How do we pay for running The Park?

First circulated via NFA on Aug 6th 2023

Today I am going to write about the costs of running the Park and the liabilities. This one is around 3000 words.

First off, it’s great that people are becoming aware that the Park does actually require running, has costs associated with that and that somebody is already doing this for us* (!).

Teasing aside, I do think it is a key to the future and the community running well that each of us engage and wake up as citizens more, and start to understand what is happening around us, including concerning money as well as power. And this engagement is happening already which is reassuring.

Hello material world!

The second point is well, turns out we, or those who owned it before us, have been running the Park and paying for that ok for the last 50 years or so.

Yes it’s true the system for operating the Park has become tangled and now is a great time for an “systems upgrade” and an untangle which will make things run more efficiently financially, and help in terms of nimble decisions and effective action in the future (just as it does on your computer or phone when you move from patches to proper upgrades). But even if creaky, it has basically worked ok for a long time.

Third, this might be the right time to say thank you and appreciate those who have been handling all of this for us for many years!

So all of that is to say, after the buyout, we will keep paying for things much as before, by a modest HOCO tax, among other things.

How we currently pay for the running of The Park

For those who don’t know - the way it currently works is Titleholders directly, and non-titleholding residents indirectly (via a portion of their rent) pay HOCO.

HOCO is an internal tax/services charge I estimate at roughly 15-30 pounds per month per head, depending on how well filled your house or flat is. It is actually charged on the size of your building, so a 60 square meter, modest two-bedroom place, costs about 30 pounds per month, so if you have a well filled household your HOCO tax is less per head, if you are one person alone, it is more. Lori Forsyth and others on THA can give you the exact figure of what that adds up to annually across the whole Park. But that is the tax base, from which the operating costs of the Park are primarily paid.

None of that (paying for our own operating costs via a small tax) would change with a community buy out. It might go up a bit if it has been set at the wrong level for infrastructure maintenance and sensible scheduled investments, needed on a future basis, to keep things in good order.

This is just like budgeting for an old car needs to take into account that costlier big things need doing, or will go wrong, from time to time or it's similar to a well-run "share of freehold" set of flats who together in the management committee of owners, plan a schedule of works over future years and charge themselves a services fee and sinking fund for that future maintenance and upkeep.

Questions about NFD and THA

Certainly, there are some questions about should THA have a billing department and receive HOCO direct, rather than using NFD’s billing department? (My guess is it was set up years ago in that way because NFD/Holiday Park already did bills for caravan guests, so it just made sense to use their software, systems and team to bill residents, as the private developments grew). That system “patch” of using NFD may no longer be appropriate or it may be ok – I believe THA are already in discussions with FF and NFD on this topic. Sorting it out /carving it out is an obvious move as part of the buyout.

Whether we continue exactly as we are, such that some of our HOCO gets spent on paying for NFD administration employees and systems to do the billing for us, or we prefer to do that ourselves, (maybe just taking on those NFD employees) isn’t an "existentially urgent" question, in terms of community buy out and paying for ongoing operations.

Aligning ownership, tax payments, tax spend on maintenance, & supervision over that spend (coherence)

There probably is an opportunity for efficiency by alignment (of power and ownership over our own resources, such that they can be technically supervised better), as we buy out.

On that specific point (alignment and good technical supervision) - a Foundation struggling financially doesn’t have the bandwidth to do a good supervision job (both because of the extra cost of technical staff or independent contractor’s salary) and because of being hands off in running NFD.

Underinvestment

There is a risk that NFD, which is 100% owned by the Foundation as its trading subsidiary, and which provides income to the Foundation annually, has not re-invested in the infrastructure as it should have been doing, because FF may have preferred that as income to itself, when really it should be re-invested into the maintenance of the infrastructure and the assets.

In fact this, or something like this, is what Terry referred to in the Hall in the last meeting - there has been chronic underinvestment over the last decades. This is important (and NFD really should be doing that basic job well, before it makes any big expansion plans).

Aligned technical supervision

So, from that point of view, it probably makes more sense that THA takes the money directly and then spends the money directly, and then has proper authority and power to supervise, with a well-qualified technical manager, to make sure that there is a proper maintenance and reinvestment schedule and that things are being well prepared for in the future with a “sinking fund” and reserves.

This is actually one of the key reasons for community buy out – you align ownership with responsibility, accountability and decision-making power. Aligned, coherent things run far more efficiently (financially, in terms of nimble decision making and effective action, and with better accountability). When you own, you have authority to supervise and hold accountable.

How do we pay for the underinvestment and bring The Park back up to tip top?

This brings me to the question of that underinvestment. Obviously, we will need to maintain wires, roads, lights, water supply, sewage, and so on in the Park. We already needed to do that, buyout or no buyout. It will make it much easier to do that when we own ourselves.

My guess is (people like Paddy and John Talbot are far better informed than I am on this topic) we will need to invest significantly in catching up on infrastructure because the Foundation and NFD have not been doing it as much as they should, due to these financial struggles, per Terry’s comments, and also to do with the structural misalignment which has made it hard for THA to have real authority over NFD (and maybe because of the lack of THA member engagement too, because we don't have real ownership and direct power over).

What is the cost/surveying

The action steps to paying for the investment include finding out what is needed in the first place.

That will need a really good infrastructure survey, whose cost I would expect to be borne by FF and NFD in this case, because this is a friendly buy out and they acknowledge they haven’t been investing as they should. As buyers, to be doubly sure we might want to pay for it ourselves too.

There is 11K feasibility money from the Scottish Land Fund Stage 1 for example, which could include the survey a part of its valuation “tranche” (we get money to get a good valuation done and a good valuation will include figuring out the infrastructure investment needed, using excellent professionals).

In fact, I think the preliminaries may already have been done by forward thinking John Talbottt with Paddy Atkinson using JTF grants. I believe John and Paddy have infrastructure mapping on CAD completed. (The knowledge that those two have is invaluable, and after all John set most of it up 20+ years ago, so wherever they end up living, we will be consulting them for some time and hope to see them back often).

We will and should also insist on the seller providing insurance from a high creditworthy insurer on any hidden liabilities lurking in the infrastructure. This is fairly standard in real estate deals to enhance the creditworthiness/reduce the risk.

Once we have those costs and the schedule of works from that deep technical survey then there are five or six ways to pay for it that I see (grants, smart development, borrowing, Hoco special charge, fund raising, other income streams (such as courses) to service debt).

Reduced price on The Park

But before looking at those potential Capex or income streams, it is worth noting that once we know what that needed catch up cost is on infrastructure, we, the buyers, would take all of that cost (historically underinvested and now required) off the price of the property when we buy it.

It is just the same as buying a fixer-upper house that needs a large amount of renovation. It costs far less than a brand-new, perfect condition, house. Or, it is the same as doing a survey before buying and discovering you need a new roof on your house, so the price is renegotiated down 30K to pay for that roof.

Paying for infrastructure catch up if needed

1. Grants

First, some might be able to be ameliorated with grants or community asset buy out money which Michael Shaw, John Talbott, Alex Walker, Fasil Bogale, Lisa Hollingshead, Ian Chorlton, and probably lots of others here, seem very good at winning.

After all our infrastructure is community benefit assets that have been not taken care of by a struggling landlord, which is why BENCOM got accepted into stage 1 of Scottish Land Fund, so community infrastructure assets may also fit SLF criteria, or some other community buy-out funds, so that’s worth investigating.

2. Smart development

Second, is what I call smart development to cross-subsidise community needs.

This can be development to sell, to make money, to pay for the initial infrastructure upgrade and catch-up capital expenditure.

Or it can be development to rent, to make ongoing income, to pay for ongoing annual costs (operating expenditure), and those costs could include servicing a Capex loan.

See below for a fleshed-out example of this.

3. Borrowing

Third, we could borrow to pay for the Capex and service that loan with ongoing annual income (from HOCO or from rental income or from other income sources).

4. Special HOCO charge

Fourth, we could have a one-off charge for the special Capex required, like a one-off HOCO special cost, which for example would be 1000 per head if we needed 300,000 for infrastructure. (THA has 300,000 in reserves I believe, so that would give 600,000).

5. Fund-raising from community supporters

Fifth, with a coherent, professional, unified plan, (instead of lots of competing fragmented organisations trying to fundraise out of the same pool, and really confusing donors to the Park), we could do a fundraising campaign.

6. Courses

There is an abundance of course leading talent and material here on the Park, especially ecovillage type courses, which won't compete with the spiritual education the FF SCIO wants to concetrate on. People here know how to run courses, and also how to price them affordably so people come, especially the kinds of GEN youth that we need here so badly. Also high level investor and corporate sustainability courses like FICS fit perfectly with for example my former business Sustainable Means, so that would be easy to do. This is an entire essay in itself!

Example of multi-million Capex raising via smart development

Let’s look at an example of smart development just to see where a Capex raise might come from. This specific example is one I proposed to FF BoT and management (Mari, Geoffrey, Michael) back in 2006 and have proposed from time to time to Duneland/PET over the last decade. It is also in the end one I used for myself and Helen to create a very affordable build for us.

If we build one terrace of 10 flats on 2 storeys (20 flats – or 10 versions of Helen’s and my two flats), and did this very efficiently to a timeline, as Helen and I did with our flats (up and weatherproof in 2 days), we can build for around £2000 per square meter and sell for £4000 psm (we know this because terraced houses and flats here sell for this today and because Woodside has recently been completed, so we know build costs, and also that is easy to find out from recent builds). Obviously, we would flesh this out with a very detailed plan, but that’s the rough, back of envelope, yet well-informed, figures.

That difference in price to build and sale value, that very high “profit” margin, which only comes if you build very efficiently and well, and sell very efficiently and well (i.e., not how development has been historically done here), provides a large sum that can be reinvested in what the Park needs. It is being really smart about making money to then reinvest into the community.

If they are 60 square meter flats then that is 1200 sqm of flats selling at a gross profit of £2000 psm, so suddenly you have (of course subject to all sorts of accounting, regulatory, tax and planning specifics) 2.4 Million pounds to use for some of: infrastructure, doing the community centre, doing some affordable housing, doing a new child and family house, maybe upgrading an existing structure to become a youth hostel, doing something interesting in Cullerne, paying off any community buy out loan, or infrastructure catch up investment loan, etc.

Obviously, you can’t do all of that for 2.4M and maybe after some of the admin/tax/planning and architecture fees and issues, it is only 1.5M, but certainly as you can see, substantial amounts can be raised, with savvy affordable build-pricy sell, terrace development.

Lots of that is sorted out with a good business plan that gets really good professional advice on things like tax, charity law and so on.

The over-lighting principle is, we can use appropriate development (which is “high density” in the sense you concentrate it into one small area so you can preserve as much nature as possible, so it is actually better called “low-use of nature” or “preserving maximum density of nature” but it is not “high population density” in the sense of bringing hundreds of new people here, which is a confusion I often hear when people use that term emotively here. “High density” in the development and building sense is a really good thing, it means high density of nature preservation!!!!)

In other words, we can generate the funds we need for capital expenditure, but this is only with incredibly business savvy, efficient, timely, simple, high value, development, in a small area of the Park (i.e., the opposite of Duneland – v. slow, and selling plots which has low margins).

Why we need some development to 'fix-up' The Park

Why I get nervous when I see the Nature Group or (some) Pineridge Residents Group pushing against any development or only a few mobile home replacements is because we need savvy, sensitive development, just to pay for the underinvested infrastructure or to get youth here with affordable housing or to support families with a nice family house and play area!

The polarity between some “mega-development” type plan on the one hand to raise the value of Pineridge (the previous Collective Architecture Call for Ideas towards an LPP or strategic plan, serving the Foundation as client, that is being fought against by the community tooth and nail) and the “no development or only a few mobiles one to one replaced or bungalows”, is really a problem.

We need a higher synthesis out of that polarity - because otherwise it will be misguided either way, either “way too much development” or “none” and the basic collapse of infrastructure and other services, and the crushing of any ability to have a new CC, to have nice family and children facilities, etc. that follows, because we didn’t make any money via development to pay for all that.

Similarly with the height fear, no-one is talking about putting skyscrapers around the Park, but going up vertically means far less land and nature is used, far more wildlife corridors are preserved for red squirrels and others, and they are also way cheaper to build because you have one foundation and one roof across multiple dwellings, and the foundations and the roof are the most expensive parts of a build. So, blocking development to bungalows or mobiles is really short-sighted and is in fact quite ignorant, when it comes to nature and biodiversity preservation.

Blocking development of an appropriate kind that generates the funds we all need for our infrastructure is cutting off our nose to spite our face.

That’s why people shouldn’t start blocking all development before this has been properly and honestly and intelligently talked through. Although certainly, we don’t need any more slow, high cost, low gain development, squishing big houses into small plots.

No development will kill off the Park just as surely as over-development would.

We need to follow the Middle Way

So, I have digressed into many of the hot spot issues in the Park, but the simple points are-

1) Yes, we can pay for our infrastructure and services, we are already doing so and have been for 50 years

2) Yes, we will need to upgrade our operating system (infrastructure and probably how that is administered to solve the alignment/supervision problem) and that will cost something

3) We will need an excellent survey to find out what the cost is exactly, plus insurance provided by the seller as part of the deal

4) The investment in infrastructure to catch up for the underinvestment historically will cost money, but it would do whether or not we own the Park and at least if we own the Park we can makes sure it is done efficiently, effectively and well. It is our money after all, either way

5) There are ways to pay for both the investment catch-up (the Capex) and the ongoing operating costs (income)

6) These include off the top of my head i) development for sale to generate Capex – as above; ii) development for rent to generate ongoing annual income; iii) grants that are relevant to what we are trying to do here (rural regeneration, youth attraction and upskilling, ecological demonstration settlements, social housing, biodiversity preservation, rural arts, climate resilience, food security, co-operative community energy, etc.); iv) ecovillage and green building educational courses more like CAT does (i.e. not competing with FF new SCIO and based on the ecovillage campus and value already created by us); new interesting forms of income like conferences or festivals (Angsback brings about 7000 guests through in 7 weeks in its summer, all in tents!); more FICS like sustainability courses (my business specializes in senior leaders in this area so that could be an easy and lucrative one to develop), etc. etc. This of course is an entirely different essay and part of the business plan to write!

7) A good business plan using all the talents and all the data, without organisational affiliations will be helpful for unity and robustness of plan, so it is real and viable, especially on the investment catch up and ongoing costs side. This will need a team, if we could get it cross-org and cross-functional that will help with unity. I have written about this elsewhere.

8) We already have the data for much of that, sitting within THA, NFD and FF because we have been doing this already for years. Terry has said he wants to share that with us, the buyers in a seamless way, because this is a friendly buy out, and Terry and the FF BoT are wanting the community to thrive, the community that they will remain a part of, albeit in reduced and changed form..

9) There are both ways to make the millions type level of figures needed (this is the stuff I love and am good at) and in general for all of us in the community to start thinking more like mini-entrepreneurs, generating value and social benefit, whether that is Katya and Sara at the Phoenix café, or farm to table from Cullerne, or any of the myriad ways people can generate value when they follow their passions, but do so in a way, that serves someone else. Thank you by the way, to all of you who are doing this in one form or another, here.

10) “All is (will be) very well” (just quoting Mary Inglis here, quoting Eileen, and if it’s not, you’ll have to take it up with Mary, I can point you to where she lives…..).

*Footnote to the opening paragraph: reminds me a bit of the anti-patriarchal magical dishwasher and laundry video meme going around where an Aussie husband reassures his exhausted wife she doesn’t have to worry because if she just leaves her dirty clothes on the floor in the mess like he does, they magically all turn up the next day washed, folded and ironed in the right places….