Be it resolved that:

1. Membership fees be increased $6.00 effective July 1, 2004;

2. Sections will be billed on a pro-rated basis in November, 2004, for the lesser of:

A) 71.25% of the higher-than-budgeted liability insurance premium for 2004, or

B) the Club’s national year-end operating deficit for 2004 (if any).

This motion was Passed by a vote of 17 - 7.

Now, before you tear my head off, I’m going to try to anticipate your questions and explain as best as possible how and why the Board reached this decision.

Why does the National Club have an operating deficit? Can’t it set a balanced budget?

At the Fall 2003 National Board Meeting, the Board approved a balanced budget for FY2004 which included a 30% allowance for an anticipated increase in the Club’s liability insurance premium. What no one at that time could anticipate was the astronomical 200% increase which we were actually hit with only days after approving the budget. Since the Club can’t (or at least won’t) operate without liability insurance, we had no choice but to pay the premium and take the budgetary hit.

Why did the liability insurance premium go up so much?

That’s just the nature of the insurance industry at the moment. No one is currently overly interested in insuring what they perceive to be high-risk activities. This situation is not unique to the ACC; many other organizations are suffering from the same problem. I might remind you that a year earlier, the insurance company was not interested in renewing the Club’s liability insurance AT ALL, at ANY premium, and only some eleventh-hour pleading by our broker convinced them to change their minds.

Is National doing anything to try to solve this problem of high liability insurance premiums?

Peter Muir has been working diligently over the past several months on exploring alternatives. One alternative which has been considered is the concept of self-insurance, which would eliminate the need to pay premiums. While this idea sounded good initially, extensive examination has revealed both advantages and disadvantages, and the disadvantages currently outweigh the advantages. Peter has also been pursuing different insurance brokers in an effort to find more reasonable premiums. This avenue of inquiry is showing some signs of promise, but things are not moving quickly, and there is currently no way to speed them up. Another thing the Club has done is become part of what is known as a risk-purchasing group, which is a large consortium of different companies all interested in buying liability insurance. The idea here is that, with a large number of organizations to insure, the amount of the collective premium will grow to the point where the group has some influence in negotiating the amount of the premium, and the premium will end up being lower on a per-organization basis than any deal the same organization could get on its own. As Peter put it, "When the premium hits $1M, the insurance companies will stop and listen to you. When it hits $1.5M, they’ll actually start following you around." However, this option will also take time to come to fruition.

Wasn’t the fee increase last January supposed to take care of the liability insurance increase?

Actually, no. The January fee increase was designed to be a start in making the membership dues more accurately reflect the cost of membership processing and member services. Prior to that increase, it was costing the Club about $30 more per membership to service that member than what was actually being collected through the dues. The difference was made up by cross-subsidizing the cost of membership services with revenue from other sources, notably Facilities, and this was creating a problem in that returning adequate funds to those other sources was becoming difficult. This was explained in detail in a document provided by ACC President David Toole, which I copied and pasted in its entirety into my report in the January Blizzard. As noted above, the insurance premium increase was an unexpected expense which came over and above the January fee increase, which had already been calculated into the balanced FY2004 budget.

Why are we hitting people with another fee increase on July 1?

This fee increase comes as a direct result of the increased liability insurance premium. Although steps are being taken to control insurance premiums to the best of our ability, as discussed above, the fact is that we are unlikely to see any substantial decrease in the premium amount any time soon, if ever. Since membership fees are bound to rise sooner or later due to the increased premiums, the Board felt there was little point in delaying the inevitable and decided to act now rather than putting it off. Putting off fee increases is one reason why we are finding ourselves in the financial situation we are currently dealing with.

Will this fee increase pay for the increase in liability insurance costs?

In the long term, yes. In the short term, no. Because of the way memberships renew, it takes a full two years for the entire effect of a fee increase to be realized. The Club will collect some additional money over the four months from July to October (year-end), but it won’t be enough to cover the entire premium increase. Raising membership fees is part of the long-term financial strategy. We still had to come up with a short-term solution to this year’s budget deficit.

Why is National knocking on the Sections’ doors to collect money to eliminate its deficit? Isn’t this a National problem?

Well, yes and no. The deficit resulted from an increase in liability insurance premiums. Liability insurance is used solely to protect participants on ACC activities in the event of a lawsuit and judgment against the Club and/or the individual arising from incidents which may occur while engaged in those activities. If we look at who provides most of the activities in which our members participate, it becomes evident that the Sections’ trips far outnumber those offered by the National Club. Therefore, the Sections are the main beneficiaries of the Club’s liability insurance policy, and thus, it seems fair to ask the Sections to help with this problem.

Why can’t National simply run a deficit budget for this year?

The National budget already posted a substantial deficit for last year, which was primarily the result of lower-than-anticipated revenues due to a number of unforeseen and uncontrollable circumstances. To post a substantial budgetary deficit for two years in a row is not good business practice if it can be avoided, and would not look good at a time when the Club is actively soliciting donations for a number of worthwhile projects, such as the rebuilding of the Fay Hut and the upcoming Centennial celebrations.

Has National done anything to try to reduce the amount of the deficit?

Yes. The amount of liability insurance coverage was reduced from $2M to $1M, thereby saving about $24,000 on the amount of the premium. National has also cut an additional $35,000 in operating expenses this year.

Why can’t National use some of its cash reserves to cover the deficit?

National has no cash reserves per se. Most of National’s money is tied up in assets, and to begin liquidating assets in order to pay off deficits is never a good business idea.

Why can’t National borrow the money to pay off the deficit?

Borrowing the money does nothing to solve the problem. Yes, we would have the money, but we would have an equal amount of debt plus interest which would be owed to the lending agency. It would not really balance the books; in fact, it would only exacerbate the problem by saddling the Club with interest payments.

Why can’t National do some fundraising on its own to attempt to eliminate the deficit?

National does not currently have the resources to undertake additional fundraising initiatives at this time. It is already involved in fundraising activities for specific projects, such as the rebuilding of the Fay Hut. The Board feels it would not be appropriate at this time to solicit further donations to cover an operational deficit--not only are donors less likely to contribute, they may think twice about giving us money for worthwhile projects if they perceive that we can’t properly manage the money we already have..

Where did this 71.25% come from? What’s that all about?

One of the most contentious issues during these discussions was what to do about unaffiliated members (members belonging to no Section). It was felt that asking Sections to help cover the entire deficit was akin to giving the unaffiliated members a "free ride", so to speak, at the expense of those members who are affiliated with a Section. Since approximately 25% of the membership is unaffiliated, the Executive went away and did some calculations and came up with the "71.25%" number. And yes, this means that National is taking responsibility for "their share" of the budget deficit, too.

There is no actual dollar figure mentioned in the motion. How much money are we talking about here?

The maximum amount of money which the Sections will be asked to pay (on a pro-rated basis) will be $22,800 (which represents 71.25% of the higher-than-budgeted amount of the premium). Note that this amount could go down if National succeeds in further lowering the amount of the deficit over the next few months.

That’s about all the Q&A I can think of at the moment. To summarize all this, I think it behooves us to remember that it is not really "us and them"--Sections and National--rather, we are all in this Club together, and when the Club is having difficulties, it is our responsibility, duty, and privilege as members to come to its assistance. I am sure that, if we were having problems as a Section, we would appreciate all the assistance we could get. We do it for each other out there in the mountains; let’s remember that spirit and work together to ensure that we can continue to enjoy our activities as part of Canada’s National Mountaineering Club..

Respectfully Submitted,

Ron Scholtz

National Board Rep

Rocky Mountain Section