We will hold the GSW Fall Council meeting at AGU Hq on the afternoon of 23 October (Wednesday) beginning at 2 PM. There will be a call-in number available for those of you who can’t make it in person.  On the agenda are the usual items, but we also have the proposed AGU offer to discuss, and I hope that Brooks Hanson will be joining us.  If you have additional items to go on the agenda, please let me know so that I can summarize them and send them out the week before the meeting.  With best wishes, Mike

Michael E Purucker. Faster, smaller, cheaper (not cheap)
Chief Laboratory of Planetary Magnetospheres, NASA GSFC 695; President Geol Soc Washington
https://science.gsfc.nasa.gov/sed/bio/michael.e.purucker  www.gswweb.org

Dear GSW Council Members:

Attached please find four exhibits, which constitute my report on GSW finances for the fiscal year ended 30 June 2019 (FY 19), as well as an additional exhibit showing a proposed change to our Investment Policy.

Executive Summary
General Fund broke even for the year, and Invested Funds grew healthily. However, the excess of outflows over inflows keeps growing and is becoming worrisome.

I propose that Council take two actions:

1. ratify a change in the Investment Policy to allow greater withdrawals from Invested Funds
2. institute a Bradley Symposium in addition to the Bradley Lecture

Detailed Discussion
Please turn first to Exhibit 1, which displays the inflows and outflows in the General Fund (which covers our operations, as opposed to the Invested Funds). You will note that the General Fund essentially broke even for the year, once we transferred the maximum allowable amounts from the two invested funds (the Endowment Fund and the Bradley Fund). We benefitted from a one-time inflow of $400 from a field trip Dan Doctor led at the AGU fall meeting, but suffered due to higher-than-expected costs from MSA (which manages dues collection and other back-office operations) and the Cosmos Club.

Also on Exhibit 1 is my budget for the current fiscal year (which began 1 July 2019 and runs through 30 June 2020). I am anticipating that dues revenue and contributions will continue their decline, while I am hoping that Cosmos Club charges will remain the same (the variable here is average drinks consumption at our meetings) and MSA fees will revert back to more normal levels. I am also expecting that AGU will cover the Cosmos Club charges for the Bradley Lecture (as compensation for having bumped us from their facility). This will limit the amount I can withdraw from the Bradley Fund. In order to balance the General Fund for the year, I anticipate that I will need to withdraw 4.5% from the Endowment Fund.

In order to put the developement of income and expenses into perspective, please refer to Exhibit 2, which shows the evolution of General Fund inflows and outflows for the past 7 fiscal years. You will note that inflows have been steadily decreasing (the annual rate of decrease comes out to about 4%) due to our continuing decline in membership. At the same time, expenses have been increasing more significantly (these numbers have been adjusted to a standardized 12 meetings per year, and the extraordinary costs for the 125th anniversary meeting have been removed). Part of the increase is due to new costs we have taken on (2 years ago we started to pay up to $1,000 for Bradley Speaker travel costs, and also 2 years ago we started paying $650 a year or so for liability insurance; this accounts for about 3/4 of the jump from FY 17 to FY 18). Part of the increase is due to general cost inflation at the Cosmos Club (7 years ago hall rental at the Cosmos Club was $540, while today it is $640; 7 years ago they charged us $6.60 for a Sierra Nevada, and today they charge us $9.60). But part of the increase is also due to the fact that our drinks consumption has increased. In the middle of Exhibit 1 I show that, after adjusting consumption to present-day prices per drink, our drink costs have increased from $5.41 per attendee in FY 14 to $7.44 per attendee in FY 19. Moreover, even though our membership is declining, attendance at our meetings has remained fairly steady.

Please now turn to Exhibit 3, which shows the performance of our Invested Funds. In both the Endowment Fund and the Bradley Fund, market gains for the year clearly outweighed the amounts transferred to the General Fund, and as a result the balances in both funds increased for the year. A certain amount of that balance cannot be spent (the so-called Required Minimum Balance, defined as the amount in the fund in 2001 adjusted for inflation or adjusted for subsequent contributions, whichever is greater). But the amount in excess of the Required Minimum Balance has increased in both funds, to 77% for the Endowment Fund and to 91% for the Bradley Fund.

Finally, take a look at Exhibit 4, which shows our General Fund deficit (i.e., the excess of outflows over inflows from Exhibit 2) compared to the market gains in our Invested Funds. For each of the past 7 years, investment gains have exceeded the deficit, so our overall assets have increased. For these 7 years, market gains have averaged about $12K per year. This does seem to have been a particularly good period for the stock market - the Wellington Mutual Fund, which is where our Endowment Fund has its investment, was begun in 1929 and over the past 90 years has averaged 5% annual growth above inflation, so based on the present size of our invested funds and current inflation rates we can expect long-term growth to be around $10K. Given that our General Fund deficit has now grown to somewhat more than $6K per year, we are starting to get to the point where even the average annual growth in our investments cannot cover our deficits. Thus, we need to start thinking about reining in expenses. One possible avenue for reducing expenses is to move our meetings to the AGU, although I am aware that there are many more considerations than purely financial ones that have to be weighed in evaluating their proposal. But in the meantime there are also some other actions that I recommend be taken.

Proposed Actions
Up till now our Investment Policy has restricted us to taking out no more than 4% of the year-end value of each Invested Fund per year (about $6,900 at current levels). This policy was put into place to prevent raiding or depleting the Invested Funds. However, given that the Invested Funds have grown recently by far more than 4% each year, this has led to a ballooning of the balances in these funds. Until this past year the 4% withdrawal from Invested Funds was sufficient to balance the General Fund, but in my budget for the current fiscal year I anticipate the need to withdraw 4.5% from the Endowment Fund.

It appears to me that a restriction on withdrawals makes sense when the excess balance over the Required Minimum Balance is no more than 50% - that is a safe cushion against severe market corrections such as those that occurred in 2008/9. But when the excess over the Required Minimum Balance is more than 50%, it appears to me to be counterproductive to restrict withdrawals while there is a General Fund deficit.

The Finance Committee has agreed and has amended the Investment Policy to remove the 4% cap on withdrawals when the excess over the Required Minimum Balance is more than 50% (subject only to the guidance that the amount in the General Fund should be 50% to 70% of annual expenditures). For a text of the amended policy, see Exhibit 5, item 7. I ask that the Council ratify this action by the Finance Committee.

The Bradley Fund has an even greater excess balance than the Endowment Fund. But there is an additional restriction on withdrawals here - money can be withdrawn only for events or awards named for William H. Bradley. At present these are the annual awards for best and second-best paper presentation (including engraving the prize bowl), and the Bradley Lecture (including Cosmos Club charges, travel costs, and speaker dinner). This past year the costs for these totaled $2,082.40, which was less than the $2,500.00 I could have withdrawn under the 4% cap. If the 4% cap is removed, then the discrepancy is even bigger - the total costs for the Bradley Awards and Bradley Lecture are definitely less than the average annual growth in the Bradley Fund.

I do not want to create new expenses that can be paid out of the Bradley Fund. Instead, I want to help out the General Fund by shifting some existing expenses to the Bradley Fund. Thus, my proposition is that one regular meeting each year be converted into a Bradley Symposium (with two or three speakers giving linked talks on a common subject). Once the meeting is named for Mr. Bradley, the expenses for it can then be charged to the Bradley Fund. This idea has found general approval in the Finance Committee.

Action Items for Council

1. Ratify the amendment to the Investment Policy adopted by the Finance Committee
2. Institute an annual Bradley Symposium