Document #21
Report of the Administration and Finance Committee
The American Radio Relay League
2001 Annual Meeting of the Board of Directors
Committee Members: Director Walt Stinson, W0CP, Chairman; Director Jay Bellows, K0QB, Secretary; Vice President Joel Harrison, W5ZN; Directors Coy Day, N5OK; Bernie Fuller, N3EFN; and Ed Metzger, W9PRN; Vice Director Art Goddard, W6XD; Executive Vice President Dave Sumner, K1ZZ; CFO Barry Shelley, N1VXY; Treasurer Jim McCobb, W1LLU; and President Jim Haynie, W5JBP (ex-officio).
Year End Results Positive
The League performed very well in 2000. We will end the year over $250,000 up from the planned net available income, primarily due to exceptionally strong book sales and program fees. This is a fine performance and the League's finances are quite healthy going into fiscal year 2001.
Looking down the road just a couple of years, we see a convergence of trends that causes us some concern. Several major factors are stacking against us. These include demographics, industry sales, and licensing growth -- but primarily demographics. Moreover, the positive effects of restructuring are now largely behind us and management believes that we are now entering a period during which our expenses will increase faster than our revenues.
Budget Recommendation Approved
The A&F committee recently approved a budget recommendation for 2001. An executive summary of this budget is being sent by mail to each director and vice director. A motion will be presented to approve this budget at the upcoming meeting.
In the process of developing and debating the budget, it became clear that the board agenda for spending on member programs could soon exceed our funding capabilities. In light of this, several alternative scenarios were developed for the board's consideration at its annual meeting. In preparation for the discussion, please pay special attention to an exhibit in the summary entitled "Proposed Allocation of Resources". Also, keep in mind that we do not budget for investment gains (or losses), only for investment dividends and interest.
Dues Increase Deferred - Debate Needed
Of particular note are the projected budget deficits over the next few years. The committee has not yet determined how to address these deficit projections. Traditionally, when this kind of situation occurs, the A&F committee response has been either to raise dues or to order some serious belt tightening at HQ. After several rounds of belt tightening in recent years, there's little left to tighten. Management initially recommended a $5 dues increase in their budget submittal and we came very close to passing it in November. In the end, the committee decided to defer the matter until after the January meeting in order to include the board in the debate about our spending priorities, particularly the relative importance lower dues and our member programs. A complete overview of the League's spending on member programs will be presented at the board meeting.
Over the past few years, the committee has been utilizing a planning model that clearly differentiates our money-making activities from our money spending activities. Our money-making activities generated about $2.8 million dollars this year. Add to that our member contributions and realized investment gains and we had about $3.8 million to spend on member programs. Unfortunately, for the reasons I've already mentioned, available funding for these services is not expected to grow much over the next three years, and will actually shrink in the absence of a dues increase. In contrast, member program expenditures are expected to increase significantly over the next three years from $3.3 million currently to $3.8 million in 2003. These programs consist of advocacy, membership services, field and educational services, VEC, lab, and governance. Failure to provide additional funds for member programs would push our projected annual deficits to over $750,000 by 2003.
If we choose to keep all our programs intact and funded at the projected levels, management has recommended a $39 dues for regular members. The last increase was in 1996, when regular dues were raised to $34 from $31 per year. An increase to $39 would represent an in increase of about 3.5% per year over four years. Management favors an increase to $39, rather than to an intermediate level. Moreover, the committee feels we should gradually reduce the difference between a senior membership and a regular membership. Senior memberships are currently priced at $28, $6 below a regular membership. Because senior memberships are now roughly 40% of our total and growing, the committee believes that they should be gradually reduced or eliminated. Such a move would have a moderating effect on future regular-member dues increases. Based upon prior experience, management expects a dues increase to have a short-term negative impact on total membership and a positive impact on total dues revenues beginning in year two, with membership levels gradually returning to current levels.
Development Department Proposed
The committee has adopted a plan to address funding for our expanding agenda over the long term by significantly increasing the level of contributions. Our plan calls for a reorganization of HQ in order to support the addition of a completely new executive level department, The Development Department. This department would report to the executive vice president and would be responsible for increasing the level of contributions to the League, particularly planned giving, large bequests, and grants. We propose to move forward immediately on funding for this department. Mr. Sumner's success at funding the advocacy program largely through donations set the stage for the addition of this department. Advocacy spending is still growing, while contributions are leveling off. A more organized approach to donors is required if we are to continue our advocacy activities and expand into education. While the fund raising potential of a development department is still unknown, experts have estimated the endowment potential at tens of millions of dollars. We have estimated the annual cost of this department at $300,000. This item is not included in the budget summary.
Headquarters Reorganization Proposed
We do not intend to simply "plop" a new department into our already over stretched organizational structure. The successful integration of the development department will require some significant changes in the executive management structure at HQ. We propose a new structure consisting of the Chief Financial Officer, Chief Operating Officer, Director of Development, and Advocacy Director. These positions would report to the Executive Vice President. Currently, the Chief Financial Officer oversees an independent department that does not report to the Executive Vice President. This proposal, if adopted, would change that, creating a CEO style position responsible all of the activities at HQ. The COO would handle the Executive Vice President's other direct reports. The budget proposal reflects neither the cost nor the anticipated benefits of reorganization. These changes would add two to executive management and one to line management, not including the development staff additions. Addition of the Advocacy Director position would be postponed for at least one year.
Information Systems Upgrade On-track
The five major components of our information systems infrastructure are in the process of major upgrades: hardware, membership management, e-commerce, accounting, and DXCC. The hardware upgrades have now largely been installed. The accounting system is currently being evaluated with test data. The membership, e-commerce and DXCC programs are still in development and are mostly on-track, though some work is slightly behind schedule. Some modifications to the original DXCC concept have been proposed, which will likely result in additional cost though no cost estimates have been submitted nor increased funding requested.
Investment Portfolio Healthy
The League's investment portfolio totals about $14 million. Of this, about six million is allocated for servicing 20,000 life memberships at a cost of about $450,000 per year. Another $1,000,000 is restricted for specific purposes, mostly from Ethel Smith's bequest. The balance of $7 million is considered regular League funds. Interest and dividends of approximately $200,000 per year are budgeted income for the League. Unrealized and realized gains on the sale of securities are unbudgeted. We expect to realize about $375,000 in gains in 2000. After a long period of appreciation, the portfolio valuation has been trending down for the past six months.
Walton Stinson, W0CP
Chairman
26 December, 2000