The Finance Committee has been working on a long-range financial plan to insure the long-term financial stability of the association. The association's five-year plan is to fulfill its strategic objectives and to provide cutting-edge programs and services to its membership at an affordable rate, while maintaining a sound fiscal position. To help provide an understanding of this plan, I thought I would devote this month's column to explaining the rationale and process utilized in developing and implementing this important plan.

Facts and Figures: As shown in the association's five-year financial forecasts: Without an influx of additional net income, the association would run in a deficit position by as early as 1998, with an estimated deficit of more than one-quarter million dollars by the year 2001.

In the past few years, the association has made significant gains in the following areas: promoting the value of the profession; providing significant distance learning opportunities; providing access to many leading speakers, authors, and instructors; developing the virtual association and electronic commerce; and positioning the association as the leader in global information policy.

Each year it becomes more costly to operate the association in the mode to which we have become accustomed. Furthermore, SLA's financial base is jeopardized by increasing activity within the not-for-profit regulatory environment. It is, therefore, critical that SLA maintain a strong membership dues base, the most stable form of income an association can develop and maintain*. The association's current dues income as a percentage of total income is 25 percent, much less than the 40 percent industry standard.

*according to the American Society of Association Executives 1997 Operating Ratios Report

The Process: Over the past three years, the Finance Committee has been working on a long-range financial plan to ensure the long-term financial stability of the association. The Board of Directors approved the following motion regarding the concept and time line of the Finance Committee's long-range financial plan at the October 1996 meeting: That the Board of Directors endorse in concept the Finance Committee's initiative to provide additional net income to ensure the long-term financial stability of the association to include the following time line: January 1997, generic plan to increase income and/or reduce expenses; June 1997, detailed financial plan to support the generic plan; October 1997, communications plan to support the financial plan; January 1998, launch the plan.

Between the fall 1996 and winter 1997 meetings of the Board of Directors, the Finance Committee worked on the generic plan which was presented to and approved by the Board of Directors in January 1997. The Board of Directors spent more than an hour in an open discussion of the committee's generic long-range financial plan. After the Winter Meeting, the Finance Committee reviewed the comments from the board's discussion during conference calls. Then-Treasurer Donna Scheeder encouraged the committee members to consider the board's comments as an additional piece of data in developing the final financial recommendations of the long-range plan.

In addition to the past work of the Finance Committee and the information gleaned from the board's comments, several additional items were considered in developing the final recommendations of the financial plan: 1) The increased virtualization of the association. What is the cost-benefit? Will costs ultimately decrease? We are in the process of implementing an experiment by providing for electronic commerce at the association and unit levels; however, we do not at this point have any concrete data from which to base decisions; 2) There has not been any consensus to make any drastic program changes. Therefore, the plan of action is to not disrupt any current program plans; 3) There will be decreases, as well as increases, in expenditures in certain programs areas relating to items such as technology and training; and 4) As a result of the spring 1997 meetings of the AOOC and the Finance Committee, the Board of Directors approved an increase in expenditures in several areas to advance the association's products and services: technology to increase the virtualization of the association; staffing expenses as related to a pay-for-performance plan. These proposed increased expenditures are for the benefit of the association and its membership and will be funded by meeting the goals of the long-range financial plan.

The committee's goal remains the association's ability to fulfill its strategic objectives and to provide cutting-edge programs and services to its members at affordable rates, while maintaining a sound fiscal position. Without a strong financial base, this goal is not attainable. The committee's position with regard to defining a strong financial base includes incorporating excess funds into the annual planning process to provide for developing new activities and stimulating program growth. The committee has established 5 percent as a conservative benchmark for defining and recognizing operational residual earnings. From past experience, it is known that the funding of new activities and program enhancements is a costly proposition. In addition, the tax and regulatory activity surrounding the not-for-profit industry is increasing at an unprecedented rate. Therefore, many of our tax advantages are in constant question. This is a situation with the potential to erode our reserves and income-producing abilities should any current benefits be lost or diminished.

The Finance Committee established the following principles to guide their decisions and plans for long-term financial stability:

1. In order to provide for prudent, consistent, and regular financial growth the Finance Committee will give the highest priority to options that support the long-term, ongoing impact as opposed to a short-term, one-time financial correction. One-time actions taken to correct the financial position could be deemed preferable and appropriate in certain instances.
2. The strategic plan and the established priorities will be given full consideration.
3. Matters which protect or affect the association's investments and solvency will be given full consideration.
4. The Finance Committee will consider the long-term versus short-term expediency of all matters under consideration. The long-term financial goals and the strategic plan will be viewed in tandem.
5. The Executive Director's objectives, as determined by the Board of Directors annually, will be given full consideration in all matters under consideration.
6. Matters which protect SLA's dues/non-dues ratio will be given full consideration. During SLA's tax examination of the 1991 books and records, SLA was warned that operates too much like a commercial operation. The IRS agent suggested that SLA look for a greater balance of member support to protect its tax exempt status.
7. The Finance Committee has established 5 percent as a conservative benchmark for defining and recognizing operational residual earnings. On a $6 million budget, this would relate to $300,000 of residual earnings. This benchmark allows for the adequate, ongoing funding of contingencies (such as tax increases and assessments, the professional competencies project, etc.); program development, and technological changes.

The committee reviewed an exhaustive set of options which included both expense reductions and increased income. The committee spent considerable time balancing the various options in relation to SLA's dues versus non-dues income ratio with findings from membership surveys and the IRS examination. The committee reduced expenditures where strategic priorities were not jeopardized. The committee, in examining all options, sought to narrow the gap in the dues/non-dues ratio. After extensive analysis, the Finance Committee developed the specific recommendations of its long-term financial plan. The items which have been selected by the Finance Committee as viable options for long-term income growth and stability are expected to yield an overall additional income for each of the next five years. For simplicity, the committee did not specifically focus beyond the five year period, although the options slated are expected to positively impact years beyond 2001. At its June 1997 meeting, the Board of Directors approved the following recommendation of the Finance Committee: That the Board of Directors approve the options to fulfill the Finance Committee's long-range financial plan as contained in Exhibit A of A97-77. The specific items of the long-range financial plan have been incorporated into the FY 1998 Budget and other planning documents.

The next step in the process was for the Finance Committee to develop a communications plan to inform membership about implementing the financial plan. The committee devoted an entire day at its fall meeting to the development and implementation of the communications plan. We examined a myriad of communications tools and methods in the initial planning phase. We also explored various time lines and delivery techniques in order to reach the full membership. The communications plan focuses on historical information and the process utilized in determining the long-range financial plan, as well as the goals expected to be accomplished.

Next month's "Money Matters" column will outline the actual plan and its specific goals and objectives.

by Richard Wallace, SLA treasurer. Wallace may be reached via e-mail at: rewallace@aestaley.com.