LNC Meeting of October 2001

Financial Update

July was a very heavy expense month with our two final Strategic Planning Team meetings. Due to this and to the ongoing revenue downturn, we had to cash one of our three-$25,000 CD's in late July but were able to repurchase it in early August as revenues bounced slightly. Overall July revenue did bounce to $217,000 from June's abysmal $141,000. This left our reserve at three (3) $25,000 CD's at the end of August despite monthly revenue dropping again to $150,000. We ended August with a Quick ratio of 1.01, barely above the minimum. August's financial performance is particularly noteworthy, however, given the "down again" revenue and the fact that it was a three pay-period month.

To get a feel for the relative downturn in revenue compared to previous years, the June through August receipts this year totaled $509,000. For the same period in 2000, receipts totaled $1,142,000. Thus, we're operating at less than half where we were last year.

As if this isn't bad enough, then came September 11th. Our funds flow dried up dramatically as consumer confidence sank to its lowest level in a decade. On the next page is a September daily revenue report through the 25th that I requested from Mr. Dunbar. Due to this drastic reduction, we had to cash one $25,000 CD on the 18th and yet another one week later which has lowered our reserve down to our last $25,000 CD. The latter reserve dip was to meet payroll on Wednesday, the 26th.

Date	Daily Income	MTD Income
01-Sep
02-Sep
03-Sep
04-Sep	$36,141.09
05-Sep	$6,935.70
06-Sep	$1,452.00
07-Sep	$4,974.90	$49,503.69
08-Sep
09-Sep
10-Sep	$6,339.50
11-Sep
12-Sep	$6,068.45
13-Sep
14-Sep	$1,751.45	$63,663.09
15-Sep
16-Sep
17-Sep	$6,624.00
18-Sep	$1,999.95
19-Sep	$588.00
20-Sep	$4076.00
21-Sep	$0.00	$76,951.04
22-Sep
23-Sep
24-Sep	$3739.45
25-Sep	$789.45	$81,479.94

In response, staff sent out the "Perfect Storm" email appeal. I also have taken two somewhat drastic measures:

• I have directed that Mr. Dunbar postpone paying large bills in the short run, and
• I requested that Mr. Dasbach formalize a downsizing plan just in case.

Proposed Omnibus Treasury Procedures

Toward that end, I am specifically recommending four proposals below for LNC consideration. Proposal 1 offers a new reserve policy. Proposal 2 reaffirms our existing policy concerning ongoing liquidity. Proposals 3 and 4 codify new procedural and budgeting practices. For the purpose of these proposals, "budgeted revenue" is defined as the forecasted yearly revenue figure reported on the new budget adopted by the LNC at its December meeting.

Proposal 1: Effective with the 2002 calendar year, the reserve should average 2.5% of budgeted revenue. In addition, the reserve at the end of each December should be no less than 2% of budgeted revenue. The reserve for each month is calculated as the excess of all cash assets (Federal checking, non-Federal checking, time deposits, special events account, and credit card balance) above accounts payable measured at month-end, provided that no less than 90% of such excess is held in interest bearing (CD) deposits. CD maturities must be no less than one month but longer term CD's may be purchased at the discretion of the National Director. Early withdrawal is not allowed except by explicit approval of the Treasurer. Not renewing a maturing CD requires consultation with the Treasurer.
Implementation: To allow the time necessary to rebuild our reserve to this point, implementation should not occur until the second half of 2002. That is, the reserve for the last six months of 2002 should average this percentage figure. The reserve policy will have full-year effect beginning with the 2003 calendar year. However, the 2% amount should exist at the end of December, 2002.
Clarification: The average is calculated on a monthly basis. For example, six months of reserve totaling 2.0% of budgeted revenue coupled with six months of reserve totaling 3.0% of budgeted revenue would satisfy the reserve requirement. The 90% requirement avoids the problem of instantaneous end-of-month liquidity.
Justification: Once the new budget is passed by the LNC, the average reserve for the following year does not change regardless of realized revenue declines or windfalls. Essentially, at most, a six-month trend in revenue must be fiscally reversed. Being tied to the budget, staff has the incentive to provide realistic budget projections. The established reserve can be drawn upon by staff any time it sees fit, though violation of the yearly average reserve constitutes unacceptable performance. This provides staff much needed flexibility in managing the funding of projects, yet maintains an overall reserve for downturn purposes. Due to the end-of-December requirement, and the fact that a new (perhaps higher volume) year is coming, staff has the incentive to conservatively manage revenue windfalls. Additionally, the minimum end-of-December requirement provides a cushion during our historically proven down times.

Proposal 2: Similar to our current policy, cash assets (including CD's) must exceed accounts payable at each month-end, though only the excess serves as calculated reserve. Additionally, no single account payable shall ever go beyond 60 days past due including revolving accounts where minimum payments are due each month.
Implementation: These measures should be in place starting in 2002. All accounts payable currently more than 60 days past due should be paid before year-end.
Clarification: This requirement is a continuation of our existing policy which insures month-to-month liquidity. It is identical to our current requirement that our Quick ratio exceed one, except that the reserve would now not be counted in the total. Because these proposals redefine what constitutes "reserve", this requirement will be met if we have any reserve at all.
Justification: The existing policy allows the reserve to be counted in meeting our Quick ratio. Thus, it provides the incentive for us to accumulate CD's and postpone paying our bills. This incentive is an unacceptable, unintentional result of the current policy. The new policy eliminates this conflict. This requirement maintains month-to-month liquidity even if we have to completely exhaust our reserve for some reason.

Proposal 3: The Executive Committee shall be notified in advance by the National Director of any intention to undertake any project that is estimated, on gross, to cost more than 2.5% of budgeted revenue. The National Director must immediately report to the Executive Committee when any project's gross cost unintentionally exceeds 2.5% of budgeted revenue.
Implementation: This should take effect immediately.
Clarification: The Executive Committee expects the National Director to provide project information related to exactly how the project will be funded and what the possible financial and mission-related returns will be.
Justification: The Executive Committee should make the decision whether to authorize any expenditure on any project that could conceivably exhaust our reserve in the worst case scenario.

Proposal 4: In presenting a proposed budget to the LNC at its December meeting, the National Director shall provide documentation related to exactly how the budgeted revenue will be obtained and proposed monthly budgets for the next calendar year. Such documentation is to include when the proposed budget might use reserve funds for any purpose.
Implementation: This should take effect immediately.
Clarification: The purpose of this requirement is to more closely examine revenue assumptions implicit in our budgeting procedures.
Justification: The LNC needs more information in making informed budget decisions. Revenue shortfalls are less likely to occur if revenue management procedures are in place and all parties have a clear understanding of exactly how the budgeted revenue is expected to materialize.