Cooperative Membership and Capital Credits
Frequently Asked Questions
Pioneer Communications is a not-for-profit cooperative that is owned by its members. Capital Credits are one of the many benefits of membership in the cooperative. At the end of each year, any excess operating margins are allocated to Pioneer’s members that received service during that year in the form of Capital Credits. The amount of excess operating margins, if any, varies every year. Capital Credits are generally either allocated as equity on the cooperative’s books to accounts associated with each member, or distributed as a cash patronage refund.
Pioneer Communications customers who are eligible for cooperative membership must live in the Pioneer Telephone Association, Inc. service area, which includes these communities in Kansas: Big Bow, Coolidge, Deerfield, Hugoton, Johnson, Kendall, Lakin, Manter, Moscow, Richfield, Rolla, Ryus, Satanta, Syracuse and Ulysses, also rural Baca County, Colorado. Customers in these areas must subscribe to telephone and/or cable service to qualify for membership.
The amount of capital credits you earn in a given year is based on the amount of capital contributed to the cooperative through payment of your monthly bill for services and the amount of operating margins realized by the cooperative. Capital Credits are usually retired, which means paid to the member, as a percentage of certain prior year’s allocations.
You begin accumulating Capital Credits when you begin receiving telecommunications services from Pioneer. Members receive a statement annually detailing the status of their Capital Credit accounts.
Margins are “allocated” or assigned to members who belong to the cooperative during the year in which a margin is generated. The allocation is based on the member’s proportion of service usage for that year. Each member’s portion is referred to as a “capital credit allocation.”
Pioneer Communications sends a notice to members each year showing the amount that has been allocated to them based on the amount billed for their telecommunications services and the associated gross margin during that year.
It is the return of members’ capital credits. Retiring capital credits is a way of ensuring that each generation of members pays its own way. Pioneer Communications operates on an at-cost or nonprofit basis by annually allocating to each member, based on the member’s purchase of services, operating revenue remaining at the end of the year. Later, as finances permit, these allocated amounts, or capital credits, are returned to members, by check.
Allocated Capital Credits are amounts entered on to the cooperative’s permanent financial records representing each member’s pro rata share of annual excess operating margins. Every year, Pioneer’s Board of Directors reviews the financial health of the cooperative and determines whether any previously allocated Capital Credits will be paid out to members. Capital Credits that are paid out to members are referred to as retired Capital Credits.
Each year the Pioneer Communications Board of Directors reviews the financial status of the cooperative to determine whether a refund is feasible and if so, how much. While capital credits are allocated every year, they are not automatically retired or refunded to the members every year. Pioneer Communications uses margins (i.e. capital credits) to fund the operating activities and upgrades to your infrastructure and equipment, with the intent of repaying this capital to the members in later years. The Board of Directors strive to operate in a prudent business manner so that the member-owners will continue to have the very best telecommunications services possible at the lowest cost consistent with sound economy and good management.
A negative amount of capital credits allocated will decrease the amount in your capital credit account. Pioneer Communications uses margins (i.e. capital credits) to fund the operating activities and upgrades to your infrastructure and equipment. The negative capital credit allocation happens when expenses are more than the margins.
Allocated capital credits remain on the Pioneer Communications books in your name and account number until they are retired. Capital credit retirements (payments) are made years after capital credits have been allocated. Please notify Pioneer Communications of your new mailing address.
No. Capital credits allocations are simply a record of your pro rata share of the margins. Since the capital is not held in an account and is reinvested to support the operations and growth of the business, the entire balance cannot be retired to you at once. There is no legal obligation imposed on the Cooperative to retire capital credits or to pay out the balances in full. The method, amount and timing of capital credit retirements is at the sole discretion of the Board of Directors.
When capital credits are retired, meaning a check has been issued and mailed to the member’s address on record, the cooperative sometimes receives returned mail marked “undeliverable.” In the event that Pioneer Communications has unclaimed capital credits, a letter will be sent to the membership in an effort to locate those members with unclaimed capital credits. It is important update your mailing address with Pioneer Communications to ensure you receive future capital credit checks.
For residential service accounts, capital credits are generally not taxable. For businesses (which includes rentals), according to Internal Revenue Service guidelines, members receiving capital credits checks in excess of $600 are required to complete the IRS’ Form W-9.
The Cooperative may specially retire capital credits when it receives proper written notification that a member or former member has died. Upon request from the appropriate representative of the member and receipt of the appropriate documentation, the Cooperative will pay the estate at a discounted rate, which is the Net Present Value Discount (NPVD.)
NPVD is an acronym for Net Present Value Differential or Discount. This is the difference between the total amount of capital credits retired and the amount actually distributed by check or applied to your Pioneer Communications account. It represents the net present value discount amount for the time value of money retired. In other words, this equates a dollar being retired today to the value of a dollar retired in the future, typically 20 to 25 years in the future.
This amount is not held in an account, but is reinvested to support operating activities, growth and capital investment. The discounted amount of the NPVD is tracked and accumulated annually by the Cooperative for each member. This amount will be used, in combination with any current outstanding patronage balance, to determine each member’s relative ownership percentage in the Cooperative as of the dissolution date. That percentage will then be used to determine each member’s share of the net remaining assets that will be distributed upon dissolution of the Cooperative.
Each scenario may vary based on the member’s situation. If a change needs to be made to the membership name, Pioneer Communications requires legal documents to support the change. Please provide original documents. The original documents will be returned to you upon request. Please contact Pioneer Communication with any questions concerning your capital credit allocations at phone number 1-800-308-7536, toll free.