Reports - Report of the Treasurer

At the close of 1999, the Academy's combined assets stood at $11.2 million, the highest total they have ever attained. This position was not sustainable-the Academy's success in building its assets at the close of the 1990s was fueled in part by investments that focused too narrowly on one sector, that of technology stocks. When the dot.com bubble burst, the Academy's assets tumbled from $11.2 to $6.3 million, a 44 percent decline in value.

In the years following that event, reports filed by Academy Treasurer Barbara Shailor reflect a concerted focus on the actions that she and the Finance Committee took to insure that that kind of meltdown would not be repeated. Investment policies were set in place to enforce a prudent diversification of the Academy's assets and to insure that an appropriate balance would be maintained between equities and bonds in the Academy's portfolio.

The economic tsunami that washed over the world's markets in the fall of 2008 had an impact on all aspects of the Academy's finances, including producing an 18 percent decline in the total value of our assets between 2007 and 2008, a decline from which we have not yet fully recovered. But extraordinary economic circumstances, affecting, as they did, institutions across the country and around the world, should not diminish our gratitude for the solid accomplishments achieved by the Treasurer and Finance Committee during the past decade in securing the responsible management of the Academy's investments.

The accompanying table identifies our problem.

Medieval Academy of America Cumulative Operating Deficit 2000 - 2010

Source: Medieval Academy of America Financial Statements (2011 in draft form); 2010 credit for future 2011 payment by Cambridge University Press excluded

Medieval Academy of America Cumulative Operating Deficit 2000 - 2010 Year Cumulative Deficit 2000 $39,801 2001 $43,554 2002 $94,824 2003 $194,765 2004 $264,338 2005 $295,450 2006 $412,348 2007 $454,791 2008 $507,847 2009 $537,663 2010 $591,342 Source: Medieval Academy of America Financial Statements (2011 in draft form); 2010 credit for future 2011 payment by Cambridge University Press excluded

The perspective it offers is particularly important, for it almost certainly confirms that the Academy's budget has a built-in structural deficit that has leached roughly $50,000 per year over the last eleven years from the Academy's coffers.

The consequences of such a deficit are multiplied across the years. Each year's additional subtraction reduces the total of funds that the Academy has to invest. This, in turn, means that we must forgo the income that such a sum might have generated-as well as the contribution that it might have made to the overall growth of the Academy's assets. To reiterate: the cumulative nature of a structural deficit has a multiplying effect. One could argue that the Academy's draw on its invested assets this year would have provided an additional $28,000 of unrestricted operating revenue had our cumulative operating deficit not reached a total of nearly $600,000 as of last December 31.

A second consequence of an unchecked structural deficit in the Academy's budget has legal dimensions. To the extent that the Academy might invade the principal of funds that have been received from donors who restricted the purpose of their gifts to the establishment of endowments, it opens itself to the possibility of legal challenge. So in addition to the very important financial reasons I have adduced just now as to why we must address the Academy's ongoing deficit, we must remember that the matter holds potential legal ramifications that may not play out in the Academy's favor.

Since I became Treasurer last March, the Finance Committee has met twice. Its members are committed to addressing this issue. Together we have identified four steps that we believe must be carried out if the Academy's structural deficit is to be successfully addressed. The first of these steps involves ramping up the Academy's financial reporting, in frequency and scope. Such reports may take time to implement, but, as we all know, one of the most important ways to stay within a budget is to keep vigilant track of what is being spent.

A second initiative undertaken by the Finance Committee has involved clarifying our endowment spending and its place in the framework of reporting on our annual budgets. The Academy will now return to a more straightforward endowment spending rule: each year we will budget for expenditure 5 percent of a moving average of the market value of the Academy's invested assets for the three preceding years. As corollary here, we will now show budgeted deficits as such. This year's budget contains a scheduled deficit, something that should serve as a constant reminder during the year of our need to eliminate such overages in the future.

The third area addressed by the Finance Committee this fall and again with even greater conviction this February has to do with the Academy's membership dues. Based on a comparison survey of dues paid by members of other learned societies, the Treasurer and Finance Committee firmly endorse the change in the schedule of membership dues that was approved by the Academy's Council at its meeting in Scottsdale. This step is not intended nor expected to be a comprehensive solution to the problem of our structural deficit. But it will help.

The foregoing steps need to be joined by other actions dictated by a comprehensive plan and strategy: the construction of such a plan is the fourth, and most time-consuming, of the steps that we recommend. The Finance Committee is determined to take the necessary steps to balance the Academy's budget and remove its backlog of self-financed debt in a prudent but expeditious manner. In the weeks and months ahead, it is our determined aspiration to assist in the formulation of such a plan to accomplish this goal. With a new Executive Director coming on board in September, we recognize the opportunity to benefit from fresh insight and experience in its formulation.

I close this report by acknowledging the contributions of the very capable group of individuals presently serving on the Finance Committee. John Contreni, Felice Lifshitz, Kathryn Reyerson, Bill Stoneman, and Grover Zinn are a thoughtful and decisive group. They have my warmest thanks for their good work as well as my determination to call on their talents with even greater frequency in the months ahead.

Respectfully submitted,
EUGENE W. LYMAN, Treasurer