November 6, 2011 message from Auditor Mark Frye to Operations Director Robert Kraus


Robert - we have performed several analyses on the proposed purchase of
the property on Duke Street and reviewed some of the comments and
concerns raised by board members.  Our analyses included both historical
and projected cash flow analyses and considered the amount of rents paid
by the LNC and the latest sales prices and assessment of the proposed
property.  I fully understand the concern being raised by [an LNC representative] and
as such purchase is a long-term commitment and does not come without
risk and responsibilities.  Assuming the property is zoned for
commercial use as proposed by the LNC and is not in complete disarray,
which the bank will certainly not fund the loan in such circumstance,
all of our analysis are consistent with Mr Hinkle comments below.

As an exempt political party, we certainly understand the LNC's primary
purpose and objective.  However the truth of the matter is that it takes
people to accomplish the purpose and objective and people need space and
consume resources to carry out the objectives.  Accordingly, the LNC has
spent over $900k for office accommodations since 2003 (nothing magical
about 2003 other than that is the initial year of data in QuickBooks).
Accordingly, had the same resources been used to acquire the same
proposed property (1428 Duke Street) in 2003, the LNC would have owned
the property free-and-clear probably by sometime in early to mid-2009.
This would have allowed freed up approximately $120k in cash flow during
2010 alone.  I am sure such cash flow would help significantly with
matters such as promoting candidates, ballot access, and keeping members
informed on the significant actions taken by legislatures during 2010.
Here are the assumptions used in our analysis:

-2003 assessed value of $526,400 with an assumed purchase price of
$550,000 (see city's website for assessments)

-the property in question last sold on 4/4/2003 for $557,310 further
validating the reasonableness of the assessed value

-fully amortized loan at 7% over 96 months (8 years) with monthly
principal and interest payments of $7,500

We used a purchase price approximately the same margin in which the LNC
contract price is in excess of the current assessed value.  Under this
assumption and assuming the same funds spent on rent for 2003 through
2009, the LNC would currently own as asset apparently worth $860k
free-and-clear and net available cash flow of at least $120k, after
assuming a more than reasonable amount for real estate taxes, utilities,
and repairs and maintenance.  Additionally, there would be the potential
upside of any further market appreciation.  Simply using the assessed
values from 2003 to 2010, the property has realized a 54% return.
Additionally, there can be significant advantages of locking in on a
fixed rate mortgage with interest rates at all-time historical lows.
Renting provides very little upside unless your objectives are
short-term or you believe that market values for similar properties are
significant overvalued.

Having said that, ownership has risks and responsibilities that must be
considered and the purchase must be viewed as a long-term investment and
commitment.  Short-term fluctuations in market value and other economic
circumstances outside of the LNC control should be viewed as just
that... short-term obstacles.  Management must ensure that funds are
available and appropriated for the down payment, debt services, real
estate taxes, utilities, and repairs and maintenance.  Management must
also consider the impact of any local taxes, such as business license,
gross receipts, and property taxes, some of which the LNC may be exempt
or in certain circumstances, such as business property taxes, will be
less than in the District.  You must also consider parking and access
via public transportation for staff members and the board.

Although, we did not do a market analysis or appraisal of the proposed
property in question, it certainly appears from a financial stand point
in reviewing the historical amounts paid for rent and the historical
assess values of the proposed property, that the purchase of the
property would have resulted in significant cash flow savings and
significant appreciation based upon the prior sales price and current
contract price and the historical assessments.  Additionally, had the
LNC made the same decision in 2003, it could have owned the property
free and clear further free cash flow for operations or could have
mortgaged the property to provided additional cash flow for program
activities.  Additionally, should the LNC decide to cease operations or
relocate, the property would currently be worth $860k and could be sold
to provide funds in liquidation of the Party in accordance with its
articles of incorporation and by-laws or could be converted to a rental
property further generating cash flow to support operations.  FYI.

Mark R. Frye, CPA, CGFM
Director of Assurance Services
Frye & Wolcott, CPAs