I sometimes find it amusing that several people can look at the same data and come to diametrically opposed opinions as to what that information represents. I think we can all chuckle when three geologists view an outcrop and come up with five conflicting interpretations of what depositional environment is represented in the exposure, for example.
Diametrically opposed opinions related to the health and financial condition of AAPG are more concerning than amusing to me, however.
In the last few months, during our discussions about which strategic plan AAPG needs to follow, I have often heard the opinion that AAPG faces imminent financial demise and that we need to radically change our organization. Within those same discussions, others would argue that AAPG is completely healthy and we should just continue in the same way we have been for the past decades with no changes.
Both of these opinions cannot be correct, can they?
Navigating the Labyrinth
AAPG’s financial condition allows the society to provide the science, professional development and the multitude of other benefits that our members enjoy, so this is an important question we should all be concerned about.
I believe that a large part of the confusion surrounding our financial condition originates from the fact that AAPG has a very extensive and complex budget. This complexity has grown over our long history as we have adapted to changing conditions and the need to provide additional benefits to our members. Several separate corporations, such as Datapages and some international offices, fall under the AAPG financial umbrella, for example.
Luckily we have accounting and financial staff who are knowledgeable about our budget and help us monitor its health. Our professional staff might cringe at my simple approach, but since I am not an accountant I like to think that AAPG actually has two separate budgets: an operations budget and a total budget. The operations budget covers those revenues and expenses incurred in our day-to-day activities. The total budget includes those same revenues and expenses, plus increases and decreases in our investment portfolio and cash reserves, which are sometimes called our “rainy day” funds.
Our staff includes experienced accountants and financial advisers who build a projected operational budget for AAPG’s leadership every year, which is then approved by the Executive Committee (our fiscal year is from July1 to June 30). The staff have many years of experience with building the budget and they do an excellent job of it.
Planning for Deficits and Deluges
Conditions can arise that will cause a severe deficit to develop during one of our fiscal years. For example, in the past when we had abundant income due to huge convention attendance, we tended to be more generous in our operations spending. During the year, we would often add additional spending not included in the original budget, and that sometimes resulted in a financial deficit for that year. Other unforeseen events have also resulted in unexpected and severe financial deficits. Good examples of this were the unforeseen pandemic two years ago and the rise of the delta variant just before last year’s IMAGE meeting.
So which scenario is correct? That the AAPG is approaching imminent disaster, or that we are healthy and should continue operating as we have in the past?
Luckily, we have a tool for dealing with these unexpected losses. Several decades ago, our leadership had the foresight to establish our “rainy day” investment portfolio to cover losses due to unforeseen conditions like the pandemic. It was put in place to help sustain us during hard times. Funds were withdrawn from the portfolio to offset operational losses due to the pandemic, so we could continue to serve our members. This situation is exactly why the rainy day fund was initiated.
Although the final accounting has not been made for the fiscal year that ended in June, it appears that there will probably be a net revenue gain for the year rather than a loss. This is great news for AAPG. However, this result has only occurred due to some hefty transfers from our “rainy day” funds into the operational budget. In addition, we have had two federal PPP assistance loans totaling about $1.8 million forgiven during the year, which was entered in the budget as revenue gains. Without the PPP additions and our cash transfers we would have a huge operational loss rather than breaking even or having a slight net gain for the year.
Safe, But Not Sustainable
Herein lies the root cause for most of the confusion with our budget, in my opinion. The investment fund is included in our total budget and in the past this has masked our operational losses. Often the year-to-year gains in the investment portfolio have resulted in net gains in our total budget while we have had large losses in our operational budgets. As a membership, we must focus on our operational activities and expenses as those are the items we can control, as opposed to the stock market or the wider macroeconomic conditions.
Our operational losses have been accelerated by the pandemic, though in reality we have been sustaining operational losses for several years. These losses sometimes occurred even during “boom” cycles in the oil and gas industry. Using the “rainy day” fund to offset these losses and to sustain our day-to-day operations is not a healthy and sustainable financial strategy. We cannot continue to depend on the stock market to bail us out. The AAPG staff and leadership have been working hard to reverse our operational losses and put us on track for a balanced operational budget. In fact, we are trying to return our operations to a financial condition whereby we can begin adding funds back into the investment portfolio again.
So which scenario is correct? That the AAPG is approaching imminent disaster, or that we are healthy and should continue operating as we have in the past?
Actually, neither of these is correct. Currently we have significant cash reserves due to the investment portfolio, so it is unlikely we will face disaster and dissolution in the short term. However, this situation could change with continued depletion of our investment portfolio to cover our operational losses or if the stock market declines appreciably. Consequently, moving forward without changing – without finding a new financial strategy – is not an option.
Currently AAPG is financially healthy and we want to keep it that way. With the support of our staff and many volunteer members we will continue to work toward a financially strong and healthy AAPG that is sustained for future generations of geoscientists.