed with the plant, then the entire amount will be contributed to the Sun City Anthem reserve fund at Transition.” [Emphasis added by rlj.]
As related above, it is perfectly clear what the parties had agreed to, namely, that “if for some reason it is agreed not to proceed with the plant, then the entire amount [$1.375 million] will be contributed to the Sun City Anthem reserve fund at Transition.” Wow, that sounds pretty clear, if not enticing. To read the board's Settlement Agreement with Pulte on the greening of RC3, together with a summary of the costs of greening, Click here: Settlement Agreement Greening Cost Summary
To put the board’s decision to green RC3 in perspective, we actually had the option of having our cake and eating it too. But the board decided to not take that option. That decision may take a little more explaining than our willingness to honor a prior board member’s handshake agreement with Pulte. In any event, it’s abundantly clear to all that Pulte would have deposited $1.375 million into our reserve account pursuant to that 2000 Agreement and they would have built our fully equipped 21,000 sq. ft. RC3 with all of the recreational amenities included, which included three pools, tennis courts and all. To see the City’s 2007 approved construction drawings for RC3, Click here: http://www.scaview.org/RC3Plans.html
That $1.375 million is what economists refer to as the opportunity cost of the board’s decision to proceed with the greening of RC3. The opportunity cost is the value of the product forgone ($1.375 million) to obtain or produce another product, in our case a “green” building. The so called next best thing that a person can engage in is referred to as the opportunity cost of doing the so called best thing and ignoring the next best thing to be done. But, in reality, was the decision to forgo receiving the $1.375 million for our reserve fund the best thing for us to do? Another way to look at $1.375 million that would be added to the reserve fund is to understand that it is the equivalent of almost $100 per household for 7,144 units for two years, based on proposed assessments for 2009 of $960 a year. Additionally, money added to the reserve fund would be available for future needed or emergency repairs. 2/
But wait, what about the utility cost “savings” we will derive from greening RC3? Will not those savings soon pay for our investment and continue thereafter? Very true, a green building should be able to generate a savings from lower utility costs. How much savings will depend on a number of factors, such as the building’s size and design, materials used, the nature and scope of the greening improvements and, in the final analysis, how well the building performs day-to-day in its use of energy. That raises another question, in part addressed by Roz Berman in the October Spirit. How energy efficient will RC3 be?
As Roz Berman correctly points out in her informative Spirit article on RC3, Pulte is targeting compliance with nationally recognized LEED certification standards, in our case the Silver level of certification. As Pulte and the board understand, shooting to attain a certain level of efficiency performance in their design of RC3 is not quite the same as meeting that standard, as Pulte readily acknowledged during the meeting. In fact, Pulte makes no guarantee that the building once completed will actually be able to achieve that level of performance or meet the Silver LEED level of certification. That “targeting” effort is amply spelled out in the Pulte drafted Settlement Agreement the board and Pulte recently executed as a condition of beginning construction on this project. For additional information about LEED’s rating and point system, Click here: http://www.usgbc.org/DisplayPage.aspx?CMSPageID=222, or for more general information about the program, http://www.usgbc.org/.
Assuming that RC3 meets the LEED Silver certification level (by achieving so many points, a minimum of 33 points for Silver certification), and assuming that we can achieve a projected 20% reduction in utility costs, how long will it take the association to recoup the value of that opportunity cost, $1.375 million? Based on a pre-greening average utility cost estimate of $30,000/mo., less a 20% savings for greening, I figure it would take us 19 years in cumulative savings to equal that opportunity cost. Of course, if the utility cost were greater than $30,000/mo., which will increase over time, or if the savings in utility costs were less than a projected 20%, the outcome in the number of recovery years would be different. But at least after that recovery period, whatever period it is, board members told us that we will be free and clear to begin to receive the full benefits of greening. Or, can we count on those savings continuing?
As former president Bill Clinton said, “it depends on what your definition of . . . .” In our case, the potential savings from greening RC3 must be compared to the potential of having that $1.375 million deposited in the association’s reserve fund. Let’s assume for the moment that that money represented some type of floor or cushion in the reserve fund that could be called upon only in case of a dire emergency. In other words, let us say that this the money went unused and was allowed to grow over time from the interest earned. As with other invested reserves, it’s value would likely double over that same period and keep doubling over time. In that event, one might be tempted to argue that the projected savings from greening RC3 might never overtake the projected earnings from such a deposit in the association’s reserve fund, but let us not press the point any further.
Meanwhile, even higher efficient solar panels now under development will inevitably make today’s investment in solar power akin to the purchase of a Ford Model T car. Consider, any investment in a technology with a long-term payback period will quickly guarantee obsolescence of that technology over that period. In twenty-plus years from now, does anyone doubt that our energy equipped recreation building will need to be technologically upgraded to achieve energy efficiencies that are unheard of today? Those unknown upgrade and replacement costs must be considered and factored in when evaluating the true “cost” going green. Such a prospect, of course, would raise the ultimate question of the board’s decision and value to the community of greening RC3.
In terms of today’s energy efficiency levels, higher levels are theoretically possible from going green. However, we were told by Pulte that overall site and building design considerations precluded us from achieving those higher efficiencies. 3/
If, as we were told, the value of greening is the wave of the future, why then do Sun City Anthem homeowners have to be the ones who are somewhere on that wave as nothing more than a potential showcase for others? Or, more pointedly, why did the board feel the need for our homeowners to exclusively fund this energy investment wave to the exclusion of Pulte sharing in or contributing to that enterprise? If Pulte saw no value in investing in the greening of RC3, why should we?
I would feel differently if we had the benefit of that $1.375 million in our reserve fund, with Pulte shelling out their money for the construction and greening of RC3. Absent that happening, it appears our board was more than happy to essentially “donate” back to Pulte the cost of greening RC3 that Pulte had written we could have had contributed to our reserve fund. It was little wonder that some members of the board had trouble in attempting to address the cost issue.
Ron Johnson, 19 October 2008
P. S. For an interesting article on home solar energy appearing today in Sunday’s edition of the Las Vegas Sun, Click here: http://www.lasvegassun.com/news/2008/oct/19/solar-investment-pays/ You will note that Sun City’s own solar expert Steve Rypka and his company, GreenDream Enterprises, provided the content for the Sun’s article.
Footnotes