November 19, 2015
Dear League Member,
I'd like to explain why I am running. I hope you will take the time to read my letter. As it concerns a matter of vital importance for the League and contains some hard facts.
In a recent meeting regarding the proposed changes to the constitution, I noticed that many members are now concerned at the direction that the League is heading; issues of concern that I have long held. The fact that the members were not able to speak and to voice their objections to any of the points, but rather had to write questions on cards, that Mr. Barbieri and his consultant could cherry pick, was deeply disturbing.
For those of you who do not attend the League membership meetings, I would like to add that at the very next meeting where Board nominations were taken, there was a large outcry from many members about the direction the League was headed, the disenfranchisement of the membership, the lack of transparency of the Board, the firing and hiring practices, and many issues relating to the sale of the air rights and the cantilever not only from the membership, but also from retiring instructor Peter Homitzky. Things may not be the way you remember them at the League. It is no longer the good old days.
I have deep concerns about how the $53 million from the sale of the air rights and right to cantilever will be spent, and how that will impact the future of the League. It would seem more than prudent to leave the money from the sale in the endowment (the money the League has invested which throws off revenue) rather than to spend it, if the League wants to keep tuition low. Spending this money immediately on ambitious building projects could jeopardize the very existence of the League. In March 2014, Mr. Manger, the League's accountant, stated at the Members' meeting on League Finances that the League operates at a $3 million annual deficit. This significant annual operating deficit is being paid for with investment income and gains.
Just a few years ago, Cooper Union ran into a problem after overspending on construction. The City Opera is no more because of overspending its endowment. At the last membership meeting, when the wisdom of the building project was questioned and whether the membership could vote on this expenditure of money, Mr. Barbieri simply said, "We already told you we were doing this." Is this democracy?
At the Annual Members' Meeting in 2013, League member Greg Gregorich asked Tom Harvey about how the 2005 sale of the air rights had impacted the League's financial position and how much of that money had been spent. Mr. Harvey replied that, "Money is fungible. All the money goes in one basket. It is spent as needed." Is this a way to manage money?
An endowment is not a general fund, Mr. Harvey. It is money to set aside for investment, so that interest can be used to offset a shortfall. A not-for-profit should plan on spending no more than 5% of its endowment to cover shortfalls annually, because 5% is a realistic annual return on investment. For the last 15 years the average annual return (interest and gains) on the League investments has been less than 5%. To pay for a $3 million annual budget deficit, an endowment with a 5% average return needs to be at a minimum size of $60 million. Is there no accountability? What about financial planning and budgeting? We are always told that the goal is to keep tuition low, but instead of relying on the endowment to cover major operating deficits, what about relying more on fundraising (also called development), fiscal prudence, and simply creating a sound business plan that balances the budget?
After last year's sale, this board designated at least $30.6 million of the League's endowment (or 37% of the current $82 million, which would leave a balance of $51.4 million) for a building expansion. But normally in a not-for-profit situation, the funding for large building projects isn't paid for by selling assets or depleting that which ensures the institution's future. Instead, there's a campaign to raise funds from donors. The presidents of the colleges of the City University have thirty percent of their annual performance review based on development -- the amount of money they raise. Ira Goldberg has said publicly at League meeting "We are not good at fundraising." Isn't this a significant part of his job?
The League for the last four years has only raised about $700,000 each year from donors and estate bequests, down significantly from the past. Average annual contributions for the past 15 years is about $1 million. Contributions remain mediocre, and operating expenses continue to outpace contributions. Our current leadership chooses to sell assets instead of increasing philanthropic contributions. This is not a sustainable business model. There is not much left to sell aside from our 57th Street building, and the art collection. And to those who think giving up our great, centrally-located landmarked building is a way to go, that we can just move the League elsewhere, I say, there is no cheap real estate to be found, not even in the outer boroughs.
At a meeting in 2014, Victoria Hibbs told the membership that we should not worry about the size of the endowment which was then about $49 million because the League's endowment was so much bigger than the endowment of the Metropolitan Opera, which she said was only $3 million. By her logic the League was in great shape.
I checked and this is not true -- the Metropolitan Opera's endowment is currently at about $253 million, but had been $345 million in 2013, down now because they lost money on investments since then, as have many major not-for-profits in volatile markets. If she meant The Metropolitan Museum, its endowment is $3 BILLION. The Membership should not allow itself to be duped and led to believe that their concerns are unfounded and the League need not exercise fiscal prudence and planning to survive. Although the League's endowment is now at $82 million, this is only due to two one-of-a-kind asset sales. Such big influxes of revenue won't ever happen again. What if the market tanks again?
It makes no sense to undertake an ambitious building project to build on top of the League, with ongoing major construction next to us and over us for the next five years that could damage our building as it continues. Furthermore if we spend the endowment to build, we will have significantly less income from the remaining endowment's investment to keep tuition low and to meet any shortfall that could arise. Just because you want to undertake a project does not mean that you can afford to do it. We need to raise money through an ambitious development plan and we need to have a sound business model as well. Both are now sadly lacking.
In the past 3 years, only about one fourth of our 4000 members voted in the board elections. If you believe, as we do, that it's high time for change, then I urge you to attend the annual members' meeting on December 2nd and vote accordingly.
I love the League, as do the rest of the so-called "opposition" candidates. Our team is running because of the above concerns and because we have valuable ideas to offer to deliver open, responsive governance, to sustainably maintain our assets, to grow the endowment, to keep tuition low, to maintain our beautiful building and to preserve and build a better League for you and future League members.
We have not said that the sky is falling as someone recently asserted. You will know if the sky is falling if so much as a wrench falls through one of the League's skylights from the height of the cantilever or perhaps even worse if the endowment evaporates.
Walanne Steele for Board of Control