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PACIFICA FOUNDATION
CHIEF FINANCIAL OFFICER REPORT

Please find attached the February Income Statement and Balance Sheet.

There are several aspects this month I would like to highlight.

But before I do that I need to be clear, that despite the good work all concerned have been doing on the finance committee I am finding that the demands on the finance department the business managers, the GM etc have mounted to the point where I now believe we ought to be looking at all of these reporting requirements and looking to cut back on them.

My staff is exhausted. The costs of these requirements are escalating and as yet I am not sure that the benefits are there to justify all this effort.

Here are a few of the problems and implications:

1. My CPA staffer has spent over 80 hours on the request for an interdepartmental audit. He has not been able to do his regular duties. At his salary this has cost us 1,561 dollars thus far. But, more importantly, he is talking about leaving Pacifica.
   
2. My Assistant Controller as I speak in LA assisting that accounting department which has been without a business manager for over 6 months. We have to cover that position from the National Office because in the end we are responsible on the National level for audits and the books. She has been doing this double job for over six months even as new reports and demands are coming from the Finance Committee. She works 7am to late in the evening at home--and weekends too to make all of this possible. I can’t continue to let her do this.
   
3. Despite protestations and good faith efforts to comply I am concluding that all of this is not sustainable. We can’t as a department, produce 1200 lines of data each month, spend hours on the phone, publish monthly special reports, do an audit, raise money, and do all of the new reports and information requests now coming our way.

What to do?

My plan is to poll all concerned—GM’s, Business Managers, Treasurers, my staff, the ED and ask the simple question what is doable, cost effective, sustainable and realistic in the way of financial information. I will take that information and then bring it forth to the PNB at the April meeting. Perhaps dialogue can begin with some real experience behind us as we have delved into producing this amount of information. We are doing that right now and what we are learning is what I will report out on at the April Board.

Budget Matters

1. The current budget we are working with is the one sent along to finance on November 11, 2005. I have it now as the budget bench mark we will be using pending full approval by the PNB at the April Board:

   A number of highlights need to be noted:

   1. That is it contains changes which strive to meet the Board directive that each station accumulate a one-month operating reserve by September 30, 2005. That has been a long-standing directive I work from as CFO and one endorsed by the Board.

   As yet, as you can see below, on forecast, some stations do not, as yet, show the one month requirement.

    

   January Forecast

As will be clear from the above KPFA, KPFT and WBAI had work to do in terms of addressing negative variances in this January projection. Below we have the February projection to see what they did to fix the negative variance situation.

February Forecast

What are the differences?

1. KPFK is projecting more reserves--up to 144k due in part to a successful drive but also because some expenses will not arise this fiscal but will impact more in the next fiscal year. (Union contract is an example.) The caution here is that if the next drive is not as successful as the first two, the 144k could quickly evaporate.
   
2. KPFA is now projecting a smaller variance (128k-to 77K) but the issues there are complex. In order to reduce the variance the station is adding on extra days to its spring drive projections and having to utilize funds from prior fiscal year (cash on hand) of approximately 423k to make ends meet. The good news here is that “A” had 752k in cash on hand at the beginning of the fiscal year. A good part of the salary overspending derives from one-time expenditures (having two GM salaries for part of this year) will not be present next year. I expect “A” to muddle through this year and do better next year. Finally, it appears KPFA’s one month budget requirement was overstated by 77k. Therefore, the case can be made that in fact the station has met its one month reserve requirement. Finally, “A” is planning to present a cost reduction plan for next fiscal.
   
3. WBAI has been able to move closer to a positive variance (from negative 54k to negative 14k. This is good. If these figures hold WBAI is to be congratulated on managing its finances and moving toward a balanced budget.
   
4. PRA and WPFW forecasts are virtually unchanged since last month.
   
5. The National Office is down due to the budget change to the Nov 11 budget which had the effect of increasing the salary variance by 132k per year. Additionally new costs are being projected for the National Board meetings and for salary adjustments. (See the March 4th ,2005 ED report on the latter.) All of this is off-set by national mail drops which are doing well. The National Office will have, therefore an over-all positive variance of approximately 22k.
   
6. KPFT’s negative variance has gone up to 18k on projection. But the over-all problem is deeper here since revenues are down from budget and the station has responded by adding on extra days in the spring drive to make up the difference. As noted earlier the negative variance here could reach in excess of 150k and the underlying problem of reduced listeners to the station is concerning. The Board and staff there, of course, are aware and will be putting forth their plan of action.

To summarize we will have to decide whether or not to recommend a waiver for stations (WBAI-14k, KPFT-43k as part of this budget approval process.

Other noteworthy items:

1. Variance notes have been added to line item and net changes in dollars are now being computed from month to month. In this way we can see what changed and why.
   
2. In this revamped forecast the ED is implementing salary changes and adjustments for GM’s and senior staff at the National Office. These he identifies in his ED report. The latter group took salary cuts 3 years ago and that needs remedying. Also his feeling, and I concur, this is the time to make adjustments for other reasons as well. A schedule of those salary adjustments will be presented by the ED under separate cover.
   
   As stated above, despite those changes, the National Office and the Network as a whole will achieve the one month proviso.

Strategic Issues

Larger trends are impacting public and membership-based radio in general and Pacifica specifically. We have, as a network, developed three drivers which has sustained us over the years despite trends in public radio which show declining listenership. Pacifica’s drivers, in my view, after having looked at the financial data over the last 15 years, have been three in number:

A. Crisis Driven
When ever there has been war, an international crisis or even our internal crisis over the last 4 years or so, the listenership has responded and we see increases in revenue for the Network. The “spikes” have been striking dating back to the initial gulf war. The second gulf war also has been instrumental in that listeners have looked to Pacifica for non-partisan news and information and alternative perspectives and this shows up in spikes in our revenue. Our own internal crisis also revealed revenue spikes.

B. Talent.
We have on the Network personalities and journalists which listeners gyrate toward. “Democracy Now” and other specific shows undoubtedly bring listeners out and they support us and those shows magnificently. My estimate is that we receive at least one third of our total Network revenue from Democracy Now and other popular shows.
But, such tremendous support also creates vulnerability and clearly points out the need to diversify our revenue sources. Should, perish the thought, one of our long time “stars” leave us the impact on revenue is unknown.

C. Premium Driven:
We have over the years utilized premiums as an incentive for listeners. They have responded. But note the cost of getting premiums into the hands of our listeners approximated one million dollars this year. And, increasing it is clear that as we orient listeners to “premium incentives” they have learned to wait for special premium offers in the last days of a drive to make their contributions. This creates volatility and uncertainty—not good things in finance.

These “drivers’ in my estimation, each have their pros and cons and exemplify the need to identify our revenue strategy of the future. What would be, for us a non-crisis, non talent driven, non premium strategy? We have a few suggestions in this area and will bring them forth at the April Board. This is a critical issue for us in my view, in the current radio environment.

Capital Facility and Equipment Needs

I remain concerned with the following:

1. KPFA has deferred building needs which will cost the station at least 150k and more if these go unattended much longer.
   
2. KPFT has to look to rehabilitate its building. Cost 75k and up?
   
3. WPFW has to decide how to move and where to move to in an expensive real estate market
   
4. WBAI has to also look for new quarters to save money
   
5. KPFK is looking at satellite facilities and or rehabbing its current quarters.
   
6. We must evaluate digitization of the Network and it costs.
   
7. We must evaluate cost factors for our Race and Nationality initiatives
   
8. We must identify cost factors for Free Speech Radio News, our Short Wave Radio initiative and other unbudgeted needs.
   
9. And each station and the national office must have reserves against the bad drive and the rainy day. And the rainy day always comes.

The Budget Calendar, Questions and Answers, and Fiscal Year 2006

What are the next steps?

I think we have to review this budget and pass it to the PNB for final approval at the April Board. There we will also have to begin the process of identifying the financial issues and goals for our fiscal year 2006 budget. The calendar for the budget process is as follows:

A. April- identify goals and objectives for the fiscal year 2006 budget:

B. June- review financial goals and budgets at the June Board

C. July and August-- local station boards review the Budget presented by the GM of each station

D. Each station board approves the budget by August 15th 2005

E. August 15th to September 7th the Finance Committee reviews the Budget

F. The Budget is presented to the September Board for review and/or approval.

Questions:

1. What is a bill back and how can I get information about it?
   
2. Can a station get a waiver if it cannot obtain the one-month reserve required by the Board?
   
3. Can a station utilize funds from its cash to make up a one month reserve requirement?
   
4. How can a station pay for large high cost capital items?
   
5. What are the current unbudgeted items?
   1) Union increases
   2) Race and Nationality expenses
   3) Capital Expenses
   4) The Short Wave Radio project

These questions I will address at our next finance committee meeting scheduled for March 28th 2005.

Audit update.
The audit is currently on schedule to be reviewed by the audit committee at its March 30th meeting. The results of the audit will be presented to the full Board at the April 2005 Board meeting in New York.

SAMPLE OF FTE AND CONSULTANT REPORT

This is a sample of how the FTE report might go. Nothing decided as to final form as yet.

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