ALA Finances: Near Future Problematic, Longer Term Worrisome

Norman Oder -- Library Journal, 01/26/2009

• Endowment down significantly
• Budget adjustments keep pace with lower revenues
• Doubts about 2011 conference revenue

As with private investors and endowed institutions, the American Library Association (ALA) suffered significant endowment losses in the past fiscal year, 24.1%, but, thanks to budget adjustments and some new sources of revenue, net operating income in Fiscal Year 2008 actually exceeded expenses more than in FY 2007, ALA officials said yesterday at the Midwinter Meeting in Denver.

Fiscal Year 2008, which ended last August 31, left ALA with net assets of $34.4 million, compared to $33.3 million at the end of 2007. Three months later, net assets declined to $24.1 million, primarily due to endowment losses. ALA has adjusted by reducing expenses, but continued losses in the endowment—which is not relied on for operating income--could cut into scholarships and awards. And the longer term remains a question mark.

Conference revenue up and down
ALA membership continues to grow, executive director Keith Fiels told the Planning and Budget Assembly yesterday during the Midwinter Meeting in Denver, and the organization has made a new pitch to LIS students, of whom only about half join as student members and one quarter stay on. The next two Annual Conference sites, Chicago and Washington, DC, typically draw good crowds. Moreover, ALA has built “a very strong reserve in anticipation of some huge IT investments,” such as for its association management system. The impact of lowered advertising on publishing remains unclear.

In 2010, two division conferences, for the Public Library Association (PLA) and the American Association of School Librarians (AASL), should deliver revenue. However, Fiels acknowledged, “2011 then looks like it’s going to be really, really difficult.” And, he acknowledged, “if travel drops off to zero,” because of increased costs and lowered individual travel budgets, that could change the picture even faster.

Grants were key
Columbia University Librarian Jim Neal, who chairs the Budget Analysis and Review Committee (BARC), told Council there were various ways to interpret the FY08 financial results. For one thing, the Consolidated Balance Sheet, which shows assets and liabilities, showed net assets of $34.4 million in 2008, compared to $33.3 million at the end of 2007. Net operating income grew from nearly $200,000 to $3.1 million, thanks notably to an increase in grants and awards from $5.4 million to $11.8 million.

While there was some increase in dues and little change in income from publications, meetings and conference revenue grew from $1.9 to $13 million.

Concerns rise
However, he said, the revenue report from the first quarter of the current fiscal year shows “some seeds planted that will be of concern to Council and the association.” While total ALA revenue, $11.1 million, is under budget by $267,000, total expenses, $12.6 million, are less than budget by $780,000. That, he said, suggested that ALA is making appropriate adjustments in its budget. (The negative balance sheet as of the first quarter is typical, because it does not include conference revenue.)

The endowment losses might cause “modest impact in the short term in terms of our ability to do our work,” he said, but the “real impact will be scholarships and awards.”

Strategic planning
Going forward, Neal said, strategic planning will be critical. For example, the recommendations of the Task Force on Electronic Member Participation could have a significant impact. BARC will try to identify and document not only the direct costs of expanded electronic participation, but also analyze the secondary and tertiary impacts, such as on conference registration, and on exhibitor attendance.

“We want participation to expand, but not necessarily to displace our ability to do important work of the association,” he said. The net revenue from the Midwinter Meeting is about $1 million, and “that’s reinvested into work of association,” he said.

Councilor Elaine Harger suggested, “I urge everyone working on strategic planning to think about the scenario where we can’t fly to national conferences” because the age of cheap oil is over. “It’s not crazy, it’s real. It behooves us to be thinking about what we can do to transition our professional activities.” That got no direct response from Fiels.

Councilor Bernard Margolis, noting that this is a critical time to advocate in Washington, DC, asked of BARC looked at additional support for ALA’s Washington Office. Fiels noted that, during the current fiscal year, the Office of Government Relations has been reorganized, with an additional lobbyist. Later, he said that the office has “the strongest staff since I’ve been here.”

Endowment: long-term optimism
Dan Bradbury, Senior Trustee, gave the Endowment Trustees report, calling 2008 “volatility on steroids.” He pointed out that, historically, such economic downturns have been followed by an upswing.

He said that the trustees have explored new asset classes, including hedge funds and private equity, and the Executive Board has approved diversifying the portfolio by devoting up to 10% of the endowment in that way. So far, he said, only an investment in convertible bonds has been funded, he said, noting that ALA is a conservative organization.

“It most likely will be a long climb back to our 30 million [dollar] level. But ALA’s endowment will again gain that level and move beyond it,” he predicted. 

Has ALA ever invested in gold, he was asked. No; the endowment isn’t big enough.

Wouldn’t it be safer just to put the endowment in bonds? Bradbury acknowledged that individual investors turn to bonds when they get closer to retirement age, but—citing the traditional wisdom that has taken a hit recently—“if we really want to grow the ALA endowment, the best policy and practice is to construct a well-diversified portfolio.”

New revenues
Treasurer Rod Hersberger said ALA has begun to look at new resource development strategies, given that “dues, publications, and conferences are a mature business” without much net revenue growth. How can ALA develop new revenue-generating businesses?

He described four potential strategies. Current products for current markets could mean deeper penetration of those markets, such as bundling all ALA journals. New products for current markets could mean serving members in new ways. Current products for new markets could extend ALA services to other professions, such as those working in the education or nonprofit fields.

And new products for new markets, he acknowledged, “would require some creative thinking. ALA has a strong brand it may not have capitalized on in the global market, he acknowledged.

Neal noted that, as a university librarian, he’d launched 15 business lines, while at Johns Hopkins University renting space in a special collections library for weddings and starting Project MUSE with the university press. 

To move forward, he said, requires recognizing assets, deploying risk capital (such as a grant), adopting a business strategy, and addressing a competitive marketplace, beyond “that sense of  Kumbaya” that libraries sometimes have.