To: Board of Directors, Volunteer Leaders, All Staff
From: Carl Pope
Date: January 30, 2009
We are writing to update you on the Club's finances during this economic downturn. First, thank you all very much for your earnest efforts to reduce our expenses. Many operating units and entities have already cut costs. These efforts will serve us in good stead.
The investment climate has worsened since our last communication in October. Because there’s great uncertainty about how deep and how long the economic downturn will be, we must continually reassess our budget projections. We must adjust our plans as the outlook becomes clearer. The Club's 2009 budget was adopted in November, but it was crafted in early September. That budget is now obsolete and no longer reflects likely 2009 revenue inflows, particularly with respect to unrestricted income.
So what is the current outlook? As you recall, our revenues come from three primary sources - member dues and donations, larger planned gifts, and investment income. Both member donations and investment income are declining, while larger gifts continue on track. But because these large donations come in the form of restricted, not flexible dollars, they cannot be used to pay for our infrastructure and operating costs.
As a result, we need to make additional cuts in our unrestricted expense structure in order to establish a baseline unrestricted expense level that is consistent with our organization's ongoing financial stability. Because of the erosion of our operating surplus, we have no margin for error this year – that is, we have no room to run red ink. As a first step in this effort to ensure we can operate in the black, I have asked each of my operating and administrative units to submit potential expense reduction scenarios of at least 10%. We are hopeful that overall cuts will not have to be this deep, but it would not be responsible for us not to prepare for this necessity in this uncertain economy. And regrettably, it is in fact possible that deeper cuts could be necessary if revenues continue to erode. Our objective will be to meet as much of this goal as possible by reducing expenses in areas that do not impact current staff directly, when it is operationally feasible to do so.
EXPENSE REDUCTION STRATEGIES
As a result of the economic downturn, many, if not most, other non-profits are looking to dramatically reduce their expenses. Many have already announced and/or implemented plans to impose travel, hiring and/or salary freezes and to reduce staff through layoffs or attrition (i.e., not filling many of the positions which open when people resign).
At Sierra Club, we are seeking strategic adjustments that retain our focus on our core conservation, legislative and outreach objectives and that preserve our leadership role within the environmental movement.
That being said, we are looking at similar options and believe, unfortunately, that we will not be able to make the necessary scale of expense cuts without downsizing the workforce. Again, we do not mandate an across-the-board approach, and we will provide guidance to managers to attempt to minimize the scale of the inevitable reductions. We plan on achieving as much of this workforce reduction as possible through attrition in an effort to achieve as much as possible of the necessary reductions that are required to assure our financial stability without impacting current staff.
Some entities or departments may also be able to allow employees to voluntarily reduce their work hours. If and when involuntary layoffs are needed, a voluntary layoff program will be offered in some units, consistent with our bargaining unit contracts. Where layoffs are unavoidable, severance packages that are consistent with our contractual obligations (for bargaining unit employees) or our non-represented employee severance benefit plan will be offered. We will provide more details on these initiatives when they are further developed.
In addition, salary increases or promotions will be fewer and more modest than in previous years. Given the slowdown in the cost of living we are now experiencing, this is a less painful option than it might be in other circumstances.
The Cabinet (i.e., Carl and his senior direct reports) have also decided, that in light of the economic downturn, they will forego salary increases for the second time in three years. The salary increase plan for other managers, supervisors and non-represented staff is currently under review by the Cabinet and will be announced shortly. Of course, contractual obligations for salary increases for bargaining unit employees must be honored in the absence of permission by the bargaining units to amend them.
YOUR HELP IS IMPORTANT
Is there anything that you can do now to help in this current budget situation? Obviously, any immediate reduction in discretionary spending -- reduced travel, delays in capital expenditures, and reductions in meeting or retreat expenditures, in addition to those previously mentioned -- will ease the year's budget. Each department has been asked to undertake initiatives to identify such savings. For staff, reducing the carrying value of your accrued vacation pool will also help our bottom line by reducing our liabilities. Finally, if you have ideas for significant savings that might be achieved in your area please share them with your department head or head of your volunteer entity. We all have ideas about things that can be done more efficiently and in a less costly way.
As challenging as these times may be for us, they will be temporary. We remain a fundamentally strong organization, even if our financial health has waned. Your contributions to maintaining our standards of excellence, each and every day, will help see us through. We will be back in touch with you as we have further developments in our budget circumstances. Thank you for all you do for the benefit of the Sierra Club.