ACRL College & Research Libraries News

College & Research Libraries News

A new approach to managing ACRL’s assets

By Ray English and William Miller

Ray English is chair of the ACRL Budget and Finance Committee and director of libraries at Oberlin College, e-mail: Ray_English@qmgate.cc.oberlin.edu: William Miller is ACRL president and director of libraries at Florida Atlantic University, e-mail: Miller@ACC.AFU.EDU

Recent changes in ALA endowment policy have made it possible for ACRL to rethink the management of its financial assets. Instead of maintaining large reserve funds, the ACRL Budget and Finance Committee is recommending to the ACRL Board a substantial transfer of funds into the ACRL and Choice endowments.

In conjunction with the endowment transfer the Committee is also proposing changes in ACRL’s polices for both its endowments and its operating reserves.

We expect that these changes will:

•substantially strengthen ACRL’s financial resources;

•provide more flexibility in the use of current operating funds; and

•improve ACRL’s ability to carry out its strategic objectives.

The revised ALA endowment policy makes it clear that the primary purpose of ALA general endowments is to provide resources that may be needed to respond to emergency situations and urgent needs. ALA manages and invests its endowments conservatively, with a focus on long-term growth and appreciation.

Endowment funds are to be spent only in unusual circumstances and very little income is paid out to support current operations.

In their primary purpose, ALA’s endowments function in much the same way that ACRL has used its operating fund balance, particularly the portion of the fund balance that we call our

“mandated operating reserve.” For many years we have followed a policy of holding in reserve an amount equal to at least 40% of ACRL’s recent average annual expenditures. This “rainyday” fund, in the range of $300,000–$500,000, has always been available in the event of financial emergencies. We have also been fortunate in recent years to have surplus income, made possible by strong revenues from national conferences and publications, that has enabled the fund balance to grow to levels that are now well above the mandated reserve level.

While our past practice of maintaining such a large current fund balance has had its positive aspects, it has also had negative consequences for ACRL. The primary disadvantage is that we receive no interest or income on these current funds. According to the ALA operating agreement, all such income accrues to ALA. While it is necessary for ACRL to maintain an operating reserve that is sufficient to cover normal revenue fluctuations, having such large fund balances means that we, in effect, forgo investment income that would accrue to ACRL if the funds not needed as current reserves were invested in endowment.

Another negative consequence of the large fund balances is that they may create the incorrect impression among ACRL members that we have excess funds that could be spent for regular operations. In reality, many of ACRL’s revenue streams are unpredictable and our dues revenues (which are predictable) support only a portion of basic member services. It is therefore essential that we have some funds to cover revenue fluctuations as well as others that will enable us to handle more dire emergencies.

Since the primary purpose of the ALA general endowments is to enable ALA to respond to emergency situations, and since the present purpose of ACRL’s large mandated operating reserve is essentially the same, the Budget and Finance Committee and the Board believe it makes sense to transfer to the ACRL endowments the funds in the operating reserve that have been held for more serious emergencies.

We expect that the investment income that will be produced from the larger endowments that result from the transfer will substantially strengthen the financial resources of ACRL over the long term. Modest income from the ACRL endowment will also be available to support ACRL’s strategic initiatives, fulfilling to a significant extent our long-term goal for the ACRL endowment.

In view of these considerations, in San Francisco the ACRL Board will act on the following specific recommendation from the Budget and Finance Committee:

1) that ACRL move $400,000 from its operating fund balance and $200,000 from Choice’s operating fund balance to the ACRL and Choice endowments in four phased transfers over a two-year period;

2) that ACRL endowment policy be revised to conform to ALA endowment policy by including the purpose of providing financial resources that will enable ACRL to respond to emergency situations and urgent needs; and

3) that the mandated operating reserve for both ACRL and Choice be lowered to 20% of recent operating expenses.

We anticipate that this new way of maintaining our endowments and our reserves will enhance ACRL’s finances and programs significantly in future years. ■