LAB is in deep financial trouble. [1] After a $47,000 operating deficit in 2003, the League experienced even more red ink in 2004-a loss of $264,197.
The 2004 budget (prepared by the previous Executive Director and adopted by the Board in the fall of 2003) was, in the words of the current ED, "extremely ambitious, especially on the income side." He added that the 2004 budget was adopted before the final 2003 numbers were in, so the 2003 deficit was not on anyone's radar screen. Another factor that contributed to the problem was delaying some 2003 expenses to early 2004; this had the effect of making the 2003 numbers look better.
While this explanation may be correct, most organizations and corporations face similar timing problems without encountering unfavorable financial surprises as year-end approaches. Is it possible the former ED kept the bad news from the Board until it could no longer be avoided (and after she had announced her resignation)? The Board gave her a $10,000 bonus in the fall of 2003 in addition to a very generous salary considering her limited knowledge of bicycling.
Bike Summit: The 2004 Bike Summit was $15,000 under its budget in income and $35,000 over budget in expenses, for a $50,000 hit. Even so, this event produced a profit in 2004 of $84,000. The problem is that the projected surplus, including other income, was a whopping $187,000. If the budgeted profit is this large, maybe the cost to participants should be lowered so that people who aren't on government or corporate expense accounts can afford to attend.
Amazingly, the 2005 budget for the Summit forecasted a slightly larger attendance at a slightly increased fee, with no apparent reduction in expenses. A net profit of $140,000 is projected! The high price is a strong sign that the Bike Summit is for corporate and government "friends", not for members.
Relying on Fundraising: The ED reported that three expected growth areas for fundraising in 2004: corporations, major donors, and foundations. These have not materialized at all (emphasis added), thus, more than $500,000 of expected income has not been realized.
The reliance on fundraising is further proof of how LAB has become more beholden to outside funders than to its own members. These donors do not have the same interests as the cyclists who have carried LAB all these years. This has led the staff, with the Board's tacit or overt approval, to pursue projects and programs that are unrelated to the League's main mission, which is to protect and advance the interests of lawful, competent bicyclists.
Financially out of Control: I don't blame the Board or the current ED for the failure of the grant money to materialize. This is beyond their control. But the Board is clearly responsible for accepting the former ED's overly optimistic projections and then failing to hold her to account. The board failed to cut spending, when it became clear that the grant income wouldn't be coming.
At the October, 2004 board meeting at Interbike in Los Vegas, three staff members, including the Executive Director, stayed in one of the most expensive luxury hotels in town, the Venetian. Additionally, most board members stayed at another expensive hotel, the Marriott.
Because of the deficit, the new ED cancelled a major membership acquisition mailing. The mailing was projected to bring in 2000 new members and yield $20,000 in income above the cost of the mailing. With fewer new members in 2004, there will be less income from renewals in 2005 (and maybe beyond). A related problem is that the renewal rate for existing members is now 72 percent, which is lower than it historically has been.
I also know that the previous ED committed the League to $90,000 to put on Velo Mondiale last March. I don't know whether she got the Board's approval before making this commitment, or whether she went ahead on her own and told the Board after it was too late for them to pull the plug. The current ED has severed the agreement with Velo Mondiale. What benefits to the organization did it produce? How did it advance the League's mission?
All this should make it clear to even the most skeptical reader that LAB is financially out of control. The responsibility for this ultimately rests with the Board, because it is they who approve the budget and have fiduciary responsibility. The treasurer stated at the Board meeting in October that even if the entire staff were laid off, there'd still be a deficit.
The treasurer's statement is a little puzzling, because LAB's annual personnel expense is about $940,000, including benefits. If the entire staff were laid off, a $250,000 deficit would be recouped in three months. Of course, with no staff, income would drop too. Perhaps he was considering this fact when he made his statement.
In any event, someone clearly has been asleep at the switch. It is possible that important financial information was withheld from the Board. Either way, the Board has neglected its duty of oversight.
I wonder, in this time of a relatively weak economy and strained corporate and non-profit budgets, whether the League will be able to bring in the grants and donations it's depending on to get back in the black. I also wonder whether the League will survive at all.
How can the League fix this mess?
1. Clearly, LAB cannot exist without income. However, expenses must be reduced so that members' dues, donations, and program income cover the bulk of what it costs to operate the League. Overly optimistic estimates of outside funding should not be accepted.
The increasing reliance on outside funders must stop. This is not to say that outside grants and donations should not be sought, but the programs that those funds are used for, and the terms under which these donors contribute, must reflect the League's traditional mission and policy statements, not the wishy-washy, all-things-to-all-people mission statement that the Board adopted in October, 2003.
2. Move out of Washington, leaving only a small government relations staff in lower-rent quarters to pursue the advocacy work involving Federal agencies. Since moving to DC in 1997, LAB has lived a champagne lifestyle when it could afford only a beer budget.
The K Street lease expired in April, 2005. The Executive Director should have been instructed to look for less expensive space, but only sign a short-term lease, no more than a year or two. This would provide time to carefully study where the office should be moved. I recommend a smaller city where costs are lower, but one close to good and low-cost air service.
Routine clerical work should be done by retirees looking for part-time work, and/or member volunteers. Retirees have a good work ethic, and as part-timers they don't have to be paid benefits. Only the few important program directors should be full-time and paid a salary commensurate with their knowledge and experience. Except for projects that require contacts with federal transportation agencies, there is no need for LAB to be located in high-cost Washington. I do not know if any of this occurred, but I suspect not.
3. LAB needs a director of development. This is one area where paying top dollar for a good person is money well spent. If there's no budget for a development person, then this becomes the Executive Director's main job. The other things he might normally do based on his expertise or job description will have to be delegated to others, and projects not fitting the League's traditional mission should be abandoned as wasteful diversions of resources.
4. LAB must do a better job at retaining members. This means working for their interests and valuing their contributions. Membership benefits that used to exist should be evaluated with an eye toward restoring those that the members show a clear desire for, and which can be operated at minimal staff cost. These might include the hospitality homes list, touring information service, merchandise sales, and others that were abandoned before and during the League's last budget crisis of 1996-97. Volunteer labor is needed in order to restore these programs.
5. When LAB was a smaller organization, it did more with less money, it rarely had deficits, and most important, it represented its members' interests, not those of the bicycle industry, the fitness community, and New Urbanism facilities planners. If LAB doesn't represent the interests of active cyclists, who will? Certainly, not any of the current partners; they all have different agendas. Bicycling may be a part of their agendas, but it's not the major part, and they lack an understanding of what is best for the League's core membership -- road cyclists.
6. Members should be encouraged to play a larger role in League programs and governance. With greater "buy in", they will feel more a part of the organization, and will feel more inclined to support the League financially. Right now, members are valued only as a revenue source.
7. LAB must realize that it will never become a large organization (perhaps not even reaching 100,000 members that it had in 1898, when the US population was less than 75 million), and it should adjust its expenses and "lifestyle" accordingly.
Certainly, new members are needed; they should be sought, first and foremost, from the ranks of affiliated clubs. In most clubs, fewer than 10 percent of members belong to LAB. If we treated them properly, members from cycling clubs would be core members, not those who join for a year or two and then drop out.
The League's membership could be almost doubled if the "penetration" among
clubs was raised to about 15 percent. No expensive mail acquisition
campaigns would be needed, and the renewal rate would also go up. The
members thus recruited would likely demand that LAB pursue its traditional
mission, not the hastily adopted "mission statement" that was added to the
bylaws in virtual secrecy.
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What are the chances that the steps I've just outlined will be adopted by the
current Board? Considering that the board caused the problem, the odds
are quite slim.
To restore the League to health, most of the incumbents will have to be voted out. Most of the appointed directors must not be re-appointed when their terms expire. These incumbents must be replaced by directors who understand cyclists' needs and interests and will exert fiscal discipline. LAB Reform candidates will put members' interests first. |
[1] This is not the first financial crisis for the League. Read about past leadership problems and how they were solved in A Brief History of LAB by Bill Hoffman.
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Revised 9/ 8/05