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Mike Dixon Responds to Ron Johnson, or Does He?

On the Villa Reserves, Part I  [For Part II]

Mike Dixon cites as his reason for broadcasting his response (see below) to the Community to the alleged fact that my letter to the Association “was made public even before I received it.” That's doubtful. First of all, my letter to the Association was never made public, while a separate rather long included White paper on Villa reserves was published. Second, a copy of my letter of complaint was sent via email to RMI on the 19th, the day prior to the publication on the 20th of that Villa reserves White paper. That letter of complaint with the included paper on Villa reserves was delivered to RMI at 10:32 a.m. on the 20th. Whether RMI apprised Mr. Dixon of my complaint is unknown. Nevertheless, had RMI or Mike Dixon wanted to view the entire package prior to its formal receipt by RMI, that opportunity was obviously available, but no interest was expressed. Third, I seriously doubt as a valid reason that the difference between the 5:30 a.m. publication date and the 10:32 a.m. arrival time of my complaint five hours later would have made a hill of beans in anyone’s decision to publish the Board’s response to the Community. Fourth, I believe, as others should quickly realize, Mike Dixon is clearly pursuing a political agenda both in his response as well as in his decision to publish his response to me to the Community. And fifth, the Board would prefer not to see any (more) defections on the Reserve Study Task Force prior to their recommendations to the Board.  

The fortunate, or unfortunate depending on one’s view, consequence of having the president of the Association respond in this manner is that the Board is now officially on record as saying something about this Villa reserves matter. Up until now, the Board and Jack Troia, the Board-appointed chair of the 2005 Reserve Study Task Force, have remained conspicuously silent when sensitive “why” questions were raised—telling those in attendance that’s the way it is—without giving any reason or explanation. The question, of course, is whether the Board now being “on record” will mean much of anything, or are we merely experiencing more smoke and mirrors to obscure what’s really been going on?

What’s the fuss? One more thing before I get into Mike Dixon’s response. When on the 20th Mr. Dixon went out of his way to come over and get in my face—at about 6”—in a very objectionable and confrontational manner to intimidate me, I had the impression Mike was more than simply upset. Had he not been keeping up on the Villa reserves matter, I wondered. After all, my latest paper, the one he received on the 20th, was more of a chronological review of what I had written on this matter over the past two months.   

In his response, Mike Dixon makes what has the appearance of an interesting argument for using current or actual cost data for the purpose of “looking back” to 2005. In fact, the Board/Task Force had attempted to do just that by using actual cost data secured in 2007 for benchmark purposes to establish a reserve cost for 2005, while ignoring the 2006 Reserve Study. The problem is that construction costs in 2007 (or 2008, which are even lower) have absolutely nothing to do with the cost of construction in 2005. In fact the peak construction Index for Clark County in 2005 was 58% more than the lowest construction Index in 2007, potentially reflecting a marked disparity in actual cost data for these two periods when looking at actual costs.
 
        While Mike is prone to make the seemingly plausible argument he does when the cost of painting is allegedly falling in subsequent years, from 2006 to 2007 to 2008, I believe he would be pressed to make that same “look-back” argument if construction costs had been increasing over that same period. The Developer would never accept such a proposition—namely that actual painting costs in 2008, say at $2.50/sq. ft., should be the benchmark year for determining painting costs in 2005. If the Developer would not buy the Board’s argument in a tight labor market with rising costs, why should the Villa owners accept the Board’s same fallacious argument in declining labor market. If Mike Dixon can convince you that 2008 costs are relevant to transition costs in 2005, adjusting for inflation, he probably can talk you in buying a bag of pennies at today’s gold price.

Now, the Board is telling us that the cost of Villa painting in 2008 is $0.63/sq. ft., way down and substantially lower than in 2007. The “message” to Villa owners at the last Reserve Study Task Force (RSTF) meeting when that was announced was made, was essentially, “aren’t you [sleepy Villa owners] happy with what we given you at $0.80/sq. ft, when we could go even lower.”  What a bunch of crock.

What Mike failed to mention is that actual cost data is relevant as a substitute for adjusted national cost data when that data is for the same year as the year of the reserve study. That would make sense. What doesn’t make sense is to mix apples and oranges and call the result a watermelon, which, of course, is meaningless. The Board would like us to adopt their “watermelon” theory of determining costs their “look-back” reserve study. For example, if the reserve company is doing a study for 2008 and the adjusted national cost estimate for Clark County for “x” is $1.25/sq. ft., but the Association has bids from contractors A & B with bids of $1.82/sq. ft., the reserve specialist will substitute the $1.82 cost for the adjusted national cost of $1.25 for the task of performing “x.” That’s the way it’s supposed to work.

When the idea of using actual cost data for 2005 was raised, the RSTF all of sudden became deaf—they did not want to listen. Why? Would not that data be more accurate? They were content, however, in taking cost data from one year and applying it to another year, as long as the result (lower Villa reserves) would produce the desired outcome.

Even Mike might be forced to acknowledge that had construction actually costs increased rather than declined over the period since 2005, the Board would have kept their “tinkering” fingers out of the reserve study pie altogether. Because it was the other way around, the Board saw their chance to take advantage of the declining construction market and “sell” their watermelon theory of applying next year’s actual costs (2007) to last year’s “look-back” reserve study’s costs (2005) to those starving Villa owners. Sadly, those Villa owners on the committee were designated (actually selected) by RSTF to represent their respective Villa Neighborhoods. And they nodded their agreement when they were called upon.

Mike Dixon offers an interesting opinion. He states that “for a look-back” study the actual cost is adjusted for inflation back to the date of the study.” Since when? Mike offers no basis for his statement. Further, unless Mike can demonstrate that the years in question are in fact economically comparable for cost purposes, which he is unable to do, he cannot then apply an adjustment for inflation back to the date of the study to obtain a meaningfully result, let alone a properly computed reserve study result. As Mike well knows, you put junk data in and you get junk data out.

Here are some other points Mike fails to deal with. First, if you’re going to rely on actual costs for a prior year, in this instance, 2005, then one should use actual costs obtained for the year under review, namely 2005. As I’ve said, the RSTF refused to consider that option—that option did not conform their predetermined plans and proposed outcome. One explanation could be that the Board did not want to deal with information that might be contrary to the outcome they wanted.  

Second, the only mandate announced by the Board to the Community for Diversified Facility Services to follow was “to take the 2006 Reserve Study and work back in time to validate Reserve funding required from developer at transition, May 31, 2005.” That mandate was simple enough and implied a hands-off approach. Only later when the Board realized there was an inherent problem with that mandate and their newly defined objectives concerning the outcome for Villa reserves did the Board decide there was a need to “tinker” with the database that would be used to determine that outcome.

In denying any political motivations for their decision to use different cost figures for painting Villa buildings as opposed to Sun City-owned buildings, Mike Dixon makes a key point. That point is “we are doing it because the “actual costs” for painting different buildings is different.” What facts are available to support Dixon’s statement. To justify a cost differential Dixon cites the use of “scaffolding to paint upper stories.” First, Mike would lead us to believe that scaffolding and residential building are incompatible. On the contrary, if as I understand the use of scaffolding, its use, whether residential or not, is intended to make the application of paint more efficient, i.e., faster and more productive. If that’s the case, I would be surprised that some type of scaffolding (as opposed to ladders only) would not be used in household painting, if only to be more productive.

The recognition of this fact is implied in the National Construction Estimator since that database on painting costs does not provide separate cost data for painting with and without scaffolding. In other words, the cost differential is nominal or included in administrative overhead. If any cost differential is warranted for the use of scaffolding, that cost differential (for rental) should not be greater than 5%, whereas the cost differential proposed by the RSTF is substantially greater than that.

Clearly, Mike Dixon and I view this matter differently. When Mr. Dixon is in a position to actually support his numerous statements and conclusions with facts rather than innuendo, his arguments just might convince the more weary among us. Until then, Mr. Dixon has provided us with only hyperbole that attempts to confuse the issues and the Community, defame yours truly in the process, and in the end failing to address the question of, Why? Jack Troia wouldn’t answer that question and Mr. Dixon has not succeeded in doing so either.

        In a day or two, I’ll return to the remaining issues raised by Mr. Dixon.

Ron Johnson, 26 March 2008

Statement by Mike Dixon, 25 March 2008

Last week, a resident submitted a certified letter of complaint to the Board alleging violations of NRS-116.  Under this statute, when I receive a certified letter alleging a violation, I am required to respond within 10 days.  In the past when I have received a letter such as this, I responded privately.  However this letter was made public even before I received it.  As a result I am sending out my response as an e-mail to the community as well as in a certified letter to the member making the complaint.

Mike Dixon

Dear Sir:

Your allegation that the Board of Sun City Anthem has breached their fiduciary duty by deceiving and defrauding the owners of Villas is without merit because all of the Board’s actions in this matter are in compliance with and supported by NRS-116 and our Governing Documents.

Your principal allegation in your letter involves “tinkering with” the reserve data base to achieve a “politically acceptable” outcome.  The reserve specialist told members of the task force that there are two acceptable methods of determining a cost.  One method is to use the standard amounts from a published database.  The second method is to use an “actual cost.”  For a “look-back” study the actual cost is adjusted for inflation back to the date of the study.

Your argument centers around the fact that we are using different painting costs for painting the villas than for painting other Association buildings.  We are not doing it to achieve a “politically acceptable” outcome; we are doing it because the “actual costs” for painting different buildings is different.

We have several buildings for which we “reserve” for painting costs, including the villas, Anthem Center, the Security Patrol building, Independence Center, etc.  Anthem Center is a multistory building and requires scaffolding to paint upper stories, which results in a greater painting cost per square foot.  Since we actually painted Anthem Center in 2007, we have an “actual cost.”  We asked the reserve specialist to use that “actual cost” of painting adjusted back to May 31, 2005 for the “look-back.”

The standard amount for painting in the 2005 database is $.80/ square foot.  We have received bids for painting the villas in 2008.  Adjusting these “actual costs” from the accepted bid back to May 31, 2005 would result in a cost of less than $.80/square foot for painting the villas.  While we could legitimately use the lower number, the Reserve task group recommended that the reserve specialist use $.80/square foot from the 2005 database for the villas painting cost.

You specifically refer to an amount of $1.57/square foot for painting the villas.  This amount was taken from the Reserve Study completed in late 2006 and was used for all our facilities.  The amount was based on bids obtained at that time by our Facilities Department for painting Anthem Center and was provided to the reserve specialist as our best estimate of costs at that time.  Our “actual cost” for painting Anthem Center in 2007 was less than this 2006 estimate.  Based on current bids, we know that the costs per square foot for painting the villas is less than the cost of painting Anthem Center, so there is no justification for using the $1.57/square foot in the “look back.”

You have accused the Board of engaging in “unadulterated corruption,” “fraud,” and “conspiracy to deceive and defraud” villa owners.  Again, your allegations are not supported by law or by the facts.  All of the Board’s actions were compliant with NRS-116 and our Governing Documents.

NRS-116.31038.3(a) requires that within 30 days of transition, “the declarant shall  . . .   deliver to the association a reserve account that contains the declarant’s share of the amounts then due, and control of the account.”

The declarant’s financial obligation under this section of the law is to compensate the Association for “wear and tear” on the Common Elements during the period in which the “Common Elements” were controlled by the declarant before transfer to the Association.  The dollar value of “wear and tear” is calculated based on the fraction of the “useful life” of the “Common Elements” while the Association was under declarant control.  After transition in May, 2005, the Associations became responsible for funding reserves for “Common Elements.”

As defined by NRS-116.017.2, “Common elements” means in a planned community such as Sun City Anthem, “any real estate within the planned community owned or leased by the association, other than a unit.”

However, the CC&Rs of our Association, which all units owners are required to sign at time of purchase, further distinguish in Section 12.1 that:
“Certain portions of the Common Area may be designated as Limited Common Area and reserved for the exclusive use or primary benefit of Owners and Occupants within a particular Neighborhood or Neighborhoods. By way of illustration and not limitation, Limited Common Areas may include entry features, recreational Facilities, landscaped medians, cul-de-sacs, lakes, and other portions of the Common Area within a particular Neighborhood or Neighborhoods.”

These “Limited Common Areas” are not available for use by all members of the Association.  In fact, the individual CC&Rs for the villas describe the walls and property outside the walls as “Limited Common Areas” exclusive use of which is assigned to the owner(s) of the villa(s). Section 12.1 goes on to say,  “All costs associated with maintenance, repair, replacement, and insurance of a Limited Common Area shall be a Neighborhood Expense allocated among the Owners in the Neighborhood(s) to which the Limited Common Areas are assigned.”

Control of the Association “Common Areas” was transferred to the homeowners at “transition”  on May 31, 2005.  Control of the “Limited Common Areas” for the villas was transferred by the developer directly to the purchasers when the units were sold.  At no time was control of the villas transferred to the Association.  The Association is only responsible for managing the “maintenance, repair, replacement, and insurance” of the villas “Limited Common Areas.”  The Association is not responsible for any costs associated with these activities.

Since the villas were “new” when they were first sold by the declarant, there was no “wear and tear” while under declarant control.  Further, “All costs associated with maintenance, repair, replacement, and insurance of a Limited Common Area shall be . . . allocated among the Owners  . . . to which the Limited Common Areas are assigned,” therefore for the villas, there was no “declarant’s share of the amounts then due,” as required under NRS-116.31038.3(a).   On May 31, 2005, the declarant turned the Operating and Reserve Accounts for the Association, the Villas, and Pinnacle over to the Association as required.  At least one villa owner has requested and been provided with all Association records on the villa funds. He has been provided with over 800 pages of documentation showing the disposition of these funds from July 1998 through transition. The bank statements, fund accounting records, and reconciliation reports that were provided clearly show that all moneys were properly accounted for and that no money is missing.

An additional fact evident from these records is that if the declarant had transferred $33.80 per month of villa assessments into the villa reserve accounts as had been committed; there would have been insufficient funds in the villa operating accounts to meet expenses. This would have necessitated an increase in villa assessments as early as 2002. For reasons unknown to me, the declarant elected to transfer a lesser amount of villa dues to reserves and avoid increasing villa assessments.

While it is clear that the developer was under no obligation at any time to fund the villa reserves, their willingness to contribute $207,000 to the villa reserve accounts and make in-kind contributions as part of the Villa Agreement negotiated by the prior board could be viewed as “compensation” because their decision not to increase villa assessments in 2002 and 2003 resulted in the villa reserves being under funded.

In summary, I remind you that legally “all costs” associated with the villas are the responsibility of the villa owners. If you are convinced that the villa reserves are under funded by the amounts detailed in your letter, I am willing to put an item on the agenda for the April Board of Director’s meeting establishing a special assessment for the villas. That should give you sufficient time to explain to the villa owners why you think they should be charged an average of $1480 per villa to satisfy the deficiency.

You have accused the Sun City Anthem Board of Directors of failure in our fiduciary duty, fraud, conspiracy to commit fraud, and corruption.  Fraud is “a deception made for personal gain.” Corruption implies “failure to perform one's duties or performing them in an improper way, often to the detriment of their intended purpose.”   While you have provided no facts to support your allegations, there is ample evidence proving that the Board did not at any time “breach fiduciary duty” in its management of the villa reserves and the “look back” Reserve Study.  All of our actions on this matter are compliant with and supported by Nevada law and our governing documents. 

There was no failure to perform our fiduciary duty or performance in a way that was contrary to their intent. You have done the Board, the villa owners, and the entire community a great disservice by your unconscionable disregard for the facts and the law. There was no attempt by the Board to deceive the villa owners. There was no money taken from the villa owners. The only thing taken from the villa owners as a result of your “white papers” was their faith in a system that has been working overtime on their behalf.

Sincerely,

Michael A. Dixon
President, Sun City Anthem Community Association, Inc.