Since I am still relatively new on the NELINET Board, and very new as your Treasurer, I share here some of what I've learned in this budgetary year. I was reminded throughout the year of all the ways in which the NELINET budget is different from the budgets that we deal with in our own libraries.
NELINET, as a non-profit organization, has to bring in every year all of the revenue that it intends to spend. This is quite different from our libraries, where most of us have funders who allocate a budget to us based on our statement of needs; we then manage and monitor the expenditures throughout the year. In the case of NELINET, a new budgetary picture must be established each year from an array of revenue sources. There is no guarantee of a base that carries on continually. Of course, these days all of us are recognizing our own bases of budgetary support are not as stable as we thought they were!
Arnold Hirshon, NELINET Executive Director, shared earlier this year in a newsletter some of these perspectives. In his report called Investing in Our Future he emphasized that we are a revenue-based budget rather than an expenditure-based budget. Again, as a relative newcomer, I would like to acknowledge the hard and very good work by your Executive Director and your Board over the last several years that has established a rational and predictable way to deal with this revenue-based budget picture. This work has paid off by ensuring stability in this year of broad budget downturn. Here are budget goals and guidelines established within the last few years:
Budget Goals and Guidelines
Specific budget goals have included:
The important overall budget guidelines developed by NELINET recently include:
Because of these guidelines, in this year when all of us have been tightening up and cutting back, NELINET has been able to establish and manage a budget that smoothed out the fluctuations that are inherent in the revenue sources. This was especially related to the adoption this year of a "spending rule" that establishes a five year rolling average as the basis for the amount of investment income we allocate into the operating budget. This, added to a previous principle that net revenues at the end of the year would be allocated to emergency and special initiatives funds, helps ensure a level of cushion for a downturn in the economy or a downturn in any one of the revenue sources.
This year, NELINET does not require, nor did we recommend at the Annual Meeting, an increase in dues, rates or fees. Therefore, the vote noted on the agenda was not required. Let me add that some OCLC charges will be changing, but, of course, NELINET does not control OCLC expenses. Although we are not recommending any changes in NELINET dues, rates or fees for this coming year, this is unlikely to be true in the future. Nevertheless, it is true at this point. We think it is an important step for NELINET to help cushion the finances of our member libraries, which we know are trying to absorb downturns and cuts of their own.
Going back to the budget guidelines, let's take a moment to look at the specific effects on the NELINET budget. You will note in Figure 1 that there have been some specific shifts in revenue reliance over the five year period from 1997 through 2001. Notably, reliance on investment revenues has been reduced, along with reliance on OCLC income. OCLC services obviously still matter to our member libraries, but the NELINET Board, in consultation with our Executive Director, has also determined that the future for our libraries includes much that is beyond the range of OCLC itself. For example, Educational Services have been reinvented and redefined to be less OCLC services skills focused, and more tied to how our members are thinking about the future. The drop from FY97 to FY01 is offset by a rebound in FY02 as these changes have occurred.
Membership dues and fees have increased as a percentage of the overall revenue picture, in large part because of a dues increase we passed a few years ago. Memberships are now seen as an important support for the basic infrastructure of NELINET. Electronic resources also increased significantly in the five year period as a source of revenue, as have consulting services.
This is the mix of revenue streams that make up the NELINET picture. Our ability to rely on each stream varies over time, and there may be sharp shifts in any given year. There are areas of unpredictability, and we seek to minimize these. For example, the educational services and consortial pricing areas are two that we have been watching closely this year and we will continue to do so in the coming year.
NELINET expenses are Figure 2. There has been a modest shift over the five year period but, no surprise to any of us, compensation and benefits for staff remain the largest item in our expenditure picture. Office operations costs have increased only modestly except for FY01 when the move of the offices to Southborough had a lot of one-time budget impact; the pie chart is misleading in that regard. Facility costs have increased very little as a percentage despite the new location for the NELINET offices; costs are going up but they seem stable in the context of all of the NELINET budget.
The comparison of actual figures making up these pie charts is in Figure 3, where you see the actual dollar change over that period. The second column is the audited financials from the close of 2001. This is the set of figures that we traditionally share at this meeting and for which we are certainly willing to answer any questions you may have. I would note that column 3 is the budget for 2002. It was set, of course, a year ago at this time. The actuals will be somewhat different, but we do expect a modest net revenue. As I mentioned before, that net revenue then gets divided into the emergency fund and the special initiatives fund and will not be carried over into next year's operating budget.
I would note that we have already identified in the Finance and Investment Committee and in the Board as a whole, areas which will draw our particular and focused attention in the coming year. We know we will need to watch cash flow. Cash flow is not something, again, that we think about very much in our libraries, but it matters very much to NELINET. Managing actual cash on hand to pay bills is essential. The AIA, the advanced payments that many of you make in order to get a reduction on your fees with NELINET, are extremely important to us. They are one of the major ways that NELINET is able to maintain the stability I've been describing. This is why it matters whether you pay on time to get your reduction. It is also the case that the amount of money being held under AIA has dropped a bit this year; we expect it may very well drop further in the coming year as well. It will require careful monitoring. Educational Services are an area we will watch. We don't know whether during your tougher budget times you will send more or fewer members of your staff to receive these educational offerings from NELINET. And the Electronic Resources or consortial purchases is an area of uncertainty. However, as your Treasurer, it is my pleasure to report to you that NELINET is strong and that its financial picture is stable and running firmly in the black. For someone whose own budget situation is highly questionable on the home front, I take pleasure in providing you with that news.