X-Message-Number: 1826
Date: 24 Feb 93 22:43:58 EST
From: David S Pizer <>
Subject: cryonics
CRYONICS
Budget Matters
Dear Kevin:
Although I no longer have time to monitor Cryonet, Al Lopp sent
me a copy of an article he was going to post. I would like to
post some additional thoughts on the matter and ask the readers
of Cryonet to send their suggestions to the Alcor Board, C/O
Alcor 12327 Doherty, Riverside Ca 92503 before the next Board
Meeting in early April.
Thank you. Sincerely, David Pizer
-------------------------------------------
Budget Matters
Al Lopp and others have posted some data on Cryonet and asked for
suggestions on our financial situation. I agree with Al that
there are some serious money decisions that need to be made
quickly. If we are on the wrong track, going in the wrong
direction, we need to reverse our direction right away.
Because of large legal fees we had to pay when we lost the battle
for all of Dick's money (we received half) and because we may
have overestimated the size of the bequest, and because we chose
to underwrite the expense of rapid growth we have allowed our
expenditures for operations (not patient care) to be more than
what we take in.
We set aside the last $400,000 from Dick's bequest and set up an
Endowment Fund. The idea was to just use the interest from this
endowment fund for operations and let the principle remain. (A
point of information is that there is no evidence that Dick
wanted us to set up an endowment fund. It was set up on the
suggestion and advice of many members.) It was also thought that
more of our members might want to donate to Alcor, or leave us
their estates, if we had a lasting Endowment Fund rather than
just taking their donations and spending them.
Presently, because of all the programs we have funded, because of
Cryovita removing their equipment and Alcor having to replace it,
and because of other reasons, we got behind in our bills and had
to borrow from the Endowment Fund.
Now there is a desire from some Directors to completely dissolve
the (Dick Jones) Endowment Fund (over time) and spend the money
over time to build up our membership and for other benefits. The
premise is that as the Endowment money is spent we will get more
members and therefore more dues. Eventually the dues will be
enough to replace the lost income from the dissolved Endowment
Fund.
Speaking personally, and not as Treasurer of Alcor, I do not like
the idea of dissolving the Endowment Fund for several reasons.
I would like to hear other ideas on this. Since I am not
regularly on Cryonet, and since the decision will be made by a
majority vote of the Board, I am requesting those who have advice
mail it to the Board Of Directors before the next meeting. We
will have to act by the next meeting as we are in a serious cash
flow crunch right now.
I also have some responses and/or questions on Al's suggestions.
In his posting Al says:
"The problem is this: Alcor day-to-day operations cost more
than the day-to-day income that we receive to cover such
expenses. In the illustration, let's say the yearly deficit is
100,000 dollars. In the past several years, we have covered this
deficit using money left to Alcor by Dick Jones. We only have
about 400,000 dollars left of his money to cover such deficits.
This last 400,000 dollars was set aside three years ago to create
an Endowment Fund. It was intended that the interest earnings
would help pay for day-to-day operations of Alcor "ad infinitum".
I am not sure that Al or myself are positive we will have a
deficit of $100,000. That figure is just used for an example.
The real deficit spending may be a little less. My figures show
that we had more deficit spending than that in 1992. However,
with the elimination of some "unusual" and non-recurring items,
the 1993 deficit (if we went on the same as in 1992) might be a
little less than $100,000. However, I will also refer to that
figure to use as a hypothetical example. The question I have
here is, if we are losing, or deficit spending, 100,000 dollars
per year while receiving and counting $22,000.00 interest income
from the (full $400,000) Endowment Fund, what will happen when we
don't have the income interest from the Endowment Fund. If we
eventually lose $22,000 per year interest income when the
Endowment Fund is completely dissolved, then we will be going in
the hole $122,000 per year instead of $100,000 before we allow
for other modifications. If we dissolve the Endowment Fund, what
ever modifications we select (higher dues, higher suspension
fees, less service), they will have to allow us to address the
$100,000 approximate deficit AND THE $22,000 LOST INTEREST.
Al suggests that we might spend the Endowment Fund money $50,000
per year to operations and 1/2 of the interest from the balance
to supplement operations and 1/2 for research. (Under this plan
the balance on the Endowment in January 1994 would only be
$250,000 and in a few years would be zero).
Al suggests that some interest proceeds (while it lasts) from the
dissolving Endowment money might go to research. (Most of our
research involves using animals). We all want to do more
research however, we are prohibited from doing any more animal
research in our present building. We have recently been approved
for a Conditional Use Permit to allow us to store our patients in
our present building. To get this permission from the
bureaucrats, we had to deal off our permission (it was previously
allowed in the zoning we are in) to do any more animal research.
Of course we could hire out research, but that would put us even
further behind and make us even more dependent on other people. I
prefer to do our own research.
For this reason, and earthquakes and other reasons, we need to
move to another building. If we prepare our financial future
based on using up all the Endowment money to supplement
operations, then we can not count it if we want to buy a new
building. I think we would be better to hold it in reserve to
borrow it (only if necessary) to help buy a new building. We
could pay all the money back to the Endowment by paying rent to
ourselves rather than paying rent to Symbex or another non-Alcor
owned building.
Another problem I have is that I do not believe we are reaching
any economy of scales in the operation portion of our business.
As we gain more members and as income from dues goes up so do our
expenses. This can be verified by reviewing our past financial
statements over the past 10 years. In fact as membership grows
we seem to be doing even more deficit spending. It seems like
the larger we get the more we lose, or deficit spend, in the
operation part of our business. This would tend to indicate that
we are losing money on some part of our business and whatever
part that is, the more we do of it - the more we lose. Even if
one takes out what they consider as non-reoccurring expenses our
"hard" expenses are still about $225,000, or more, and that is
still at least $50,000 more than we take in regular operating
income and might be as much as $75,000.
In addition, with all due respect to those who think the old
"non-reoccurring" expenses will not reoccur, I believe there will
be some new type of non-reoccurring expenses next year. I have
been tracking Alcor's expenses and every year there are some new
type of unusual expenses that come up. Therefore I like to
budget for some unusual expenses each year.
(Note: Even though we are not reaching an economy of scales in
the operations part, we are reaching an economy of scales in the
Patient Care part of our business.)
Lastly, Al suggests that if we spend the Endowment money for
operations we can perhaps replace it by "An assertive fundraising
program." I have been to many budget meetings where we say we
are going to solve our financial problems with fund raising. We
do raise money from donations, but that is usually a little less
than dues. We have already figured about $80,000 from donations
(depending on whose budget proposal you are reading) in our
budget and we still have the deficit. I would rather try to
figure a way to make Alcor self supporting without allowing for
more than $80,000 (in 1993) in donations. (We may receive more
donations than that if we attempt to buy a new building in 1993,
but that extra donation money for the new building would not help
the operating fund. In fact, if we tap our members for money for
a new building, the money for other all donations may even go
down.)
My position is: Rather than borrowing from the Endowment or
dissolving it and spending it, I would rather Alcor readjust its
financial posture and construct a financial plan to be fiscally
responsible without dissolving the Endowment.
Before I submit any specific suggestions, I would like to first
submit a little more information. Alcor is run (in some ways) as
if it were two businesses. We have the Operations part and the
Long Term Suspension part.
In the Operations part, we are responsible for all the day to day
operations, printing the magazine, answering the phone calls,
keeping records, fighting legal battles, AND we are responsible
for keeping the operating room equipped, keeping supplies needed
for suspensions, training our volunteers, getting the patients
frozen and into storage and almost everything we do except
KEEPING the patients in storage.
In the Long Term Suspension Part, we are responsible for keeping
the patients in storage.
The problems we seem to be having are not in the Long Term
Storage Part, but in the Operations part. The Long Term Storage
Part has over one million dollars in assets and no outside debt.
(We do have a responsibility to the patients which we compute to
be about the size of the PCTF balance). In addition, although we
can NOT from a legal standpoint consider the money in the Patient
Care Trust Fund as belonging to the patients (The Government says
"dead" people can't own anything), we can and do consider it to
be only for their use and benefit.
Below is some information on the operations part of our business:
1. In 1992 we only took in about $175,000.00 in the Operating
Part of our business. (I have removed income that went to the
PCTF and non-reoccurring income, and the $175,000 is what is left
and what went into the OF).
2. In all of 1992 we spent about $250,000.00 on the Operating
Part of our business. (I removed suspension expenses and non-
reoccurring expenses from the original total expense figure and
the balance left was $350,000. This is how much we spent on
Operations).
3. Recently we realized that we have gotten behind $60,000 to
$80,000 in the Operating Part of our business, depending on
whose figures you are looking at. We would have gotten further
behind but until recently we were receiving large semi-annual
payments from the Dick Jones Estate (besides the $400,000
Endowment). These payments are used up and we do not think we
will be getting any more. Without them we might have been
several hundred thousand dollars behind.
4. We need to pass a new revenue plan (more dues and/or a
different way of dividing the suspension proceeds between OF and
PCTF). This plan must be bold enough so that we will no longer
continue to lose money in the Operating Portion of our business.
5. We must address the deficit we already have. This is the
the bills we are behind on and at least $40,000 we have already
"borrowed" from the Endowment. We were supposed to pay it back
in March, but we will not be able to do that. In fact, to keep
delivering the quality of service we now deliver we must borrow
some more. We owe the Endowment Fund and the other outstanding
bills and soon-to-come-due other expenses (audit, CUP etc.)
Therefore, President Steve Bridge has informed all Board Members
that they better come to the March Board Meeting prepared to make
some decisions!
I believe one way to solve our problems is the 3 part plan
listed below. This is NOT an official plan of Alcor's. I am just
offering it as a suggestion. All the Directors are open to
suggestions from everyone. (Personally, I prefer this way of
solving our problems over raising dues more than 10% (included in
this plan) or cutting services. If we raised dues to cover a
$100,000 deficit we would have to divide $100,000 by 350 members
so that raise would be almost $300.00 per each adult member in
addition to what each member is already paying. If the deficit
turns out to only be $75,000 that would still require a healthy
dues raise):
-----------------------------------------
Suggested 3-part Financial and Budget Plan
First: Adopt the New Revenue Plan (listed below) for
dividing revenues or raising revenues.
Second: We permanently reduce the Endowment Fund
to $330.000.00. (This allows Steve not to have to pay
back the $40,000 and allows him $30,000 additional to
get us current on our bills.)
Third: Approve the budget listed below.
-----------------------------------------------------------------
(First) The New Revenue Plan
a. Keep Whole Body Suspensions at $120,000
(From the $120,000 proceeds:)
Transfer the usual amount of $43,000 to the PCTF
Transfer a safety amount of $15,000 to the PCTF
Leave the rest, $62,000 in the OF
b. Raise Neuros to $50,000 effective Jan 1, 1994.
(From the $50,000 proceeds:)
Transfer the usual amount of $8,000 to the PCTF
Transfer a safety factor of $8,000 to the PCTF
Leave the rest, $34,000, in the OF
FOR NOW, GRANDFATHER IN ALL EXISTING NEURO-SUSPENSION
MEMBERS AT $41,000.
(Note: One argument for having a lower safety factor for
Neuros might be that in an emergency they are already neuros and
it would take a some extra work to convert the whole body
patients to neuros which we might have to do in certain
emergencies. Since the neuros are already in the safest form, we
need less safety factor on them).
(Note: On the neuro members that will be grandfathered in
at $41,000 (for now), their suspension proceeds would flow $8,000
as usual to PCTF; $8,000 safety factor and $25,000 to OF).
c. Enact a 10% raise in dues to take effect one billing quarter
from now.
d. Work new methods of fund raising. Including charitable
remainder trusts, 2 or 3 of those might make a big difference.
e. Enact a policy that the above are the very minimums but we
would recommend that some members (those who could afford it)
might want to have $75,000 funding for neuros and $200,000 for
whole body.
-----------------------------------------------------------------
(Second) Permanently reduce the Endowment Fund to $330,000.00.
Agree not to borrow from it or reduce it anymore, except if
needed to help us get a new building. The new building must be
zoned where we can do research and store our patients. If we do
borrow to help buy a new building, a plan must be devised so that
in lieu of rent Alcor pays the Endowment Fund back to the Full
$330,000.00.
----------------------------------------------------------------
(Third)
BUDGET FOR 1993
INCOME
Literature Sales $ 5,000
Magazine Sales 10,000
ER Dues 90,000
Membership In. fees 23,000
Miscl income 5,000
Donations 70,000
Endowment income 25,000
Suspension income 45,000
---------
Total projected income $273,000
EXPENSES
Auto 500
Advertizing 500
Bank charges 1,200
Credit Card discounts 900
Finance Charges 1,700
Insurance 4,000
Equipment rentals 100
Office expense 6,000
Computer Expense 500
Salaries (from OF) 70,000
Payroll taxes 5,000
Payroll Service 1,000
Worker's comp 2,000
Professional fees 4,000
Promotion 500
Postage 14,000
Rent 14,000
Shipping 2,500
Tax and Lic 4,000
Telephone 14,000
Travel 2,000
Sign up expense 500
R&M Equipment 4,600
R&M facility 5,500
Utilities 4,000
Educational Literature 7,500
Educational Programs 2,000
Magazine Expense 18,000
Legal 5,000
Ambulance 500
ER System 12,000
Medical Supplies 5,000
Other supplies 1,000
Training 10,500
Bad Debts and discounts 1,000
--------
Total Operating expenses $225,500
10% Rule 27,300
1992 Deficit 0
Capital Aq. 15,000
Surplus (fudge factor) 5,200
--------
Total Expenses $273,000
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