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In the few years in which I have been in charge of the business of our cemetery and a member of this Association I have watched with considerable interest the papers presented to the conventions and the various topics that appear in our magazine "Park and Cemetery". Organizing, planning, landscape, management, rules and regulations, care, accounting, advertising and laws affecting cemetery operation have all been freely discussed and with much benefit to us all. But there seems to be one subject above all others in which practically all modern cemetery men are most interested, and that is Perpetual Care and how it can be provided for. I believe those two words "Perpetual Care" are about the most commonly used words in our modern cemetery business.
I know they are words that have different meanings to some of us, depending upon the age of our own cemeteries, and how the term applies to them. But I am not here to talk to you on this point for I realize that each of us have a problem more or less different and distinct from the others. Whether or not we have perpetual care provisions in any of the various methods to which the term applies, we probably are convinced to the last man of us, that in this day and age it is absolutely essential that our cemeteries be properly cared for so that we shall not be guilty of the disgraceful neglect that has characterized the past.
I think, too, that we are all pretty well convinced that the purchase price of ground should be sufficient to provide its proportionate share toward the up building of a trust fund for the maintenance and perpetuation of the entire cemetery. That, of course, would be the ideal condition under which. to operate, and is a condition that prevails in the affairs of some of our largest and best cemeteries, especially in the larger cities where the percentage of sale price as applied to the care fund is immediately sufficient for this purpose.
But, perhaps there are others here like myself who are realizing that in selling ground with the promise or contract, of perpetual care we have taken on an obligation that might some day become difficult of fulfillment. In other words, we have sold our ground for too small a price, and thereby sold more of it than necessary, and as a result we have increased our burden for all time to come.
A small price must, of necessity, yield but a small fund, for we all know that from our annual sales there must first come the bulk of our annual expenditures. To most of' us in the smaller cities high prices for cemetery ground are out of the question. We are just as ambitious to have our cemeteries beautiful and provide the best care possible but we cannot obtain the prices that will do these things and also add sufficient to the care fund.
This is exactly the situation that we face in our business at Freeport, Illinois. We have been operating for 23 years one of the most beautiful cemeteries in America and have from the beginning sold all lots with perpetual care provided. Our fund at present is far less than it should be, amounting to but about 5 1/10 cents per foot of sold ground. When there is added to this sold ground its proportionate share of the upkeep expense of the whole cemetery it shows how ridiculously small it is. During the earlier years of our business there was a ten percent deposit to the trust fund and later this was increased to twenty percent. This latter figure most of you would say is a fair proportion of sales to devote to the fund and I believe is used by many cemeteries. However, when you consider that with our prices advanced each year we are now obtaining only sixty to ninety cents per foot for ground you will readily understand why it is still too small to accomplish what a trust fund is created for.
Shortly after assuming charge of our cemetery I began to wonder just how large our fund would become under the plan; what the perpetual care of the cemetery would require in interest earnings and whether, after all our ground was sold, it would be in any way adequate.
We were drawing all interest from the fund annually to assist in caring for the cemetery so that the fund could be increased only by the sales installments we placed to it. Therefore, for example, when our property, which consists of a little over one hundred acres, had possibly totaled sales of three million dollars we would have but six hundred thousand dollars in the fund.
In endeavoring to estimate our needs I find that some of our cemetery men have reached the conclusion that there should be at least fifty cents per foot in the trust fund. This seems more than necessary until we consider that it is not merely the individual lot that will sometime be dependent upon the interest earnings but rather the entire property, of which the general or public parts may be the more expensive in maintenance. Looking into the long, dim future none of us can tell just what the costs of operating or rather perpetuating our cemeteries will be, so that all we can do is try to provide abundantly and trust in the future conditions.
Studying over the problem, I decided that even if at sometime we were to obtain sufficiently large prices for our ground there would yet remain all the ground already sold that had not contributed its full share to the fund. There can be but one solution to this problem of inadequate apportionment to the fund and it is through the assistance of compound interest.
I have prepared printed copies of a sheet of figures that I worked out and these will tell you more than I have time to tell you here. I have here also a chart of some of the results obtained by my method of building up a trust fund' which is now to be adopted by our Association. The surprising figures will show you that we will cut our deposits in two, create a vastly larger fund and draw out more interest than under the simple 20% plan.
There are four uncertain factors in figuring as I have done. We do not know just what acreage or footage will be developed from the property we own; how long it will take to sell it all; how much may be sold each year and what the prices will be. And so for a basis of figuring I begin with estimated sales of twelve thousand dollars a year as an average for the next ten years and increase it one thousand dollars every ten year period, estimating that it may take 150 years to sell out. I have assumed that five percent is a fair expectation of interest earnings. Both our old and new methods are therefore figured alike as to sales and interest. No consideration has been given to the cost of administering the fund either way tor it is rather negligible as compared with the total earnings.
To begin at the beginning of our whole program regarding our Perpetual Care Fund. We are incorporated as Oakland Cemetery Association, though in fact we are but a stock company and are not in any way operating under any laws of the state governing cemeteries. If we interpret the laws correctly, we, as a profit sharing corporation cannot set aside a perpetual trust. We therefore propose to incorporate a voluntary lot owners association which will nave for its object the care of the trust fund and finally the perpetuating of the cemetery. This association will be empowered to create and elect a Board of Trustees, this Board to have the actual control of the Perpetual Care Fund. The further purpose of this second Corporation is to prevent the stockholders of the Cemetery Association having any chance to recall any or this entire fund.
Agreements will be made and recorded, between the operating company and the lot owners association which will set forth the methods and purpose of creating the fund and defining the conduct of both parties for all time. Each and every deed given for lots will carry with it enough of a contract for the ten percent of the purchaser's money to make it binding on both associations. Our attorney believes he can in this way make a three cornered contract that, as he expressed it, "no man on earth can ever break."
The application of the ten percent of sales will be made as long as ground is sold, so that, for as long as there shall be lot owners alive, there may be expected to be interest manifested in the project from these lot owners. Beyond that time a competent court will have to appoint the Trustees.
Each year the Trustees will retain two percent interest on the total fund as of the first of the year. To offset the loss due to inability to re-invest the odd amounts of earned interest to the last odd dollars and cents, the installments from sales shall be paid over to the Trustees semi-annually. The actual investing of the fund shall be through one of the largest Trust Companies in Chicago and all investments will be ratified by our local Board of Trustees. The Secretary of the Cemetery Association shall be the Secretary of the Lot Owners Association, thus providing the latter Association with a working officer who will always be in a position to look after its affairs.
I have figured various other compound interest schemes for long periods of time only to discard them when they failed to produce the desired result. We cannot afford to appropriate to the fund much more than we have in the past, and so I finally found that by using two percent as the compounding figure we would actually be saving something to ourselves for some years to come. Then, gradually, it will turn to a loss to us until the interest earnings mount up to a considerable figure when it will again begin to show a balance in favor of the cemetery.
The printed copies show only figures for each five years but to arrive at these it was of course necessary to carry out the entire scheme for each year. Some of the interesting items from the detail of the yearly figures are as follows:
In the 48th year of our new plan shows its first gain in the total amount in the Trust Fund and in the 115th year it is double the amount in the old plan. In the end it is more than three times as much.
Each year, in the beginning, shows a result in favor of the cemetery, decreasing yearly. The Total gain up to the 14th year is $6,033.27. The following year the result is in favor of the trust fund and it continues so until the 85th year during which time the operating income has suffered a loss of over $58,000.00. In this 85th year it again begins to add to the operating revenue and as the two percent interest earnings are now beginning to build up heavily, the gain of operating revenue increases very rapidly until at the end of the 150 years it shows a net gain over the losses of $544,937.11.
In speaking of loss or gain I mean that in the old plan we take all the interest earned. Under the new plan, we take all interest over the two percent which is returned to the fund, also the ten percent of sales which we do not place to the fund. The difference between these two incomes produces loss or gain to the operating revenue.
I know that the statements on this chart look like a paradox, but strange as they may seem they are nevertheless true. We will put in half as much, build possibly three times or more as big a fund and draw out more in earnings.
Now, there will be a provision made that whenever the fund has reached a total equivalent to fifty cents for each foot of ground that has been sold and that fifty cents per foot appears at that time to be sufficient, the compounding rate may be decreased below two percent by agreement of the operating association and the Trustees.
We have formally adopted the entire plan as I have outlined it to you and our attorney is now engaged in the work necessary to the perfecting of the Lot Owners Association. We have gone at it with much thought and we are satisfied that it will guarantee to our lot owners the full meaning of Perpetual Care. If there are others like us, whose fund is too small to represent the amount of ground already sold, I believe they can find in our plan a way to improve their fund slowly and surely, without lessening their income. If you cannot apply from your sales price enough to be immediately sufficient, there is no other way than through compounding a portion of your interest, to keep faith with your lot owners.
A comparatively small initial fund, invested and compound in g at its full interest earnings would in a like time produce an ample fund, but it would yield no annual returns for the care of the sold ground. It may seem queer too, that we should add to our fund an amount from lot purchasers money which would be much less than what we would withdraw from the fund but in this we are following the belief that people are really not much interested in anything that has not east them, something and we earnestly solicit the interest and aid of our lot owners.
We desire that our people shall think of the cemetery as a community affair and cooperate with us in making and keeping it forever beautiful, well cared-for and absolutely permanent.
From the publication:
AACS - Proceedings of the 39th Annual Convention
August 24, 25, 26 and 27, 1925