Good morning, all!
At its October 2024 meeting, the ALA Executive Board adopted three measures related to the Operating Agreement. These measures will take effect for the FY2026 budget process:
- The implementation of an overhead model based on net operating surplus (NOS) to be applied to all revenue-generating units, including divisions and round tables.
- The implementation of a savings plan, subject to the annual budget process and the ALA evaluation of available cash and of the overall financial health of the association. Each unit will be able to invest 30% of its NOS for later use, free from the conditions of the annual endowment payout as determined by the trustees. The rest will be placed in ALA's short-term investments with a goal of building those funds to 50% of annual expenses.
- The implementation of a review of the overhead model in advance of FY2029 planning, with the ALA treasurer and representatives from the affected units holding annual discussions of the model. Further reviews will be held on a three-year cycle.
These Board actions follow a four-year process initiated by a working group, chaired by then-ALA Treasurer Maggie Farrell and Andrew Pace, which reviewed the Operating Agreement between the divisions and ALA. As part of its work, that working determined that the budgetary piece of the Operating Agreement needed further deliberation and recommended the establishment of a successor working group.
The second working group was chaired by ALA Treasurer Peter Hepburn and ALA CFO Dina Tsourdinis and included representation from staff and member leadership of each division, as well as round table representation. The Executive Board dissolved that working group after a year and charged Hepburn and Tsourdinis with bringing forward recommendations following comprehensive consultation with ALA stakeholder units. This consultation culminated in a voting process that allowed units to choose one of three options for overhead models.
The Executive Board approved the overhead model selected by a majority of the divisions and round tables. As planning for the FY2026 budget continues, Finance staff will shift to using the model for their work with units. The implementation of the model will not affect the current fiscal year.
In FY2026, revenue-generating units will finally have an established and assured, subject to the association's financial circumstances, means of saving surplus monies at the end of the fiscal year. The plan establishes that each unit may retain and invest a portion of those monies, with the remainder to be used by the association to build needed short-term investments. Previously, there had been no formal mechanism for doing so. Moreover, there had been longstanding misinformation and misunderstanding over what the net asset balance, a historical record of cumulative fiscal performance, meant for available funds for each unit. This new approach codifies a means for units to save for special endeavors.
The process of exploring and recommending options related to the budgetary piece of the Operating Agreement was sometimes contentious. Feedback from the revenue-generating units and from the Board led to the approval of a review cycle. This cycle will take place every three years, commencing with FY2029. In the time before that first full review, the ALA treasurer will meet annually with the units to discuss the impact of the overhead model. Regular communication is important around budgeting, overhead, and the net operating surplus sharing. The review cycle will present opportunities for any needed changes to be addressed.
Numerous member leaders and staff worked to bring about these changes, and credit must go to all for their valuable contributions. Thank you to those who gave so much time and thought to the process.
For further information on the changes, contact the ALA treasurer. You may reach me at phepburn@ala.org.
Thank you,
Peter
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Peter Hepburn
Head Librarian, College of the Canyons
ALA Treasurer, 2022-2025
He/Him/His
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