NELINET Annual Meeting
May 7, 2004
Submitted by: Helen Shuster, Treasurer

Responsible budgeting is a high priority for NELINET. The NELINET Board of Directors adopted a set of Budget Guidelines in June, 2001 that were revised in January, 2002. These guidelines, which are available on the NELINET web site1, direct the planning and operational activities surrounding the budget throughout the year and have proven to be indispensable in ensuring NELINET’s continuing viable financial position. The guidelines require a balanced budget based on conservative and realistic projections with decreased reliance on investment and control of the annual operating budget growth rate.

Fiscal Year 2003

At NELINET Annual Business Meetings, the primary budget report concerns the completed audit for the last full fiscal year. Therefore, much of what I will say today concerns the year that was completed last June 30.

In the planning stages for the 2003 fiscal year, the various sources of revenue were reviewed and analyzed with as realistic and conservative projections as possible. The pie charts in the handouts show the final breakdown of revenue sources for 2003 versus 1999. The major revenue drivers were OCLC services, memberships, e-resources, educational services, consulting services, and investments. I would like to talk about each of these in a little more detail.

• OCLC continued to be the major, but declining, source of revenue. OCLC products and services are still important to the membership. Revenue predictions took into account the trend towards end user products.
• Educational Services. A few years ago the Board realized that the future of our libraries includes much that is outside the current scope of OCLC. Educational Services were redefined to offer a broader variety of offerings to deal with issues such as digital and web topics, metadata, and electronic resource management. The Board continued to believe that this approach was correct. Revenues in this area were below those of the previous fiscal year.
• Consulting Services were also fairly new to NELINET. Based upon the success of this effort, consulting has become a significant and continuing source of revenue. By its nature, consulting revenue will always be project driven and will depend upon the number and type of consulting requested by the membership. Therefore, the revenue potential can be difficult to predict.
• Membership dues were also a very important source of revenue. Memberships were relatively stable, and there was no change in the dues structure for FY2003.
• E-resources is a mature program that was negatively affected by vendor contracts and the general economy. It was hoped that members would transition to some new resources offered by other vendors.
• Investment income was divided into long and short term. The budget reflected decreased long term investment because of both a low return on short term investment market conditions, and NELINET’s adoption of the spending rule (which limited the amount of interest earned that goes into the operating budget each year based upon a five-year rolling average).

On the expense side the major drivers were compensation (salary and benefits), office operations, facility costs, travel and conferences.

• Health insurance increases were not an optional expense and had to be factored into the budget. Fortunately, the increases for FY2003 were manageable.
• Office operation costs were mostly fixed and uncontrollable, especially rent and postage. The Board encouraged efforts to conserve where possible and applauded efforts to have more directed mailings thereby reducing copying, mailing, and printing costs.
• Travel was budgeted at a lower amount than in the previous fiscal year..

Fiscal Year 2004

The following are some of the major issues concerning the current fiscal year (2004), which will end on June 30, 2004.

• OCLC core services volume continues to be down as our libraries acquire and catalog fewer items. However, our overall OCLC core service revenue remained about the same as last year because of an increase in the NELINET surcharge rates that was approved by the membership at last year’s Annual Business Meeting.
• OCLC FirstSearch activity is also down. Some decisions made by OCLC shortly before the fiscal year significantly and adversely impacted the commission revenue that NELINET and other networks receive from OCLC for third-party content. There was a further reduction in revenue that was caused when block-searching of Wilson databases was no longer available on First Search.
• Educational services has held some very successful conferences, seminars and courses, and revenues are ahead of FY2003, but overall it appears that this area is still somewhat short of budget.
• E-resources has done well due to a revised product mix, as well as by NELINET moving into some new areas, including negotiation of e-resource licenses for consortia, and marketing of non-commercial e-resource products, such as the Vanderbilt Television News Archives.
• Membership. Although for FY2003 there had been no raise in NELINET dues for three years, the Board made the decision not to raise the dues for full members for FY2004 as part of a conscious effort to recognize the economic difficulties being experienced by libraries. A few memberships have been lost this year, mostly where corporations closed their libraries.
• Short term investment income was also lower than hoped due to rates remaining low but long term investments have begun to see some improvements in revenue generation..

On the expense side

• The Board reluctantly decided that salary increases would not be possible for FY2004 based upon revenue and expense predictions. However, NELINET did absorb the entire impact of health insurance increases to help soften the blow somewhat for the staff.

The good news is that NELINET expects to end the current fiscal year 2004 with a balanced budget when we the end of the fiscal year June 30.

Future Prospects

The Board continues to develop the budget for the coming year, FY2005. Overall, the current fiscal year has been a difficult financial year with unforeseen reductions in service volume use, OCLC decisions that resulted in reduced income, and problems with vacant positions that placed additional workloads on other staff. We anticipate that FY2005 may see some slight improvements, but overall it will continue to be difficult. One way in which we will balance next year’s budget is to leave two positions vacant for the entire year. In a revenue-generating organization such as NELINET, this decision is a two edged sword. While unfilled positions generate salary savings, we need those positions occupied to generate revenue in terms of educational and consulting services and other NELINET programs.

I want to stress that responsible budgeting remains a high priority for NELINET. There is a very diligent group of people who spend a great deal of time throughout the year grappling with the budget so that NELINET can serve its members to the fullest extent possible. The commitment in time and effort of the Finance and Investment Committee members, as well as that of Arnold Hirshon and CFO Susan Kasuba, has been terrific and has enabled NELINET to be successful in spite of very difficult economic times. I would like to thank the members of the Finance and Investment Committee: former Treasurer Steve Podgajny, Brinley Franklin, Ruth Kowal, Mara Saule, and Claudia Morner.

NELINET’s key challenge for the next few years will be to create new opportunities to generate revenue while providing a high level of quality services and without placing undue financial burdens on our membership. For the long-term the Board believes that we must re-examine our membership categories, as well as our dues and fees structure, to see if they remain relevant to today’s library marketplace. A Task Force will be formed soon to undertake a comprehensive review and to make recommendations by the time of next year’s Annual Business Meeting.

While we recognize the financial difficulties that many of our members continue to face, as a short-term budget solution the membership is being asked to vote today on a 10% increase in dues next year for full members and consortial sponsors. As the letter that went to Directors and that is in your packet today stated “The Board is very cognizant that many members continue to experience financial difficulties. While we would have preferred to have no change in NELINET pricing to help soften the economic impact on our libraries, it is also important to recognize that NELINET needs some additional revenue to maintain strong programs and services for our members as well as funding needed salary increases for NELINET staff. Therefore the Board has made every effort to keep both the percentage and the amount of the increase very moderate. This is also the first dues increase in four years, and we hope the actual amount of the increase ($100 for a full member) is still manageable for our members.”

On behalf of the Board, I hereby move adoption of the dues increase, as proposed to the membership in a letter to the directors and official representatives on March 25, 2004, and as found in the registration packets for today’s meeting.

May 10, 2004