Executive Board sanctions, submits dues amendment to House of Delegates
AVMA treasurer, Dr. James F. Peddie, agonized over whether to recommend a membership dues increase and argued the issue "15 different directions in my brain," he said, before proposing the measure to the Executive Board, May 4 at its spring meeting.
In an executive session of the board, Dr. Peddie delineated his reasons for recommending the increase, which would raise dues for active members from $225 to $250 a year. Board members then had an interactive discussion with the treasurer, asking questions and voicing any concerns, such as what impact the dues increase would have on recent graduates. Board members were reassured when Dr. Peddie told them that dues for recent graduates, postgraduate students, interns, and residents would be raised only $10 a year, from $100 to $110 (see chart).
At the ensuing general board session, board members voted unanimously to submit the proposed bylaw amendment to the 2003 House of Delegates in July. If approved, the increase would take effect in 2004.
"Even with the increase, AVMA dues would rank among the lowest for an association of health professionals," Dr. Peddie said.
Dr. Peddie's vision is to give an infusion to the AVMA fund balance so that what is fundamentally an endowment will grow in size and earning power as interest rates increase. The overall effect of the dues increase at the rates proposed by Dr. Peddie would be to add between $1.4 and $1.5 million to the income side of the AVMA budget.
As reflected in the proposed 2004 budget, the modest dues increase would enhance the AVMA's bottom-line "income over expenses," a sum that is added back into the "endowment" fund balance at the end of each year as an investment in the future, Dr. Peddie said.
Right now, interest rates are low, but he predicts that in a year or two, the rates will start to turn around and climb back up. As they do, so will the yields resulting from the AVMA fund balance.
"We're trying to set up the AVMA to be financially successful and yet conservative," the treasurer explained. "By increasing dues now, we will increase our ability to operate without having to raise dues in the near future, by virtue of the fact that we're going to be making more money from interest on our funds and we will have the resources necessary to move the AVMA into the future."
This earning potential takes on special importance at a time when AVMA constituent organizations are turning to the Association for leadership in new areas.
"The AVMA is being mandated by organizations in the House of Delegates, primarily the various states, to assume a broader, more effective role in the distribution of certain information within our profession," Dr. Peddie began.
Resolution 4, submitted by 10 state/territorial associations, calls for the AVMA to essentially become a clearinghouse for national issues and support the state associations as they respond to legislative and regulatory initiatives, including challenges involving state veterinary practice acts. Additional state associations have expressed support of the resolution since its introduction.
The AVMA has been assisting constituent organizations that ask for advice and scientific background in confronting these challenges. Even so, the needs extend beyond what the AVMA can currently offer, and those needs are growing. State associations are looking for their national Association to provide expanded assistance when they encounter issues that have the potential to adversely affect the profession or to escalate into multistate or federal issues.
Dr. Peddie, the other officers, and the board as a whole acknowledge the validity of this mandate. They are studying the dynamics of such an undertaking so as to devise a feasible plan of action. Monetarily, Dr. Peddie said this enterprise would require funding to create a dedicated new AVMA division and possibly to engage attorneys and public relations consultants as contractors, when needed.
When Dr. Peddie enlisted the board's support for a dues increase, he prefaced it with his philosophy that the treasurer's job is to be the most fiscally conservative person on the Executive Board, and to consider the AVMA's financial health relative to every board decision. The treasurer is an ex officio member of the board without the right to vote.
The level to be maintained in the fund balance is a decision made by the leadership, but an AVMA fiscal policy provision, set down in the "Digest of Official Actions" in 1993 and 1996, mandates that the fund balance must fall between 50 percent and 150 percent of the annual operating expenses. "We must have that much capital on reserve to tide the organization over, should there be a rocky period," Dr. Peddie explained. In 2002, it was at 95 percent, enough for the AVMA to operate at its current level for just shy of a year.
"I feel much more comfortable going up to 100 percent or a little higher," Dr. Peddie said, "for several reasons. For one, it gives us a buffer so that we can move ahead and implement new recommendations and programs as the board sees fit, and for another, it increases the interest-earning capability of that money."
He said there is a fine line between having sufficient money in the fund balance earning interest, and having too much, but he believes the AVMA is not far off the mark.
In recommending the dues increase, the treasurer gave the board an overview of AVMA finances, factors that have led to a decline in revenue sources, and measures taken by the leadership and staff to try to avert the need for a dues increase. He reiterated much of what he said at the AVMA Veterinary Leadership Conference in January when he raised the possibility of a dues increase (JAVMA, March 1, page 568) and an April 15 JAVMA interview (page 1061).
His first point was that the board and staff trimmed expenses massively for fiscal year 2003. "We actually removed over $1 million worth of expenses from what was proposed in the 2003 budget to what was adopted in the 2003 budget," Dr. Peddie noted. "There was no more room to cut expenses without compromising the effectiveness and the mission of our organization."
A hiring freeze as well as the restructuring and reshuffling of AVMA personnel to increase staffing in areas with higher demands was also a cost-effective measure, Dr. Peddie said.
So, with no room to further cut costs, it came down to an income question, he continued. The AVMA has lost some nondues revenue. In the recent past, the ratio of dues to nondues revenue has been as advantageous as 58/42, but it had shifted to 63/37 by 2002. The three primary sources of AVMA nondues revenue are interest income, advertising in the journal and other venues, and rental income.
Traditionally, the AVMA has enjoyed an income of more than $1 million annually from interest on the fund balance. With the current market rate, however, AVMA investments are seeing a return of only 1.2 percent to 2.2 percent. "That has taken the $1 million-plus return we were getting annually and reduced it to less than $400,000," resulting in a major financial hit in the area of nondues revenue, Dr. Peddie reported.
"The good news, of course, is that we've not lost any of the corpus that we invested—not like many organizations and entities, which were invested in the stock market or in the equities market. We are invested in U.S. government securities and insured bank certificates of deposit," he added.
Initially, with the economic downturn, income from advertising in JAVMA and other AVMA venues dropped markedly, Dr. Peddie said. Although they appear to have stabilized, ad revenues are still down slightly from what they were just a year or so ago.
In the third nondues income category, rental income from the AVMA building, the market continues to be soft. Some of the AVMA's rental units remain vacant, and the AVMA has received pressure from existing tenant companies to lower their rents to be more competitive in the local market.
An advertising technique called "bundling" is one source of nondues revenue the AVMA is cultivating. It involves several AVMA divisions joining together to bundle advertising and sponsorship opportunities and market them as a package. In addition, Dan Murawski, director of the Business Division, noted that the Association derives some nondues revenues from royalty income on affinity programs and from the sale of various AVMA brochures. Dr. Peddie added that as the AVMA Annual Convention grows, that event will also generate nondues revenue.
Salary expenses over the past few years have been less than budgeted because of staff attrition and several approved positions going temporarily unfilled. Some were positions approved prior to an informal hiring freeze initiated by Dr. Peddie and observed by the board for the past year and a half. The budgeted, unspent salary money improved the fund balance each year. That will be phasing out, however, when the positions are filled, because those personnel are needed even more as the Association expands activities. According to Lori Keane, human resources director, the AVMA is recruiting for seven of the 11 open, budgeted positions. In addition, there is a recognized need for new staff positions in several areas.
AVMA fiscal policy is set by the Executive Board, amended as needed, and recorded in the "Digest of Official Actions." It requires that the AVMA invest only in U.S. government securities and insured bank certificates of deposit, with the exception of $1 million, which may be and currently is invested in mutual funds.
What credentials qualify board members to direct the Association's investment decisions?
"Virtually 100 percent of the current Executive Board is made up of individuals who have been very successful operators of their own businesses," Dr. Peddie noted, "and many of them have experience on multiple boards—hospital boards, bank boards, and others dealing with finance. A few have been active in philanthropic organizations that give away millions of dollars."
"So a fiscally sophisticated group of people are in the driver's seat making the decisions that affect the financial future of our organization," the treasurer said. "This is a team effort where we always consider the economic interests of the Association. Nothing is going to get by the board that they don't feel is right for the AVMA. They question anything they don't agree with.
"It makes my job very challenging—and rightfully so!"