LNC Meeting of August 2001

Liquidity & Revenue

Unfortunately, continued accumulation of a reserve via segregated certificates of deposit has had to take a back seat to paying bills. At my suggestion, the LNC voted in April to postpone by one month our scheduled April CD purchase. May revenues did not improve substantially, as demonstrated by the table and graph on the next page. I want to emphasize that this represented a "real" revenue downturn in that our 2001 budget passed last December represented a 12.1% reduction from actual 2000 revenues while May collections were more than 22.5% below the same month in the prior year. We were hoping that the May house letter would generate unexpectedly high enough returns to be able to indeed purchase what would have been our fourth $25,000 CD in May. Staff and I waited until the last minute to see if we had enough liquidity to make the purchase. As you now know, we did not. I had to make the unfortunate decision to not buy the May CD and I let the LNC know immediately via email. There was not enough time to corral the EC for discussion, much less the entire LNC.

As the next page demonstrates, June got even worse with collections being $208,000 less than in 1999 (comparing to 2000 is especially faulty for the month of June due to convention collections). Needless to say, our revenue downturn has continued through the summer. The chart and graph demonstrate clearly the extent of this ongoing problem. Compared to 1999 and 2000, our revenues for the first six months of 2001 are generally below prior years, with June revenue showing the largest downturn. This downward drift persists in absolute dollars as well as in funds as a percent of budget. If this trend holds for the remainder of the year without significant reversal, then we're looking at 2001 revenues being the lowest since 1995 and possibly equaling those of 1996 ($2.18 million). Indeed, I would term June financials as being disastrous.

There was one good bit of news in June. Our auditors, Rubino & McGeehin, gave our 1999 and 2000 financials an unqualified audit appraisal and we gave them permission to issue their final report.

Simultaneously, our strategic planning effort was costing more than anticipated due to a larger than expected number of participants and more meetings than originally thought necessary. For this reason, the EC on June 20th had to OK a contingency adjustment of $27,000 for higher SPT costs under our "10% overage" operating policy. In a timely fashion, staff started exploring in June the possible implementation of a formalized large donor program, which we hope, will help.

Though not shown, July expenses associated with SPT were large due to two meetings that month. Staff began a telemarketing campaign in an attempt to increase pledge revenue. There were some FEC inquiries, which occupied a lot of our assistant treasurer's time (we recently obtained our FEC password so we can now file electronically). About mid-month, it became apparent to me that without significantly high returns from our July house letter, we would probably need to cash one of our three $25,000 CD's toward the end of the month. On July 18th, the EC gave me the authority to do so if needed. With August being a 3-pay day month (the first being August 1) we did cash one CD at the end of July. We hope to be able to buy it back this month.

Despite these problems, our liquidity ratio through June (= [Cash + CD's] / Acct.Payable) has been maintained according to policy. Starting at 1.0 in April, it improved to 1.5 in May, then fell with June revenues to 1.1. As detailed in the budget section below, I believe this measure to be faulty. However, it was instituted and unless and until changed, it is part of our current operating policy.

Budget Variances

For the revenue side, the most glaring variances occur in three areas:

1. Totals,
2. Direct Mail Prospecting, Inquiry Generation & Response
3. House List Telephone Fundraising, and Major Donors

From the expense side, we've spent 20% less than budgeted so far this year. The only significant variance is in Governance. Of course, this is due to the higher than anticipated cost of our strategic planning effort. Generally, I'm of the opinion that staff has performed creditably in controlling costs during this revenue downturn. There is no doubt that we're operating at a bare bones level right now. If revenue does not improve, staff cuts would be the next step.

Developments

I was hoping to have recommendations for this meeting concerning an improved reserve policy as well as improved operating and budgeting procedures but this will be delayed until our next meeting. As suggested earlier, the current reserve policy has unintended consequences. In my opinion, there are two basic problems with our current policy:

1. Our CD's held in "reserve" are counted for purposes of liquidity maintenance, and
2. There is no established formal procedure for either dipping into the reserve or for replenishing the reserve.

Finally, I've had three or four estate donation requests since April. The last one, in late July was interesting. The gentleman inquired if there was a limit to the amount of funds he could bequeath. For your information, there isn't.

Recommendations

1. I believe it is essential to get out a large prospecting mailing as soon as possible.
2. Alternative methods of funding such a mailing must be explored.
3. A formal major donor program must be implemented.
4. Telemarketing efforts must be continued.
5. We must market our strategic plan with a vengeance.

[table of Jan-Jun revenue 1999-2001]