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Building Principles: Money for Nothing (with Thanks to Dire Straights)
I don't know anyone, within or outside of camp, who isn't looking for ways to improve their cash flow either by cutting costs or growing their income. Operationally, there are lots of places to look for savings, including equipment leases and rentals and service agreements, among others. This is certainly the time to consider slaying the age-old sacred cow of how you've "always done things." People are creatures of habit and are generally reluctant to rock that particular boat since it's worked before. Unfortunately, today isn't "before," and camps need to look critically at the whole enterprise in search of procedures, approaches, and relationships that may now be outdated or altogether obsolete and wasting money. When it looks like all the fat's been trimmed from the cost side of the balance sheet, the only other place to look is on the income side. But where do you go after you're done juggling camp calendars and you've stretched facility occupancy to its limit? Beyond rental groups, many are considering unconventional ways for their real estate to generate fresh income. This month, we're going to look at a couple of the different opportunities that may help alleviate the crunch, as well as some of the long-term considerations that might be overlooked in all the excitement.
Before we move on though, there's one last idea that we need to visit. Unlike Kevin Costner in Field of Dreams, if camp is in financial straits, none of the things that follow are going to save the day. Over the past decade in this column, we've said over and over that camp is about programs, and facilities only support those programs. If your camp's not full, please take a serious look at why that is. It's probably not because of the facilities you don't have, but it could be the delivery of your programs and the condition of the facilities that support them. Remember to look at your real estate and its improvements through the eyes of your guests and staff. Make the improvements that they'll appreciate and that truly support the programs before committing to changes that you hope will bring revenue outside the tuition cash stream.
"Mr. Sun, Sun, Mr. Golden Sun"
At least one client (I'll call them "Camp X") is currently considering a proposal to install about 80 kilowatts of ground-mounted solar panels. These facilities will generate electrical power to be fed back into the "grid" all year, even though camp is only truly occupied less than four months of the year. The sweet part of this deal is that camp is simply the landowner where the project will be installed. A facilitator acts like a "project matchmaker" to connect landowners with investors and then to manage the finished project. The investors expect to yield a return through two aspects. First, the capital costs for the equipment and installation are being offset by government grants and tax incentives. This increases their earliest returns by reducing the actual capital investment. Their other return is the value of the power that's being pushed into the grid by their equipment. For its part, Camp X will be credited the value of the power generated during the months that camp is in session. At the same time, Camp X will be the landowner / applicant for approvals required for the project and it will be required to maintain the grounds in and around the array. This will include "keeping an eye" on the area, mowing, and tree trimming to prevent the panels from being in the shade. At this writing, Camp X leadership is currently weighing the obligations with the benefits and sorting through the legal and administrative details, but it appears that they're leaning toward accepting the twenty-year lease deal.What makes this arrangement different? Basically, it's that Camp X doesn't need to lay out the major capital (approaching a half-million dollars, I understand), or know anything really about solar power. Camp X can continue to do business as it always has, but it now has a facility to offset its electrical use during camp season.
"Itsy, Bitsy Spider Went Up the Water Spout"
More and more camps are finding that they're not as rural as they once were. Though the explosion of development has slowed considerably, many camps now have neighbors that they didn't before. A common feature of camps is their relatively large land mass, and with that, they often have high ground elevations. Those two features make them ideal for municipal water wells and elevated storage tanks. The large land element is necessary to protect the well head (the part that sticks out of the ground), which is quite vulnerable to contamination. The high ground reduces the cost of tank construction by providing elevation pressure which would otherwise have to be provided by a longer-legged tank. The best news for camps is that it's very common for water systems to lease the land for those necessary facilities. You have what they need. Suddenly, it's a match made in heaven! Any sort of arrangement should include supplying camp with water. To the camps that have their own wells, can you imagine being completely out of the water supply business? More water than camp could need, no more visits from the health department (at least for well inspections), no more disinfectant or pumps, no more pressure tanks or bad well switches, and no more crises when the well pump gets zapped with lightning! What a relief that would be!
"Calling Occupants of Interplanetary Craft"
After a decade-long boom, it seems that cell phone tower construction has slowed to a crawl. Among other things, the high cost of construction and the negative publicity ("not in my backyard!") forced the companies to broker cooperative agreements for companies to share towers and other equipment, reducing the total number of towers needed. Yet large gaps in service area remain. If cell service at camp is only mediocre to poor, you might consider leasing space for a cell tower. The multiple-occupancy nature of towers may prevent you from brokering a deal for free service, but it would provide an additional reliable revenue stream and likely more "bars" than you know what to do with. If an elevated water tank is already on your horizon, you should plan ahead through the lease for the additional revenue or benefits of cellular antennas on that structure. The tank owners are, so why shouldn't you? Again, camp's out of the facility business, but gets the benefits that these large-scale infrastructure elements provide.
"Windmills of Your Mind"
Like cell towers and solar panels, wind turbines are becoming more common, with wind "farms" lining ridge tops for miles. If it happens that camp owns part of one of those ridges, well, camp may benefit much like we described earlier.
"She Got the Gold Mine, I Got . . ."
In the northeast, particularly Pennsylvania, the energy market has made extracting natural gas from a mile or more below ground surface financially viable. The Marcellus Shale is said to contain reserves to the extent that some conservative estimates put the value at $16 million dollars per well, over its production life. Land lease values have reached $6,000 an acre. Royalties range from 15–20 percent. So where "mineral extraction" historically required that you plan on leaving, the net area required is less than an acre, and it generally can be built in an otherwise unused area of the property. Moreover, the technology that makes extraction of the gas possible allows for the actual well-head to be located up to a mile from your property. The equipment drills horizontally like a mole through the rock, and the gas is sucked out of the hole like a straw. It's certainly amazing technology and it has potential for great reward for landowners.
"Used to Bad News"
So far, all of these opportunities sound like golden opportunities and in many ways they are. There are down sides to every deal, and we'd be doing the readers a disservice if we didn't toss out some of them for consideration.
"I Think I'm in Trouble"
Dennis the Menace's neighbor Margaret is cute and bothersome, but she's not exactly the sort of attractive nuisance we have to worry about here. This is a legal doctrine under which the owner or possessor of an inviting condition that could be dangerous to children has an obligation to post and dissuade them from getting close and hurt. The most common example that comes to mind is a swimming pool, and it's the basis for the surrounding fence requirement in every building code that I can recall. The premise has been successfully applied to all sorts of conditions, from construction sites to stacks/piles of materials. It's easy to see, then, that something like a water or cell tower could draw the interest and attention of youngsters. According to www.uslegal.com:
"In evaluating whether a landowner is liable for an attractive nuisance a court may weigh:
- Whether the landowner knew or had reason to know that children could trespass near the hazard;
- The type of hazard on the property and whether the hazard poses an unreasonable risk of death or serious bodily harm to children;
- Whether the children, due to their youth, could appreciate the risk involved;
- The importance to the landowner of maintaining the hazardous condition;
- How the burden of eliminating the hazard compares to the risk of harm involved; and
- Whether the landowner took reasonable precautions or exercised reasonable care to eliminate the hazard or to protect the children from harm."
It's imperative that camp leadership thoroughly consider and insist on installing measures to safeguard the kids and reduce the liability.
"After the Love Has Gone . . ."
Almost all of the revenue-generating items we've considered in this article have a fixed or reasonably predictable service life. For example, the solar panel array that Camp X is hosting will have reached the end of its service life at just about the same time that the lease expires and its demolition cost will run in the tens of thousands of dollars. Who will be responsible for the decommissioning, dismantlement, disposal, and restoring the area to its pre-construction condition? How will our counterparts know what those terms are twenty years from now? What happens if the project becomes insolvent before then? What if there is some sort of environmental mess created by the project? All of these questions have to be answered as part of the lease agreement, and Camp X's leadership is negotiating and memorializing these details before the agreement is executed.
Nonprofits in particular, BEWARE! Depending on the terms of the lease arrangement, benefits to the organization could be considered taxable income. Internal Revenue Service Publication 598 ("Tax on Unrelated Business Income of Exempt Organizations") is a great resource and it's available online. It is surprisingly easy to read and understand with many examples of what is, and what is NOT, unrelated business income. Generally speaking, if the income you receive is not directly related to the support of your stated mission, it will likely be taxable. For example, if you barter a lease for a water tank and space for the tank is exchanged for unlimited potable water for camp, then it's likely that there will be no tax associated with it. However, if in that same lease you charge rent for cell antennas, that rent may be. Moreover, there is a tipping point where too much of this sort of income could jeopardize camp's nonprofit status. Obviously, there are a zillion (or more) angles and exceptions. So unless you happen to be a nonprofit tax accounting specialist or tax attorney and enrolled before the IRS, this is another of those circumstances where paying for professional counsel is money well spent. Notice that "paying for" is emphasized. Buying that peace of mind comes relatively cheaply. You don't want someone's off-hand guess on this any more than you'd want a tipsy oncologist's opinion about the mole on your cheek at a cocktail party. This is likely to be a long-term investment for your organization and long-term commitment on your property. Treat it like that!
And while we're on the subject of taxes, bear in mind that some of the financial benefits may be as transient as the tax code itself drawing on appropriations that may come and go like the wind. Consider the earlier example of the solar array. Project feasibility is absolutely contingent upon a limited time contribution from the federal and state governments. Uncertainty of that continuing payout should play heavily in the details and structure of the long-term agreement.
There are as many creative opportunities to leverage camp's real estate to help keep things afloat as there are creative people. Like with any other opportunity, there's also likely risk against which responsible leadership has to weigh the benefits. Do your homework thoroughly, engage the right professionals to guide the process and represent your interests, be careful and deliberate, and you're on your way to an arrangement that may benefit your camp for many years to come.
Several professionals were super resources in the development of this column and they're available to answer your questions, too. You can tap into the program assessment aspects of planning and budgeting by contacting Gary Forster at email@example.com. Erin Baehr is a certified financial planner and is enrolled with the IRS to represent tax payers before that agency. She can be reached at firstname.lastname@example.org.
Rick Stryker is a professional engineer with a particular passion for helping camps with infrastructure, planning, and regulatory issues. He can always be reached at email@example.com or (570) 828-4004.