Expiry of Operating Agreements - Are YOU Ready?

Operating Agreements

Before Expiry

– Rules of operations

– Subsidies

– Mortgage payments

After Expiry

– Some restrictions removed

– Subsidies end

– Mortgage payments end

Rules that Continue to Apply

Non Profit Corporations:

– Letters Patent

– By-laws

– Policies & Procedures

Things to Consider

Continue to be:

– Affordable – Provincial Property Tax Exemption

– Viable - Replacement Reserve

– Accountable

e.g. Financial Statements

In a Nutshell

Operating Agreement restrictions end

and

Government subsidies end

Who is Affected in N.B.?

• Non-profit and co-op housing providers managing over 5,400 social housing units

• Over 5,000 Provincially owned & administered RNH & Public Housing units

When Will This Take Place?*

PeriodExpired

AgreementsNo. ofUnits

Prior to 2010 19 130

2011 – 2015 27 298

2016 – 2020 114 1,940

2021 – 2025 131 1,774

2026 - 2030 119 1,261

Total 410 5,403

* Includes Non-profits, Co-ops and Urban-Native Projects Only

What Are The Issues?

Will there be enough revenues to maintain the properties and do capital repairs?

Will the projects generate enough revenue to provide rent/tenant subsidies?

Will there be funding to help build more housing units and will groups be encouraged to do so?

What Steps Have Been Taken?2006 – National study on Impact of Expiry of Operating Agreements resulting in a report titled ‘Was Chicken Little Right?’ Copy available on the CHRA web-site.

Development of Templates (CHRA) to help providers determine viability of their projects and enable them to test remedies

Joint awareness effort – Province has offered sessions on Expiry at NBNPHA annual conferences since 2005.

What Else is Being Done?

Injection of Stimulus Funds to rejuvenate and undertake

necessary repairs to affected housing projects – over

$37,000,000 will be spent in 3 years.

- Priority is being given to those with earlier expiry dates.

CHRA Study Results

Two key findings:

– Most Pre’86 projects will be viable

– Post’85 projects will need to implement remedies to ensure viability because of high % of RGI units

How Do YOU Prepare?

Evaluate your project

Evaluate Your Project

Test # 1 - Does current year mortgage exceed amount of current year subsidy?

- If Yes project is likely viable at expiry - If Not this is a warning flag

e.g. Mortgage Payment – Subsidy = potential viability $98,817 - 29,352 = $69,465 (surplus)

Evaluate Your Project (Template)

Test # 2 – Determine Net Operating Income (NOI)

- Current NOI and NOI at Expiry

(NOI = Cash flow excluding mortgage payments and subsidy revenue)

Evaluate Your Project (Template)

Test #3 - Evaluate Capital reserves:

• Are reserves and contributions sufficient to maintain project in good condition?

• A building condition assessment is RECOMMENDED

• Comprehensive Replacement Plan

(www.nbnpha-alsblnb.ca)

Possible Remedies

Assess potential to raise rents

Reduce subsidy requirements by selecting

tenants/members requiring shallower subsidy

Shift units from RGI to market rent

Possible Remedies (continued)

Evaluate feasibility of repair loan from private

lender (bank)

Government programs may provide a source of

additional funding

What else?

Review current delivery practices and policies for improvements to help minimize impact

Discuss possible solutions with other providers at forums such as this

Discussions with your Portfolio Management Officer

Questions?

Template:

Hands On Exercise

- CHRA web-site www.chra-achru.ca, - choose Library, - click on ‘Display All Files’ and - scroll and find ‘Single Project Template’.