This presentation is part of the Dance Halls, Juke Joints, and Honky Tonks Symposium, March 22-23, 2016. This symposium focuses on the issues associated with the preservation of dance halls and similar sites throughout the rural South. Some of the constant threats include relevancy, development pressures, deterioration, and financial viability. This symposium brings together experts and enthusiasts to discuss history, architecture, and culture associated with these buildings.
Money When You Need It: Proven Strategies for Creating a Building Reserves Fund by Steph McDougal
Steph McDougal: I am going to talk about money which is always the big question, right? How are we going to get the money we need to fix up these halls. I’ll beg your pardon here, at the very beginning, because as you I’m sure can hear, I’ve been fighting central Texas pollen for about the last week and a half. Although it’s better over here, I’m still dealing with the lingering effects. I’m on a ton of cold medicine. I’ve got my Kleenex and my water. I apologize for the condition of my voice, but we’re going to soldier through together.
Okay. I am a historic preservation consultant, in the Houston area, and since I got to Texas in 2005, I’ve been helping a lot of people. Mostly non-profit organizations but also private property owners, including some dance halls, raise money to fix up their historic buildings. First of all, let me just tell you that there are almost no grants for historic buildings so if you have someone who buys a historic building and says, “Where’s all the grants?” You can tell them, sorry. There are almost no grants for historic buildings unless they are falling down and super, super, super important. So we have to figure out where the money is going to come from- from grassroots fundraising in a community. That’s what I’m going to talk about today.
When we’re looking for money. When we need it that means not when the air conditioning unit has gone out, in the middle of July, when we’ve got a band coming next week and now everybody is scrambling around and panicked trying to figure out where the money is going to come from. Our better bet is to go ahead and start building a fund for that money so that we have some put back when those kinds of things happen.
A lot of what I’m going to be talking about today is based on the work of the Kresge Foundation. It was established in 1924 with a $1.6 million gift, at that time, from Sebastian Kresge who had been one of the founders of America’s first five and ten cent store. His company went on to be known as Kmart. Since 1924, that $1.6 million dollar gift has turned into a $3.2 billion dollar endowment. Kresge Foundation, which has nothing to do with those stores now, for many, many years invested money through challenge grants in construction and renovation projects in communities. When we had the economic contraction of the U.S. economy, back in 2007 – 2008, like many grant-making foundations they took a step back and looked at their given strategies and how well they’d been working.
What they discovered was that many of their grant recipients were repeat requesters so this organization would ask for, get a challenge grant, raise the match, fix up their building and then that was it. 25 years later, having deferred maintenance for 25 years, they would be back because their building would be in a pickle again. They hadn’t done everything so now they needed more money. Interestingly, not everybody was in that same position though because some of their grant recipients got the challenge grant, raised the match, fixed up their building and then they kept raising money to fix up their building in the future.
The Kresge Foundation studied this for a couple years. They eventually stopped giving out grants for buildings altogether. In the meantime, they published a report about the best practices of those organizations that had figured out how to become financially sustainable. The one fund I’m going to talk about today is based on that research so it’s not just something I dreamed up in all my spare time.
One of the things that we run into a lot with dance halls is you’ve heard over, and over, and over again is the roof. OK, the roof. We all know roofs that have been on a building for forty or fifty years and they’re still mostly doing their job but a lot of times you just get to the end of that roof’s life, it needs to be replaced and for a big building that can be very, very expensive. It’s very hard to come up with that money all of a sudden or even in an emergency situation. There is a windstorm or a tree goes through the top of the roof or whatever. We’re going to talk a lot about roofs today for that reason, as an example.
All right. Today what I am going to talk about are some key terms. I’m going to talk about planning. How to create a building maintenance and system replacement plan. How to build the fund. Then I’m going to talk a little bit about an example which is what the SPJST calls it’s round halls up in Buckholt.
Building reserves fund. This is just a savings account, basically. Put a bunch of money in there so it’s there when you need it. We have, of course, a lot of different ways that you can accomplish this but the important thing is that you don’t loot it for other things. It’s not an in-house line of credit.
Building systems. We are really talking about the mechanical systems, as well as the building itself. Your electrical system, your plumbing, smoke and fire detection, if you have a security system, your heating, ventilating, and air conditioning systems. Those are all your systems we think about a lot but the building enclosure also functions as a system. The roof, the walls, the windows, the doors, the floors, and the foundation are a system that keeps the exterior and the environment separate from the interior environment. It functions as a system. We are really talking about all those physical components of the building when we talk about building systems.
Finally, expected service life. We talk about expected service life, we’re really taking about how much time you can expect something to work correctly or keep doing its job. Manufacturers will often give us an example or an idea of what they think that might be for their products. It’s usually fairly conservative, they want to under-promise and over-deliver, but for even things like roofs, for air conditioning compressors, for the paint on your windows and doors, we have a pretty good idea or we can figure out what that might be and so we can plan. If we know this is a twenty-five year roof and it’s been fifteen years or twenty-five years already since we’ve put it on we know we can start planning to make a replacement at some point. Your air conditioner, same thing. We can a lot of times, you know, keep those going with bailing wire and wishes but, at some point, you’re just going to have to replace that component. If we’re planning for, based on what we think the expected service life is going to be, then we often won’t get into a lot of trouble.
I bang this drum all the time. All the time because nobody does this, right? Everybody will tell you, “Well, if I had an extra bunch of money laying around or put in a savings account, I’d be doing something else with it,” or, “I just need to get one big gift then and I’ll put it in the bank and I’ll be done,” or, “We had a little money once but then we had to use it for something and then we didn’t pay it back.” I can tell you that the folks who do this, who are prepared are the ones who make a commitment to being prepared. You don’t need to have a bunch of extra money laying around. You don’t need to wait for a big giant gift. You can’t loot it. You can’t go … Step away from the pig, but you can do it. It really just takes making the decision to do it and then being disciplined about that. We’re going to talk about that a little bit.
If you went to the pre-symposium workshop yesterday, I’m sure Patrick talked about assessing the building’s condition. You need to know where you stand, at the beginning, right? You need to do a thorough examination to determine what is the current state of things. How much life do we have left in all these different components? Can our building professional who is helping us with this tell us about what it’s going to cost to replace them? Go ahead and get an estimate.
Now, you might say, well, it doesn’t help me to get an estimate now because if I’m not going the have to replace my roof for ten years, then an estimate now isn’t going to make sense ten years from now but we can use it for planning purposes. Based on the current rates of inflation, you can expect your costs to increase about 10% for every five years. Right? If we know you have a $20,000 roof today, that’s the cost it would be if you replaced it today, you’re not going to have to replace it for 20 years. You can figure okay that’s about a 20% increase so let’s plan for $24,000 in ten years. That’s about the cost of inflation. As you go through this, get your systems checked, have your electrical panel checked. Does it have enough capacity? Is your air conditioning system on its last legs, etc., etc. You can make yourself a little summary list of, you know, what is it? How is it doing right now? What are the issues? How much life does it have left and what do they think it’s going to take to replace it when we get it going? That’s the start of your building maintenance and systems replacement plan.
I gave everybody a sample spreadsheet. This is just an example. Let’s look at the numbers. You can move that information you just got through your building condition assessment into a spreadsheet. You can use Excel if you have Microsoft Office. If you don’t there’s a free on-line spreadsheet in Google called Sheets. You can put it up in there and it calculates everything for you. It’s really, really easy.
Let’s be really clear that everybody’s situation is different. Your hall is different. Your financial capacity is different. The revenue model is different as we’ve heard from Deb. Everybody has a different way of approaching their business based on what works for them. Also, it matters if you’re an individual running a dance hall or if this is a non-profit or a fraternal organization. If you’re the folks at Snyder Hall, you have a different situation as a family then somebody who is part of a greater organization with 50 members.
Regardless of how you set it up, here is the information you need. First of all, we’ve got expected expenses. Those are in the red box. You need to know what information you need and when you’re going to need it. Here we have … This is today’s year and then we have all the different years that we’re going to do stuff. We’ve got it annually because you’re going to have money that you have to spend every year. This is really high numbers probably for those dance halls, but you’ve got your annual maintenance budget. You’re going to have that every year. Expected service life of one year. Then here is how much money you think that’s going to cost. Here we have to update our electrical wiring. That’s going to be put for 20 years for them to do it, in 2018, so that’s going to show up again in 2038.
I don’t believe that going past 20 years out, is really necessary but I do like to go that far because that almost always includes a roof. The roof is the biggest issue that people have because you can get by with a lot of other stuff, but if you’ve got a leak in your roof, then that’s a giant problem for your building. Water infiltration is probably one of the number one causes for hall deterioration, for building deterioration, of any kind with historic buildings. The roof is critical.
We plot out how much money we think we’re going to need and we get that all in there. Then, we look at where the money is going to come from. Now, a lot of hall owners own their buildings. They are not still making payments. You know, somebody bought that, in 1902, or whatever, and then that’s paid off by now. What we hear from a lot of people is, “Well, I don’t have to spend any money on my building. You know, I don’t have any building costs.” A way around that, that I think is helpful is to treat yourself like a landlord and pay yourself rent. If you know that, if you were renting you would have to pay yourself … You would have to pay your landlord rent and then they would be responsible for the upkeep and maintenance on that building. You can do the same thing just be the landlord yourself. By making a monthly rent payment, into your building fund, you can build up that fund over time.
For example, the roof that’s going to cost $24,000 in ten years, that’s 120 months. That is $200 a month if you don’t count any interest that you would earn. $200 a month that you need to be putting back if you’re going to have $24,000 in ten years. That’s easy math to do. We can determine what we’re going to need and when we’re going to need it.
The great thing is, if people know that that’s what you’re doing. That you are making a commitment to be a responsible steward of this building, then it’s not about your business, it’s about preserving this building for the community’s future, for your grandchildren and their grandchildren, and this is a legacy, a generational gift that you want to leave for community, then it’s a lot easier to get people to help with that. Nobody is going to pay you to have money for your business. No extra money for you to have a building for your business to run in, right? They will say I can recognize that you are doing the right thing here, so it’s a lot easier to get community support for a building fund when it’s going to be beyond you. When you’re really focused on preserving it for the future. So if we can tell that story then it’s a lot easier to get assistance with that.
Let me tell you what we’ve got here. Here we’ve got a monthly rent. I like to put an annual increase in that. Rather than just say okay we’re going to need $200, a month, for the roof forever, let’s increase it every year by just a little bit that’s doable for us. If we look at maybe 3%, that’s about $15 a month and that only goes up once a year. That’s something we can think, we can make that work. When we multiply this by 12, we get your annual rent. If we look here’s … Let’s say we started with $5,000. We’re going to put it in a place that it will be managed and it will grow. We can estimate 4% – 5% growth every year if we’ve got that in a money market fund that’s relatively conservative but well-managed. That’s pretty common in terms of a number to plan for. We can say we’ve got $5,000 to start with this year. We’re going to gain $250 in interest if we’re assuming a 5% return on that investment. Then we’re going to put in an additional $5,400 in rent and we eventually … I don’t know how we got to that number because that doesn’t add up but that should be these two things put together. Then that goes down the line. As we put more money in, our balance grows and then we’ll have a big expense and it’ll drop back down.
We can make a model, a spreadsheet like this and play around with the numbers to see when are we going to need this money. Where could it come from? What should we be aiming for? What are our targets? This is really just good financial planning. It’s kind of like planning for your retirement really except you’re doing it for the building instead.
One of the other things to keep in mind is, especially if you are telling your story to the community, you want them to know that you’re doing this as a long-term thing for the preservation of the building for the community, not just for you, you need to have transparency. People need to know that you’re not squirrelling this money away and then you’re going to go on a cruise with that money or use it for your own purposes. If you set the fund at the bank or with the community foundation where that can be invested for you and if your transparent in reporting, here is how much money we got this year, here’s what we used it on, here’s our goal for next year, that goes a long way to establishing trust and helping people be supportive when you’re actually trying to build up these funds.
Where can the money come from? These are just a couple of ideas and that will be, of course, again, be different for everybody but your best bet is to use small recurring contributions. If you are a non-profit, for example, and you have fifty members, it’s really easy for most people to contribute $5 a month. That’s a pretty easy number for most people to get and you know, I’m broke, dirt poor and my family still lives below the poverty line in rural places, but $5 a month we could do. You will have people who could be more generous but if you can get your members to chip in a recurring payment that they don’t have to think about, that’s automatically billed to their credit card or their debit card or taken out of their banking account, which requires e-commerce, ooh scary, but that is an easy, easy way to get a small amount of money in.
You can, of course have things like donations jars at fundraisers. If the volunteer fire department is going to use your hall for free, see if you can have a donation jar, at the door, or at the bar, for a little bit of extra … You don’t want to ask the for a cut because that’s volunteer fire department money, but you can ask people to contribute. Especially if you’ve done a good job telling your story about why your raising money for the building fund. A lot of this is about marketing. Why you’re doing it. What you’re goals are. What you’re planning to do with that money this year, next year or whatever the next big thing is on your list. Then it’s easier to ask people to contribute to that.
If you’re renting the building, there are price points here, you can tack on an extra $20. $20 is easy. For most people, $20 is not going to break the bank if you’re renting a building. You have to think about what makes sense for your market and don’t be greedy but every dollar counts when you’re raising money for your building fund. You can use a lot of different things in combination too.
If you’ve got a for-profit establishment, obviously you don’t have members, but if you’re going to have shows, can you tack on an extra dollar to the ticket price? If you’re going to sell beer, what’s about another quarter or fifty cents to the beer price. Again, with the rental fees. You just have the think what are the ways that we can raise money, incrementally, all year long? Not all at once. Not we have to raise, you know, all the money in this one big fundraiser, this one time. We don’t want to put all our eggs in one basket. We want to be working on it all the time. If you know anything about investing, you know that dollar cost averaging or putting money away all the time, not just once a year is the best way to grow it. This is the same thing we want to do. We want to just be chipping in all the time. Whatever we can, a little bit at a time, to grow that building reserves fund so we’ve got it when we need it.
The other thing that, if you were here yesterday you heard a little bit about, I believe, is tax credits. Several States have tax credits for historical preservation. Louisiana, Texas, Mississippi all have them. In Texas, we have a State historic tax credit that is also for non-profits. In Mississippi and Louisiana, I believe it’s only for income producing for-profit entities but you can get a quarter of the money you spend on qualifying expenses back as a tax credit. That’s another way to spend the money and get that tax credit and put it in your building fund. Don’t spend it. Put it in the building fund. Louisiana’s tax credit is going to go down to 20%, January 1, 2018, and then the sun sets at the end of 2021, so if you’re in Louisiana you might want to go ahead and get on that tax credit business. There are also federal tax credits which are very similar in terms of what they’re made to do. The threshold for getting those tax credits can be a little higher in terms of the amount of the work that you have to do in order to get them.
Now Emily Ardoin is here. My colleague who is over in Houston with me now. If you want to get tax credits generally your building has to be recognized as an historic, either on the National Register of Historic Places or by some other certifying organization like your state government or a city-certified local government. Emily is working on a multiple property submission for historic dance halls, in Louisiana, and listing on that would enable those halls to be eligible for the State tax credit. No pressure. We’re working on starting one, in Texas, to accomplish the same thing. A multiple property submission is kind of like if you have a historic district with a whole bunch of properties but they weren’t anywhere near each other, the same area. The tax credit is also a really good way, and here are your contacts, the Department of Preservation, in Louisiana, or the Texas Historical Commission in Texas, and I don’t know in Mississippi, your historic preservation laws.
Oh no! There’s a hole in the roof … or the air conditioning system died on a hot July night, right before a big event! Many small business owners and nonprofit organizations live in dread of those kinds of situations and the often large bill that comes with the repair or replacement of major building systems. Small problems, left unaddressed, can quickly become major issues (and very expensive), and in some cases, deferring routine maintenance can put the entire building and business at risk for a catastrophic loss, particularly when aging electrical systems are combined with leaky roofs and other sources of water infiltration. This paper presents a process for developing a building systems maintenance and replacement plan and associated building reserves fund. This process is based on on concepts developed by the Kresge Foundation to help arts and culture organizations develop long-term financial sustainability by investing in building reserves and timely repair projects. Historic preservation consultant Steph McDougal, a board member of Texas Dance Hall Preservation, Inc., has developed and will share an Excel workbook that can be adapted by any hall owner/operator to forecast and save for both anticipated and unexpected costs. Case studies illustrate potential “disasters waiting to happen,” as well as strategies to seed and grow a building reserves fund that are realistic for a typical dance hall. By planning ahead, dance hall owners can ensure that they have the money they need, when they need it, to attend to regular repairs as well as to replace major building systems.
Steph McDougal is a historic preservation consultant, as well as a co-founder and current board member of Texas Dance Hall Preservation, Inc. She earned a Master of Science in Historic Preservation from the University of Texas at Austin’s School of Architecture in 2008 with a thesis on the construction technology of Texas’ round dance halls and is currently writing a book about the German dance halls of Austin County, Texas (publication expected later in 2016 from The History Press). Her first book, Lighthouses of Texas, was published by Arcadia Publishing in 2014.