Evaluation of SPCO Budget Process
Julie VW
SMU
Non-Profit Financial Management II AA 661
March 15, 2003
Shell Shocked
Once in a while, something happens that changes everything. Chemists and politicians refer to this change as a flash point. Writers call it the narrative hook. Psychologists label that defining moment a turning point. For the Saint Paul Chamber Orchestra that decisive event is named 1992; the year the ensemble almost declared bankruptcy and died.
Many of the current Saint Paul Chamber Orchestra board members and employees were not involved in the crisis of 1992. The collective psychic memory, however, continues to penetrate the culture of this organization. This orchestra will do anything to avoid another financial crisis. America's finest chamber ensemble has been shell shocked into unyielding fiscal conservatism.
The Good News: It's Working!
The Saint Paul Chamber Orchestra distinguishes itself as one of only three orchestras in the United States with a balanced budget for the last fiscal year (Peiken 2003). As other orchestras prepare to face a third season of deficits (Pierre 2003), this orchestra will begin it's tenth year in the black. I believe the financial success of the Saint Paul Chamber Orchestra is due to the ownership and responsibility taken by the entire staff for the budget process. Departments have the responsibility to track expenses, but also have authority to adjust individual line items with in their budget. The Board Finance Committee regularly monitors both current and projected spending. Finally, the organization as a whole remains committed to a big picture of long term excellence, both musically and financially.
A Commitment to Financial Health
An organization trying to balance it's budget does not have to give up it's mission, or stop dreaming. When submitting numbers for the very preliminary budget in early February, each department at the Saint Paul Chamber Orchestra plans for everything they think they would need, to do everything they want to accomplish that year.
The remarkable thing about the preliminary budget (exhibit 1), comes from recognizing an expense increase of only 2% between 2002 and 2003 (exhibit 2). As recently as May 2002, financial projections allowed for expense growth of 5% per year. Staff at the Orchestra, however, recognizing the current unfriendly economic climate, kept expenses small even when dreaming big.
The orchestra continues to demonstrate a commitment to financial solvency after the budget process through a "Projected Year End" (P.Y.E.) monitoring system. Each department constantly charts spending and submits a P.Y.E. worksheet, recording expenses and projecting what will be spent in upcoming months. The finance department complies the information, then reviews and investigates anything unusual. All findings are presented to the Board's Finance Committee each month.
A Future of Fear?
In his second inaugural address, Abraham Lincoln declared, "The dogmas of the quiet past are inadequate for the stormy present". One hundred years later, Bob Dylan observed "the times they are a changing". The Saint Paul Chamber Orchestra needs to take the words of these two great Americans to heart and recognize the need for a new paradigm.
The preliminary 2003 budget suggests that the orchestra may need to prepare for a deficit. Last year support from the annual fund fell 6% short of the budgeted amount (exhibit 3). Yet the current version of the 2003 budget increases expectations from the annual fund by 8% (exhibit 4). This budget also more than doubles anticipated support earned form the Prelude Special Campaign (exhibit 5). If any revenue category falls short of these aggressive expectations, the orchestra will end the year with a negative change in net assets.
To face a "stormy" future with a very uncertain economic climate, I suggest the board reflect upon their reasons for avoiding deficit planing. Planing for a deficit is different form planing a deficit. I'd like to see the board make deliberate choices about the merits of balancing the budget each year instead of continuing a decade old policy of fear.
1992 brought a turning point to this organization. It changed the entire financial paradigm of the orchestra. The board now needs to decide if that paradigm is still useful and legitimate to the needs of the Saint Paul Chamber Orchestra in 2003.
References
K.W. Finance Manager at the Saint Paul Chamber Orchestra
Peiken, Matt. (2003). SPCO lays off 10 to balance budget. [Electronic version]. The Pioneer Press. Retrieved February 21, 2003 from http://www.twincities.com/mld/pioneerpress/entertainment/5227491.htm
Ruhe, Pierre. (2003). Hard times threaten orchestras nationwide [Electronic version]. The Atlanta Journal Constitution. Retrieved March 9, 2003 from http://www.accessatlanta.com/ajc/epaper/editions/Sunday/arts_e3a68a9cb2d502830033.html
[INSERT EXHIBITS HERE]
