Analysis of Current Financial Crisis at Pacifica

Concerning the current financial crisis at Pacifica, I have read through the iED's Report to the PNB dated July 21, 2009 (see below) and have been comparing its account of the current financial status of the Foundation with the numbers contained in the 2009-07-24 P&L spreadsheet posted on the Pacifica website:

http://www.pacificafoundation.org/national/documents/task,cat_view/gid,42/dir,DESC/order,name/limit,5/limitstart,5/

Grace Aaron's report does not even mention, much less attempt to explain, the most startling and dire of the financial numbers contained in the 7/24/2009 (Pacifica Consolidated) Profit and Loss statement for the period October 1, 2008 thru June 30, 2009.

To begin with there's the FRIGHTFULLY ALARMING bottom line: Net Income for the Foundation from all stations and from all sources is 92% BELOW BUDGET; and 96% BELOW the same nine-month period one year earlier.

One would never guess this from Grace Aaron's report.

We are offered no clue as to what could account for Net Income having fallen off a cliff in the last twelve (12) months.

Net Income for this entire nine (9) month period (through June 30, 2009) is a puny, miserable $94.9 K.
That is approx. $1.2 M below budget, and nearly $2.4 M below the same period in the prior year.

Furthermore, the financial situation has clearly been DETERIORATING steadily from quarter to quarter; and the Foundation's finances are now in an accelerating free fall with no bottom in sight. Consider:

In the First Quarter, Net Income was actually a positive $321.5 K, but still missed the budget target by $89.3 K.
It's been all downhill from there despite Grace Aaron's blithe statement that the low point was reached last winter.
(The First Quarter ended 12/31/2008.)

In the Second Quarter, Pacifica posted an approx. $2.9 K Loss, missing budget by approx. $390.6 K.

And then in the Third Quarter, there was a whooping $223.6 K Loss, missing budget by a positively ASTOUNDING $624.6 K!

If this DETERIORATING TREND continues, Pacifica will end the fiscal year on 9/30/2009 with a STAGGERING LOSS totalling in the hundreds of thousands of dollars; and Pacifica will be technically, or perhaps very overtly, INSOLVENT; or else it will be forced to liquidate or hypothecate some of its illiquid assets.

Any financial forecast which projects something like two weeks cash reserves at the end of the fiscal year clearly must be relying on Pollyanna-ish assumptions of the first order.

Grace Aaron's report makes it appear that all the stations, with the exception of WBAI, will come in either at, or slightly below budget, at the end of the fiscal year. Yet with the consolidated P&L $1.2 M below budget thru 6/30/2009, Pacifica (across all stations) would have to EXCEED BUDGETED NET INCOME by approx. $1 M in the Fourth Quarter to make Grace Aaron's wildly optimistic forecast a reality.

How likely is that? Let's just say about as likely as winning big in a lottery, or beating the house in Monte Carlo.

== John H. Reynolds


-----Original Message-----
From: Mitchel Cohen
To: mitchelcohen [at] mindspring.com
Sent: Mon, Aug 10, 2009 11:41 am
Subject: [friendsofwbai] Interim Executive Director's Report to the Pacifica National Board -- July 21 2009



Report to the Pacifica National Board from the interim Executive Director, July 21, 2009

The Pacifica Foundation is at a crossroads. We are meeting in New York this weekend to grapple with our current financial difficulties and plan for recovery and future stability.

This is an election year for us. The ongoing Local Station Board elections have resulted in strong, energetic participation by our listeners. At last count, we had a total of 146 listener candidates and 29 staff candidates. Four stations have many more candidates than open seats and all have ample candidates. This bodes well for the future stewardship of Pacifica. Les Radke, the National Election Supervisor, and all five Local Election Supervisors, Rene Peneloza of KPFA, Ann Shaw of KPFT, Michael Sanchez of KPFK, Lydia Harris of WPFW and Ethan Young of WBAI, have been doing excellent work and deserve special recognition.

There is also good news about the Pacifica Affiliate Network and the Pacifica Archives. I urge you to read the full reports written for this meeting about the Archives and Affiliate Program, as well as reports from the Technical Director, interim CFO, interim Human Resources Director, Interim Development Director and the reports from the General Managers of our five stations.

We have almost 150 affiliates presently. This means that there are stations all over the country, with some new ones added in Africa this year, that are airing Pacifica programs. This expands our reach to many of the nooks and crannies of our nation and beyond. The Affiliate Program is stable, expanding and has tremendous potential thanks to the good stewardship of Ursula Rudenberg, the Affiliates Director. Ursula is currently working out of Greenville, Mississippi, where, after work, she is volunteering to help develop of a new community radio station. Ursula says: "The Pacifica foundation is deeply appreciated by residents here, for supporting their effort to build a station. In this, one of the poorest communities in the United States, a community radio station will become a p ivotal force. Greenville is also positioning itself to assist what will hopefully be a chain of new southern community radio stations, including Clarksdale, MS, Lake Village, AK, Eutaw AL, Albany, GA, the Houma Nation in Louisiana, Port St. Joe, FL, and many others."

According to Brian DeShazor, Pacifica Archives Director, 'the Pacifica Radio Archives (PRA) is experiencing the most productive period in its 35 year history in areas of preservation and access, programming, premium development and publication.' Tens of thousands of dollars of grant funding has been secured by Brian and the Archives staff and much preservation work is ongoing. For example, the Pacifica Radio Archives has been awarded $10,000 to be part of Phase 1 of the American Archive Pilot Program (AAPP) which is funded by the Corporation for Public Broadcasting. There is a very good chance that PRA will receive a $100,000 grant soon as part of Phase 2 of this project!!

This winter was our weakest point in many years financially. Reserves that had been being depleted for years started to hit rock bottom. Large bequests and donations that had served to keep us afloat in the recent past have not been forthcoming. Fund drives came in below target, off-air fund raising did not meet expectations and our stations were feeling the impact of cuts in staff and expenses. The spring brought a mild recovery in fund drive performance, with particularly spectacular improvement at WBAI. KPFK came in about 6%=2 0below its winter drive. KPFA held steady and came in a tiny bit below budget in their spring drive but that was a big improvement over the 15% it was under budget in its winter drive. The shortfall at WPFW still hurt but although the drive came in 16% under the budgeted goal, but that was better than fall and winter drives. KPFT's decline also lessened. KPFK and KPFT expect to close this fiscal year at the end of September on budget. KPFA is working hard to come in on budget, although it may come in 5% to 12% under. WBAI will be under budget, but a lot less than was projected before the May fund drive. WPFW needs serious attention. We're not out of trouble - our cash reserves remain very low - but there are definite hopeful signs that we can continue this tenuous recovery, improve income substantially and weather both our internal financial challenges and those presented by widespread economic decline.

Unlike many other nonprofits, our financial problems began a number of years ago. Slowly eroding listenership has directly correlated to declining net income and declining membership at all our stations for the last 4 or 5 years. Although we have been impacted by the plunging world economy, our income has been more stable than many nonprofits. This is due to the enormous creativity of our staff, our mainly small donor funding base, our prudent austerity measures and our flexibility as an organization. We have a unique income stream=2 0consisting primarily of small donations. We can always do a bit more on-air fund raising if we're in an emergency. We don't like this option, as it creates donor fatigue and lowers listenership, but it's there as a last resort. Also, the fact that we don't depend on income from investments is also something that sets us apart from many Foundations. In fact, a recent issue of 'The Network', a newsletter from the Institute for Conservation Leadership, ref: http://www.icl.org/toolkits/benchmarking.php , explains that many foundations are cutting their giving after losing 20-40% of their assets.

Currently, the weakest income budget line items at all five of our stations is off-air fund raising. It's not surprising that our strongest income is currently coming from on-air fundraising. Donations are often seen as a luxury item in a family or individual's budget. However, we've been finding that premiums that address critical audience needs are bringing in a surprising amount of pledge dollars. KPFK's recent fund drive showed us the current strength of health-related premiums, for instance.

Our financial situation needs to be looked at relative to other segments of the nonprofit world. As an example, here's a quote from the New York Times, June 27, 2009: “The recession has led foundations, corporations, state governments and colleges themselves to reduce their support of providers of scholars hips, and in recent months programs have been reduced or canceled outright. The cuts come as economic conditions make it harder for families to pay for college and as more unemployed people look for financing for retraining. The result will probably be a greater role for federal aid programs in supporting students, instead of private scholarship providers and state governments, said Terry W. Hartle, senior vice president for government and public affairs at the American Council on Education, whose members are colleges and universities."

A staff member at the Radio Resource Consortium, which provides Arbitrons to radio stations, including ours, said that many college supported radio stations have seen their budgets cut drastically due to sharp college endowment income declines.

I would like to take a moment to mention my appreciation for the hard work of all our managers and staff. I am acutely aware that austerity measures that were needed have increased the workload of most staff members. I continue to be impressed by the creativity and resilience of our staff. I would like to thank you all for your hard work and commitment to Pacifica.

Management changes were made in May at WBAI. Those changes resulted in a substantial increase in the latest fund drive pledge total, which exceeded projections by $292,000. Further, backlogs of premium fulfillment and membership database entry are being addressed and will be made current soon even if it takes a top to bottom restructuring of that department. Staff from KPFK were 'loaned' for a while to WBAI and this cooperation between two of our stations with the willingness of other stations to help out as well, plus help from the National Office, has shown what we can do when we work cooperatively as a network. The strong recovery at WBAI could not have been done without this. Much thanks goes to all the staff at WBAI, with special appreciation to LaVarn Williams, Pacifica iCFO who is doing double-duty as WBAI iGM, Kathy Davis, WBAI Public Affairs Director, and Tony Bates, interim Program Director who is a recent import from KPFK.

More recently, management changes have been made at WPFW. We have every assurance that that station, which has had sharp revenue declines in the last year, will also soon begin a financial recovery.

Every station, except KPFA, cut expenses in the fall of 2008. KPFA is going to make those budget adjustments shortly. But austerity measures are not enough. Our stations are at the point where further substantial cuts would be counterproductive.

So what do we do? Our listenership and market shares (the percentage of available radio listeners who are tuned in) at all five stations are very low. This delineates both the problem and the opportunity. Improved programming along with creative public relations, some advertising and just plain getting the word out will result in improved listenership. Our potential upside in listenership i s enormous!! We must focus on excellence in radio. Our programs must be relevant, speak to the needs of our audience in these troubled times and offer a positive vision both for individuals and this culture. As the general economy shows signs of further erosion, we must not only boost our listenership to prior levels, but beyond as that is the only way we will be able to both impact society and bring in needed resources to stay sustainable as a network.

This is not to say that our stations are not constantly broadcasting excellent content. They are!! But everything can and should be improved. For instance, KPFT is embarking on significant program improvement this week. I earlier mentioned the help our stations are giving each other. Collaboration between stations, such as KPFA and KPFK teaming up to produce the 6 pm news together, http://www.kpfa.org/press/kpfk-and-kpfa-launch-california-wide-newscast-while-news-outlets-shrink-across-us-stations-exp , is evidence of a sharing of resources that is beneficial to both stations. The excellent series, 'Letters from Washington, the First 100 Days', http://www.kpfa.org/short-run-series/letters-washington-first-100-days-obamas-administration , produced at KPFA and anchored by Mitch Jeserich,=2 0was picked up by other stations and affiliates, and is another example of excellence and cooperation. Also, Sonali Kolhatkar's 'Uprising' digest which is being picked up by other stations and affiliates, Michio Kaku's 'Explorations', etc. The recent broadcast of the Sotomayor confirmation hearings emanating from Washington, D.C. and the Noam Chomsky broadcast emanating from New York and other programming available network-wide continues the long tradition in Pacifica of bringing important in-depth coverage not found elsewhere. The plan at WBAI to create a very syndicatible hip hop/music news/political show featuring Chuck D of Public Enemy is another example of how we can provide perspectives not found elsewhere.

Jon Almeleh, Pacifica Technical Director, deserves special recognition for the special national broadcasts just mentioned. He makes sure our websites are being constantly worked on. Specific software applications have been written recently to assist with our elections, staff databases, and some of our calendar and meeting announcements are automated now, the Audioport is being updated and corrected, etc. Hardware improvements have also been made.

And, by the way, Radio is NOT dead. According to the Northern California Broadcaster's Association, ref: http://www.ncradio.com/ , radio listenership has grown by 16% since 1994 and has added 6 million listeners since 2005. ref: https://emd9.rdg.com/ncradio/att/ncradio-27745-2.html

In fact, “what Radio has going for it is a huge and stable audience, with some 90 percent of Americans listening at some point each week.” These words come from researcher Kevin Downey of Media Life Magazine. ref: https://emd9.rdg.com/ncradio/att/ncradio-2321-2.html

There is a hunger for our core message. Common wisdom has been turned on its head and our listeners and potential listeners want to hear new answers. Can we provide direction for the ongoing paradigm shift of this society? Can we rise to the occasion?

Here is a thumbnail sketch of the direction we plan to continue on:

1) Programming improvement at every station. Routine program evaluation will be implemented on a standardized model so that changes are decided in as objective and collaborative a way as possible. Market research and inexpensive advertising will be explored as options. Internships and mentoring will be considered as ways to improve program quality and enrich links to our listening communities. Volunteerism will be encouraged and supported. The Pacifica Mission, Principles and Commitment to Diversity will figure prominently in this process.

2) Standardized financial reporting. Unnecessary waste of staff resources has been caused by the lack of standardized book keeping and financia l reporting. Business Managers are now being trained to report in a timely fashion and in a way that can be digested easily on the National level.

3) Policy and procedures. Existing Pacifica policies and procedures are being unearthed, dusted off and put into use. On-line training that is extremely cost effective is being rolled out as we speak and will include sexual harassment and anti-discrimination training, employee evaluation training, etc. Where policies don't exist or have been lost on the National level, we will find workable local station policies and see that they are adopted nationally. Where even those aren't adequate, policies will be adapted from other sources or written from scratch.

4) Standardized management reporting. Standardized reporting will be put into effect so that an Executive Director will be able to evaluate managers and stations by performance criteria, not by rumor or narrative alone.

5) Liability Prevention. Measures will be taken to prevent legal liability and to fully comply with all legal requirements. This will include strengthening our Community Advisory Boards.

6) Good legal stewardship. Efforts are and will continue to be made to assess and settle or resolve legal cases and disputes.

7) Well run Elections. The Elections will be properly overseen and new boards will be seated at our 5 stations in December as we project no election timeline problems.

0A8) More permanent senior management. The search for a strong Executive Director and CFO is ongoing and will hopefully result in a smooth transition from interim to permanent management.

9) Improved web presence and expansion into other media platforms. Our websites and web presence will be upgraded as resources allow. As we regain our footing, start accumulating reserves, and have funding for advancement we will be able to expand Internet and digital broadcasting and improve our infrastructure. This may include obtaining a 24/7, 'Best of Pacifica' Sirius/XM station.

What have I left out? YOU. We need every one of you to put aside past grievances. Our Bylaws specifically state that Pacifica is committed to peace and social justice as well as diversity. Let's follow our Mission and make every effort to "contribute to a lasting understanding between nations and between the individuals of all nations, races, creeds and colors". And I would add between ourselves. Progress can't be made in the past, only the future. What do we want to see ahead of us? Let's decide and then move toward that vision.

In Peace,
Grace Aaron
Chair of the Pacifica National Board
Interim Executive Director of the Pacifica Foundation