A VISION FOR THE FUTURE - WHILE HONORING THE PAST
Painting of the League, Part 2:
Our Vote and Our Bloat
After reading the responses to Part 1, I have decided to move my discussion of Constitutional and Legal issues to Part 3. I underestimated the ability of Members to comprehend the League's spending and fundraising trends during the past 10 years. In Part 1, I strove for simplicity and clarity and this had the effect of making the "accomplishments" of our current President, Board and Director appear better than they have been in reality. Below I will present a little more financial analysis for your consideration that I am confident you will understand. Before I get to a few more numbers, I'm going to ask Members to make one commitment - to vote, and I'm going to make some commitments as well. I'm also going to further explain why I am writing these letters and will discuss some trends in Sal's annual communication to Members.
Vote Your $20,500 'Share' of the $82M.
It is Not Sal's or Ira's Money
I will be attending and voting at the League meeting this Wednesday at 7PM and I'm asking you to also show up in person and vote. If you live within train or driving distance of NYC please set aside Wednesday afternoon to travel to the League and vote. This vote is very important. I'm appealing to all 4,000 Members. We need votes from Members who can intelligently analyze the past performance and probable future performance of the current President and Board. I'm appealing to Members who may not have voted for many years. If you know any Members who are not receiving or reading my letters, please forward the letters and call them and ask them to attend the Wednesday meeting and vote.
Please shepherd your $20,500 'share' of the $82M as if it was your own money. One of the reasons many non-profits fail is that Member interests or 'shares' in non-profits can seem intangible or ethereal. Management of for-profit companies are accountable to stock analysts, fund managers and other economic shareholders who watch and evaluate management's performance every single quarter, year in and year out. I'm appealing to Members to please act more like an economic shareholder in the League. What would you do, or how far would you travel, to make sure your $20,500 was being invested and managed properly? Consider any effort and travel expense as important charity work. If you have already voted, you can change your vote at the meeting.
I commit to the following if Marne Rizika and her Board are elected:
I am a Completely Independent Potential Donor That Sees Danger
Members have asked me to run for the League's Board, and have asked, "Why can't I vote for you?" I think Marne and her Board candidates are much better suited for the Board than I am. Although I have been asked to be on Boards, I have never agreed to be on one, and it is very unlikely I ever will. I don't think I have the temperament to be a good President or Board Member (I also don't think Sal has the temperament to be League President). The highest and best use of my skills is to watch, listen and analyze the results of every League Board, and I hope all Members do the same to the best of their ability. I have become 'activated' because with Sal and the current Board I see three major danger signs: (1) Constitutional; (2) Operational; and (3) Investment.
Not only will I never serve on the Board, I will never be: a League Instructor; an Administration employee; or a paid consultant to the League (either directly or through third parties). There is only one way money will possibly ever flow between Lady League and me and that is from me to her. When reading letters from or discussing issues with Members who are one of the approximately 100 League Instructors or one of the approximately 100 League employees, consider their potential conflicts of interest. Although I believe they love and care for the League, Instructors and employees receive payments from the League, and their interests may not always be aligned with the long-term interest of the League and how the current $82M in cash and investments should be spent. Instructors and employees are accountable to Ira, who is accountable to Sal and the Board. Instructors understandably might be reluctant to criticize Sal, the Board or Ira in public because many of them count on the money they receive from the League.
I've heard it said that 'The League is the Instructors.' The League is not just the Instructors. The League is also not just the employees nor Administrators. The League is also not Sal. The League is ultimately controlled by the 4,000 Members, particularly the ones who vote. If the majority of Members who vote are the League's employees and Instructors, employees and Instructors will, to a large degree, run the League and if that occurs, the probability of long-term survival is bleak in my opinion. The spending and program building and floor adding might last for a decade or two before the competitive world with its real estate vultures, perched on their ever-higher towers, gorge on our Lady's dwindling flesh and crack open her remaining bones. Employees and Instructors need experienced Members who will limit the spending and help raise money. Unfortunately, we currently have a President and Board who market and talk "accomplishments" but are not controlling the spending nor raising enough revenue in relation to what is being spent. Selling dwindling assets is not a long term solution.
I became more active in the League about two years ago when I attended a few League meetings where I listened to Sal and Ira. Ira did not portray the confidence that he could raise more money to reduce growing operating losses, and if you don't believe you can do something that is difficult, you won't. Between the sounds from the ever banging and rapping mallet, thoughts passed through my mind, such as: ''The operating numbers are not good . . . They want to take all this money and spend it to add floors to this very old building . . . They are using construction and physical expansion as a marketing tool . . . They are mediocre at fundraising . . . I wonder if the Instructor positions, payments or bonuses are tied to their support of Ira and Sal . . . Wow, I wonder how many sophisticated high-net-worth Members will no longer want to leave the League money after they hear these two talk.'
My thoughts kept getting interrupted by a chorus of jeers around me that were directed at "that RJC guy" - a man who has been, in my opinion, more in tune with reality than the current President and Board, the current Administration and employees, and the Instructors. I have learned much about the League from the ASL2025 Members, including Marne Rizika, Richard RJC, Susan Brauser, and Walanne Steele, and though you may not agree with everything they say, all Members should be very grateful to them for their research and due diligence. I agree with most of the things they say, and I definitely would not have taken the time to write my recent letters to you and prepare valuable financial analysis for you if I hadn't witnessed their dedication and drive for change - I have a lot of projects that are crying for my time.
Sal Has Shifted From Failed Fundraising Talk to Dreams of Adding Floors
I have reviewed Sal's annual letters to the Members to try and discern what his goals have been through the years. Previously in Part 1, I may have given Members the impression that Sal has never tried to implement fundraising. Board member Victoria Hibbs said in her November 19th letter that the League was a "babe in the woods" when it came to fundraising and they were "in the early stages of integrating the idea into our culture and putting the necessary infrastructure in place." She also said that "we have been exceptionally fortunate not to need to actively fund raise for so many decades" - a statement that I find remarkable magical thinking. The current President for the past ten years either: (1) didn't think he actively needed to raise funds; or (2) tried to fundraise but generated mediocre results. I believe it is the latter, but under either scenario, these are not "accomplishments" to be proud of. Victoria needs to rework her story because she can't change the reality of the annual letters I was mailed.
Sal repeatedly discussed expanding fundraising and fundraising infrastructure in his annual letters to Members, starting with his October 2007 letter. Here are some excerpts from Sal's annual letters from 2007 through 2012 that mention fundraising or development (underlining is not in the original):
Oct. 2007: "My plans for 2008 are to continue and expand our fund raising goals in partnership with Ira Goldberg and his staff, and through our board's development, communications, and the President's Advisory Group committees."
Oct. 2008: "My plans for 2009 are to continue to build upon the objectives that I outlined in last Year's letter. We must, and are, expanding our fundraising capabilities. Your board, in conjunction with the Executive Director, has supported the development of a fundraising infrastructure. This infrastructure will provide us with the organizational foundation to increase our fundraising initiatives. In this current financial climate, we must exercise fiscal restraint, but we should also seek out opportunities to secure the League's future."
Nov. 2009: "Our plans for 2010 are to continue the goals that were outlined in last year's letter, most of which we have begun. We've expanded our fundraising capabilities through the use of the Internet, direct mail and Lines of the League, and in 2010 these efforts will be continued."
Oct. 2010: "Our fundraising and Exhibition Outreach programs are reaping significant benefits in both financial rewards and League recognition locally and nationwide."
Oct. 2011: "Our 2012 objectives are to build upon the successes of 2011 through continued efforts in development and outreach programs."
Oct. 2012: "The course for 2013 is to undertake a top-to-bottom review of the administration services and functions towards a more efficient, effective and streamlined operation for both 57th Street and Vytlacil. . . we will expand our development and fundraising initiatives."
In Sal's annual member letters from 2013 through 2015 he stops talking about fundraising. Starting in his 2013 letter to members, Sal switches from talking about fundraising to dreams of adding floors to the 57th Street building. Here are some excerpts (underlining is not in the original):
Oct. 2013: "It [the Extell Agrement] will allow us to add floors to our building, consequently adding additional classrooms, upgrading the cafeteria and library facilities, unveiling skylights that have been covered over for too many years and restoring gallery space. These plans which have been discussed for generations would no longer be a dream. It is all achievable if the membership approves the Extell agreement."
Oct. 2014: "We are in the process of conducting a feasibility study by professional consulting firms to assess the condition of the building from basement to roof. Upon completion of study which is due in January 2015 we will understand the options we have to the proposed renovation and expansion project."
Oct. 2015: "Over the years I have written to you about the many accomplishments that we have achieved during my presidency with the enormous efforts of my colleagues on the Board and the administration. . . In 2016 can begin to discuss with the membership the long-dreamt-of expansion and modernization of the 57th Street Building."
After reading Sal's annual letters to Members, it's clear that he knew fundraising was important since 2007. How much and what type of effort did Sal and Ira really direct toward fundraising? How much was just talk and do they have the skills to do fundraising well? They were spending more money each year on employees but how much was going into fundraising?
The first sale of asset rights was in 2005 and the second sale was in 2014. They may claim the asset sale transactions were too much work that took up all their time, but I don't accept that as a valid reason for the lack of fundraising - they had many years where there were no asset sales being done to build serious and effective fundraising. Fundraising should have been a top priority even when there were asset sale negotiations. I believe Sal likes focusing on real estate more than donor contributions and fundraising. Despite - or due to - the serious lack of fundraising results, in his 2015 letter he turns his focus to real estate again. Now he is also focusing on Constitutional changes, trying to divert the attention away from his inability to fundraise effectively and reduce operating losses.
$860,000 - $1,000,000 - $20,000,000
Below I'm going to describe how I calculated the three numbers above. Sal seems to like three number tuples (e.g. 10-46-1) and I've used his format. The three numbers represent the following:
Let's walk through how I arrived at the three numbers above. In Part 1, I used a simple method to estimate the disproportionate increase in Administrative expenses. I compared the percentage of Total Operating Expenses that were being consumed by Administration expenses from 2006 to 2015. I stated, "In 2006 the Administration expenses represented 33.1% of the total operating expenses, and in 2015, it had grown to 39.7%, resulting in a 6.6% increase in share of the operating expenses over the ten years."I calculated the revised 2015 Administration expenses by taking 33.1% of the total 2015 operating expenses ($7.87M*33.1%=$2.6M). By using the 2015 total operating expenses to calculate revised proportionate Administration expenses for 2015, I was basically assuming that the 2015 total operating expense number was reasonable. Was that a fair assumption? We don't know unless we look at how fast total operating expenses grew from 2006 to 2015, and compare this actual growth to historical published growth metrics.
Below is a table showing the growth of four of the League's major Operating Expense and Operating Revenue categories between 2006 and 2015. It has the actual 2006 and 2015 numbers and the total percentage increase. I ranked the categories starting from slowest-growing on top to fastest-growing on bottom. We can see that Administration Expenses almost doubled between 2006 and 2015 from $1.6M to $3.1M, a 97.3% increase. Between 2006 and 2015, Instructor Expenses grew by 35.4%, Tuition grew by 42.8%, and Total Operating Expenses grew by 64.4%. In Part 1, for simplicity's sake, I accepted the actual 64.4% rise in Total Operating Expenses between 2006 and 2015. What would be a reasonable operating expense growth rate if we don't use the actual 64.4%?
I propose using the 42.8% rise in Tuition between 2006 and 2015 as a model for Total Operating Expense growth from 2006 to 2015, rather than the actual 64.4% increase. I believe this a reasonable assumption because:
Below is a table showing how much the actual 2015 Administration expenses and Total Operating Expenses exceeded the projected model amount when we use three different operating expense growth percentages: the Instructor 35.4% growth rate; the Tuition 42.8% growth rate and the actual operating expense 64.4% growth rate. If you don't like the 42.8% growth rate I selected, you can select one of the others.
Note that if we use the 42.8% growth rate to model Administration Expenses and Operating Expenses, we get the three "tuple" numbers discussed above: $860K - $1.0M - $20M. If we use the growth rate of 64.4% to model Administration Expenses and Operating Expenses, we get $520K in modeled 2015 excessive Administration expenses which matches the number we got in Part 1.
If we use the 35.4% growth rate to model Administration Expenses and Operating Expenses, we get: $980K - $1.39M - $28M. We see that Administration expenses are estimated to be $980,000 too high in 2015 and this is an annual projected and growing future expense; Operating Expenses in 2015 are estimated to be $1.39M too high and this is an annual projected and growing future expense; $27.7M is the amount of money the League would have to invest annually at a conservative non-profit 5% average annual rate of return to pay for the modeled $1.39M in annual 2015 operating expenses. This $27.7M represents 92% of the $30.2M net amount of money received from the 2014 air and cantilever sale.
As I said in Part 1, your vote is not just about electing a President and Board for a year. The vote will also play a pivotal role in determining: if and how the League's constitution and bylaws are changed; whether plans continue for major $30+ million dollar construction; and whether the necessary experience and talent is put in place to significantly improve fundraising and reduce the growth of the annual operating losses. It is very probable that the election outcome will significantly determine the League's financial risk profile, character and mission for many years or decades to come.
All my ASL letters are on the ASL2025 website at http://asl2025.org.
December 2, 2015