This has been an incredible year at NCARB. As your treasurer, I want to share some of the history-making accomplishments the Council has made:

● We have been able to serve our members and Record holders for a consecutive fourth year without

            fee increases.

● We were able to pay back all amounts borrowed on our line of credit seven years ahead of schedule.

● We have no plans to borrow any more from the line of credit.

● We have begun funding our long-term reserves for the first time since 2005; we have invested almost $1.5 million in the fund this year. In addition, recovering financial markets continue to improve the state of our long-term reserve fund, which is at the highest level it has ever been.

● We have engaged a new investment advisor to manage the Council’s reserve funds. I would like to note here that we were not dissatisfied with the previous advisor. However, it is best practice to periodically investigate other brokers and the services they have to offer. The new investment advisor is UBS.

 

With all of these history-making developments as a backdrop, let’s look at the financial results for the fiscal year ending June 30, 2014. I will also show you the budget for the upcoming fiscal year that began July 1, 2014.

 

FY14 FINANCIAL ACTIVITY

This chart shows the year-end results for income, expenses, and investment gains. Income ended the year at $23.8 million. A recovering economy, new system developments, increased outreach efforts, and effective communication led to higher than anticipated numbers of new Record applications, Certificate renewals, and transmittal requests for reciprocity. In addition, there was a two-month blackout period for the Architect Registration Examination^® (ARE^®) at the beginning of the fiscal year with no exams delivered in July and August 2013. However, test delivery returned to normal levels for the rest of the year.

 

Expenses ended the year right on budget. The net results of positive income activity and balanced expenses was an operating surplus of $451K.

 

The Council’s investment portfolios also ended the year with a positive financial outcome, with market gains adding $813K to the reserve funds. The sum of the operating surplus and market gains is $1.3 million.

 

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COUNCIL FINANCIAL HEALTH

Now let’s look at the financial health of the Council. By financial health, I mean the net results of the money in the bank and investments held compared to money owed. The operating fund (i.e. checking account) and short-term reserve fund (i.e. savings account), shown by the bar on the left, are within the target set by the financial policies. The long-term reserve fund, in the middle, is still below the target range but getting closer.

 

Additionally, as I mentioned previously, we have completely paid off our line of credit. Therefore, the Council has no debt. To summarize, operating and reserve funds exceed $14.6 million with $0 debt—that is financial health!

 

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A little history on the line of credit is shown in this next chart. Board-authorized funding is the top orange line, and the line of credit balances are the lower-blue line. In FY12, the Board of Directors authorized a $4 million line of credit to fund the transition to the new ARE vendor. This included integration and migration costs.

 

When I took over as your treasurer in June 2013, the Council had already repaid $1.5 million. We continuously monitored repayment and reduced the maximum borrowing limit from $4 million to $2.5 million in 2013. This year (FY14), we finished borrowing and were able to repay all outstanding amounts on the line of credit. By April all funds had been repaid and the Board removed borrowing authority.

 

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BENCHMARKING

This next slide is a benchmark of the Council’s cash, short-term and long-term reserve funds (as shown in the first bar on the left) against five organizations whose missions are similar in nature to NCARB—including pharmacists, accountants, engineers, nurses, and landscape architects—and three of the collateral organizations—the American Institute of Architects (AIA), the National Architectural Accrediting Board (NAAB), and Association of Collegiate Schools of Architecture (ACSA).

 

The chart represents the level of funds as a percent of an organization’s annual revenue budget. In addition to this benchmarking, the Council’s investment advisors and financial auditors periodically study the Council’s saving levels. They have advised that the current level of reserves is healthy.

 

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FY15 BUDGET

Let’s look ahead to where we are going with FY15.

 

Every year, the budget process includes development of the next year’s budget plus a long-range planning forecast for an additional three years for a total four-year outlook. This year’s budget development included planning for FY15 through FY18. This aids the Board of Directors in planning for significant events.

 

We begin the budget process with a historical trend analysis of NCARB services and expenses. We next take into consideration economic projections. Finally, we define the initiatives planned for the next four years and the resources needed to accomplish those initiatives. The outcome from this process is the proposed FY15 Budget.

 

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Total income for FY15 is projected to be $23.8 million, about 4.3 percent more than this year. The pie chart above shows the Council’s income by source.

 

● Architect services provide over half of the Council’s annual income. This includes Certificate Record renewals and transmittal requests for reciprocity.

● Revenues from the ARE provide about 22 percent of the income budget.

● Revenues from intern applications and renewals provide approximately 20 percent of the budget.

 

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There are four main expense categories as shown in the chart above.

● Employment and human resources make up 43 percent of the budget. This percentage is in sync with other service associations.

● Operating expenses—including rent, equipment leasing and maintenance, and communications costs-make up about 24 percent of the expense budget.

● Consulting expenses—mostly exam related—constitute 14 percent of the budget.

● Travel and Meeting costs represent 16 percent of the budget.

● The “other” category includes NCARB’s contribution to the NAAB and the NCARB Award.

 

 

Some of the key initiatives included in the FY15 Budget are:

● Dual development of the current ARE 4.0 and the new ARE 5.0, ensuring that both versions will continue to be psychometrically justifiable, legally defensible, and financially sustainable.

● A Member Board Chairs and Member Board Executives conference scheduled for fall 2014.

● Continued replacement of legacy computer systems; and development of new systems to improve customer and member services.

● Building the Council’s long-term reserve fund.

 

 

After accounting for these, and many more initiatives, the FY15 budget is $24 million. The budget shows a slight deficit, under $200,000, which accounts for less than 1 percent of the budget. Based on the strong financial health of the Council and the many initiatives planned for the coming year, a small planned deficit is acceptable.

 

 

 

SUMMARY

● There are currently no plans to increase fees in FY15, 16, 17, or 18, bringing us to eight consecutive years without a fee increase.

● We will continue the replacement of our 20-year-old in-house systems, providing improved integration with member boards and key vendors.

● We will develop and launch ARE 5.0.

● We will continue to build long-term reserves as funding availability permits.

 

With all of these initiatives, we still expect to maintain balanced budgets. I hope you agree with me when I say our financial future looks very promising, and we will continue to make history!