History of SAIF

HOEDADS 1981 - 1995


This paper will be an attempt to provide background information,
definitions, and a brief history of the financial events that occurred
in Hoedads between 1981 and 1995. Much of the info will be based on
memory and, given the aging process, some of it might be incomplete or
wrong. Feedback from people with better memories and/or the facts is

The accounting methods and definitions in 1981-82 were different than
1983 and beyond. In '81/'82, Hoedads was based on a crew system, both
in terms of membership and financial dealings. People were members of
a crew, and crews comprised Hoedads. Crew policies determined the
allocation of money to individuals. Hoedads, Inc., wanted to be viewed
as an agency for self-employed people and reported to taxing agencies
as such.

Due to the ruling of the Wage & Hour Division (i.e., minimum wage) and
the impending ruling of the State (i.e., SAIF), as well as the Small
Business Administration, the agency theory and the self-employment
status of Hoedad members became tenuous. The internal event(s) of
subsidizing "bad" contracts (such as the 1982 Estacada contract in the
amount of $48,000) also lent to the blurring of the lines between
crews and individuals and Hoedads, Inc.

In 1983 major changes occurred. Bidding and logistics became more
centralized. Individuals were no longer considered self-employed for
tax purposes. Actual wages with withholding taxes were paid, and an
employee (working non-member) status was created.

Between overly aggressive (and stupid) bidding, a diminished number of
experienced members, and increased expenses, it was a disaster year.
About $130,000 was "lost" that year -- meaning more was paid out in
wages and expenses than taken in.

At the fall 1983 General Meeting and the January 1984 Special General
Meeting, a decision was made to allocate $107,000 of the loss to
members who worked in 1983 (excluding members who earned $1,000 or
less). An individual member's share of the loss was derived on a half
share/half gross earnings basis with an upper limit of an individual's
cash reserve balance (membership fee). Members' cash reserves were
reduced accordingly.

Also during this time frame (1984), some major accounting changes were
made. Upon consultation with the Hoedads accountants and a
co-operative tax consultant (Charles Glass), Hoedads formalized
dealing with profits and Iosses by using patronage dividend and
retained earnings principles.

A patronage dividend is the proper tax/legal method of dealing with
the profits (or losses) generated by a member of a cooperative. It
has a special tax status in that a declared patronage dividend (i.e.,
one that is paid out) gets taxed only once -- to the member receiving
it, meaning that it is a tax deduction to the co-op corporation.

This is unique to co-ops and, because of its tax advantage, must meet
certain tests to be deemed a valid patronage dividend (PD). These
tests include:
* it can only be from profits generated directly by the field
work of members meaning employee profits, subcontract income,
office overhead wages, interest or investment income, etc., is
excluded; * Also, the method of allocation of the dividends must
be equitable and measurable, i.e., based on hours worked or

A co-op does have the latitude, as per its bylaws, to determine how
much of the member generated profit (or loss) is distributed via a PD
as well as the latitude of pooling (or grouping) different work-types
in determining the value of the PD.

The co-op also has the power to declare an ordinary dividend, which
doesn't have any of the tests that a PD has, but it is taxed twice --
both at the corporate level and at the individual level.

This gets us back to the other major change in 1984 -- the use of a
corporate retained earnings account. The retained earnings (RE)
account is used to record the accumulated profit (or loss) of the
corporation. It is distinct from member profits (PD) and cash reserves
(membership fees). This account holds employee-generated profits,
interest income, gain on sale of assets, etc.

Going back to 1983, remember that of the approximate $130,000 loss,
only approximately $107,000 was allocated to members. The remaining
$23,000 was "carried" on the books as a negative balance in the
retained earnings account as of 1/1/84.

At this point in time many people (Roscoe & Peter) thought Hoedads
should shut down before it became insolvent. A small group of members
decided (maybe through inertia) to try it one more time as long as no
job was a loser.

The first job of the year lost money. The rest of the year was good,
and the retained earnings account was brought almost back to zero. I
believe it was in the fall of 1984 that the dissolution equity clause
of the bylaws was created (Pat Brennan might remember) when it became
apparent Hoedads might survive and could end up with a positive
retained earnings account.

Upon consultation -- again, with Charles Glass -- the dissolution
equity bylaw was created. I believe some of the reasons why 1/1/84 was
decided as a starting point for determining dissolution equity shares
* it was ground zero (actually, less than zero), and any future
corporate profits would be generated by people working after
1/1/84; and
* there wasn't a clean accounting of actual patronage hours or
income until 1/1/84.

>From 1985 to 1995 various permutations occurred in Hoedads regarding
membership fees, PDs, and retained earnings.

Because of a shrinking membership and increased requirements of
bonding companies, different policies to increase capitalization
happened. Membership fees were increased to $3,000 in 1985 and raised
again in 1993 to $5,000. The 'Three Year Hold' of resigned members
cash reserve was instituted in 1984 or '85. This meant that people who
resigned would not receive their cash reserve balance until three
years after the date of their resignation.

Also, a 'revolving fund' was created. The revolving fund was an
account in Hoedads which held the declared PD's for up to 3 years,
thereby delaying the actual cash payments to members (of profits
generated by members in previous years).

The purpose of the fund was two-fold. It allowed for Hoedads to hang
onto some cash for a longer period of time (thereby improving cash
flow), and it helped smooth out the peaks and valleys of profits (ie,
positive and negative PD's). For example, if a member had a positive
dividend in 1985 and a negative dividend in 1986, the negative
dividend would be subtracted from the positive dividend before a
payment was made. This helped eliminate the need to collect money from
members with a negative PD balance.

During the same time period, many variations occurred in determining
PDs. Departments (work types) were formed and profitable/loser unions
were made, unmade, and remade based on the fine art of persuasion and
whining with a goal of fairness, however elusive. It was all over the

The system of departments, PD's, and the revolving fund was not
trusted much, argued over, and not very well understood by many
members. Occasionally subsidies were made to help complete
exceptionally bad contracts, and most years some individual accounts
would end up uncollectable and have to be written off as a bad debt.

In the meanwhile, the Retained Earnings account accumulated the
profits and losses generated by non-members (employees) as well as
misc. income. Between 1984 and 1991 this account rose steadily and
peaked in 1991 with a positive balance of $77,000.

The downward cycle started again in 1992. After a mediocre
tree-planting season, the Davis-Bacon Department (trail construction,
miscellaneous construction) lost money, leaving some people with a
large negative dividend. Retained earnings lost $6,000.

In 1993 the Davis-Bacon Dept. made money, but the Tree-planting Dept.,
with a majority of employees, lost $81,000. And the Fire Crew overhead
(without any fires) cost $27,000. The member generated losses in
tree-planting and fire departments (approximately $23,000) were
'bought out' by the Davis-Bacon department.

The end result to the retained earnings account was a reduction of
$72,000 due to the high percentage of employees working in the
non-profitable departments. This left the retained earnings account at
near zero by the end of 1993.

Then history kind of repeated itself. Similar to the fall of 1983,
meetings were held to determine if it was time to call it quits.
Hesitantly it was decided to try it one more year, but it didn't
happen this time. Every job lost money -- big money -- $131,000 plus
another $28,000 in 1995 finishing up the 1994 jobs (as well as another
$26,000 in unforeseen expenses) -- basically for the same reasons as
in 1983. The talent wasn't there to successfully complete
tree-planting jobs, let alone tricky construction jobs.

Hoedads only did two tree-planting jobs in 1994, and on a gross income
of $52,000, a loss of $33,000 was generated. A $73,000
trail/construction job in Washington lost $51,000. A $393,000 covered
bridge restoration job lost $34,000. A $16,000 stream survey job lost
$14,000. And so forth.

Needless to say, by the end of 1994, it was obvious that the jig was
up. As a historical footnote, though, it should be noted that Hoedads
did indeed bid and technically win one last-gasp contract. It was a
$900,000 job in Alaska to essentially transform a Native American spot
(as it turns out, a holy spot) into a nice campground. The CO didn't
want to give it to us, though, and re-advertised the contract. We
passed on it the next time around.

And as it turns out, the Native Americans didn't take kindly to the
plans and the contract ended up being a very large mess (the courts
and curses were involved).

Back to the curse of '94. The decision was made to fold. Decisions
had to be made on how to deal with the losses and the assets and
liabilities had to be disposed of and the remaining contracts had to
be closed out (one of which was a trail contract worth $114,000 in
Alaska (oh my) which had not been started yet).

It was assumed that a hefty profit would be made on the sale of the
Hoedad real property even when offset by losses on the sale of unreal
property (over-valued crummies, equipment and materials). It was also
assumed that the last job to be done (the Alaska trail in '95) would
at worse break even.

Operating under these assumptions and after running through some
figures, it was decided that the full member-generated negative
dividend ($72,000) in 1994 would not be declared.

There were various bits of logic to this decision -- do what it takes
to have the books zero out when it was all said and done; it wasn't
fair to hammer part-timers who were helping out; it wasn't fair to
hammer full-timers who hung in there to complete contract obligations;
and that if the full negative dividend were assessed, it would account
for a 42% deduction in minimum wage payments that were legally
required (on top of already voluntarily reduced (shaved) hours by some
members) and could lead to some legal problems.

It was determined that a negative dividend of $24,000, (33% of the
total) would be declared and that the remainder of the
member-generated loss would go towards the retained earnings account
(and be offset by the income from the sale of the property). The
property was sold and, after being offset by losses on the sale of
other assets, brought in about $116,000.

The end result of these transactions, although not perfectly
chronological in relation to Delbert's bookkeeping attachment, was a
retained earnings balance at the end of 1994 of + $4,000 (enough for a
good pizza). The negative dividends of $24,000 were assessed to the
individual members equity accounts.

We're in 1995 now. It was decided that the remaining work would be
done on a non-patronage basis, meaning any profits or losses would go
to the retained earnings account. No dividends, plus or minus.

Unfortunately, bad things continued to happen. Hoedads got hit with a
SAIF assessment on an old claim (fancy that), some invoice errors (by
the government) were made in '94 that had to be paid for in '95,
expenses from every nook and cranny appeared, and the lumber mill in
Alaska that was going to provide some difficult to find materials for
the last Hoedad job shut down over the winter. Because of the
shutdown, the materials expense doubled ($15,000 extra), and the delay
in getting them created a need to send more people in order to get it
done on time, increasing the travel expenses.

This, combined with $9,000 worth of invoice losses on other jobs,
resulted in a $27,000 loss instead of break even. Tack on another
$26,000 for all the other stuff, including the extra admin to shut
down, and a loss of $54,000 in 1995 occurred. This left a negative
balance of $50,000 in the retained earnings account.

$22,000 worth of unresponsive equity accounts was applied to RE,
leaving a negative balance of $28,000 at the end of 1995. This $28,000
loss came out of any existing members (active or not) equity accounts
(cash reserve), thus reducing their value by 40%.

A few bucks were left in the bank for one last party and in case
something might trickle down from that old SAIF claim, hoping that
maybe those last losses could be recouped and bigger pizzas bought.
The rest is history.





Davis-Bacon Loss (29,595)
Tree-planting Profits 2,190
Negative Dividends Assessed 26,427
Loss to Retained Earnings 5,684

Retained Earnings Balance 71,427

NOTE ON '92 & '93 DATA: There is some mathematical difference between
retained earnings data, which was computed on book basis, and
patronage dividend and profit & loss data, which was computed on
federal tax basis, as was legally required for patronage dividends.
There was about a $5,000 difference between these most years.


Percentage of Member Labor

Davis-Bacon Profit 65,162 78.68%
TSE Profit 2,553 98.23%
Tree-planting Loss (81,032) 21.78%
Fire Loss (26,948) 20.94%



Davis-Bacon 51,268 27,983
TSE 2,508 2,506
Tree-planting (17,652)* O
Fires ( 5,643)* O

TOTAL 30,481 30,479


*NOTE: A significant percentage of Tree-planting and Fires negative
dividend would have been uncollectable.


Total Loss (no departments) (130,942)
Percentage Member Labor 55.06%

Standard Negative Dividend 72,090

Actual Negative Dividend (33%) 23,790

Loss to Retained Earnings (112,383)

Retained Earnings Balance (112,647)

NOTE: Often the figure of (136,437) is used as the 1994 Retained
Earnings balance. This figure does not include the 23,790 of Negative
Dividend assessments, but adds them on in 1995.


Job Loss (27,704)
(computed with a flat 20% admin)

Additional Administration (17,702)

Other Costs in Closing Company ( 8,704)
(SAIF rebate claims loss,Bad Debts, Party)


Net Income from Sale of Property 127,613
Net Loss, Sale of Other Assets (11,323)
Total Gain on Sale of Assets 116,290

Gain in Retained Earnings 62,180

Retained Earnings Balance (50,467)

This amount was taken from members' equity accounts. $22,166 was not
paid to unresponsive accounts. These received zero payment. The
remaining $28,301 was deducted from the balances of responsive
accounts. These were paid at 57.83% of book value.