Can Your Budget Bear the Load of Independence?
By Roger Sarow
There are many ways to set up the ownership of a public radio station. Virtually all of those methods can lead to long-term success and great community service.
WFAE started out, twenty years ago, as a university licensee. We spun off as a Community licensee in 1991, and it has been a win-win proposition for the station and the university. Thatís because the university can now spend its energies and its scarce resources on its core functions, as well as incubating new non-profit initiatives.
It also helped that we had a strong working relationship with our university as we entered this transition. Both campus administrators and radio staffers valued each othersí contribution to the community. We could work together to confront economic and organizational challenges. In my opinion, a lack of trust would have stopped the process in its tracks.
Over the last decade Iíve gotten numerous phone calls from University stations and/or universities as they consider station independence. They ask, "Can the station make it on its own?"
When WFAE planned its divestiture in 1991-3, I assumed that it was a strategy most suited to Top-50 markets. There are several community stations, however, that have successful track records in sub-100 markets: Asheville (Market 179), and Wilmington (177), are both in North Carolina. Recently Greely, Colorado (133) went independent.
The answer lies in your own business plan and a conservative projection of your future revenues. With the signal, population, format and membership that you now have, can you generate sufficient income--with underwriting and your CPB grant thrown in--to cover your operating budget and eventually build a nest egg for capital expenditures?
Cash is king in a free-standing organization. You will need a minimum of three monthsí cash on hand to cover your working expenses (six months is better). You will have to meet payroll, make your employee tax withholding payments and keep your other creditors happy, and that always requires cash. Membership pledge forms and coffee mugs from the fund drive inventory wonít do the trick.
During the economic downturn this past year, we at WFAE have closely monitored our cash on hand. We have conserved cash whenever possible. We received this advice from our board chairperson, a retired banker with 30 yearsí experience. We are glad we did. We are now pulling out of the slump with our staff intact and our programming unharmed. We may be a little rumpled financially, but we are ready to take on the challenges of a new fiscal year.
Early in your independence feasibility study, fire up your computer spreadsheet program and really try to capture the costs of what Iíll call the "FLB"óa Fully Loaded Budget. Consider a visit to the Web site for the Corporation for Public Broadcasting, http://www.cpb.org/about/funding/whopays.html for summaries on the national funding structure for public radio. Although institutional situations vary, stations have been getting around a fifth of their budgets from their institutions, give or take a few percent. In my opinion, if your institution falls significantly below the benchmarks, then consider it a factor pointing toward divestiture.
I am talking about annual operating expenses here. We should consider capital plans and long-term investments at a later time.
Letís look at some of the biggest items that might pop out of the ledger in your FLB:
First, health insurance costs. As feared, we found this to be the hardest, most costly item to arrange. Figure health insurance at $200 to $300 per employee per month, at least. If you can get the coverage. If you have staffers with severe health problems and lots of chain smokers on the payroll, expect even higher rates. And our rates will go up 16% this year.
Additional health issues you will face: what portion of health insurance expense will you ask your employees to pick up (most employers now expect some copayment); how can you insure staffersí dependents; how will you handle unmarried domestic partners?
We found that health insurance negotiations are not amateur activities. We retain an independent consultant and we have to re-bid our health costs almost every year.
Remember that you are responsible for FICA payments, which are nearly 8% of your payroll. You will probably be required to carry a workerís compensation policy. That sets us back around $500 per employee. You will most likely have to pay unemployment compensation premiums.
In the aftermath of the September 11th attacks, expect that property insurance coverage will increase significantly. We just learned that our premiums will jump by 20%.
Letís talk about utility bills. Do you currently see, and do you have to pay, the electric bill for your transmitters? If you generate a 100- kW signal, the electric bill may run into the thousands of dollars per month. And donít forget to budget for the air conditioning of your transmitter(s), especially if you serve a warm climate.
Another major expense to really examine is your office/studio occupancy cost. If you occupy commercial office space, you may already be paying rent. If you are fortunate enough to have your campus paying your rent, there is probably a lease somewhere with the cost computations. Be sure to account for: cleaning costs; overhead charges for common space; repair costs and routine replacements such as light bulbs. Who picks up the utilities for the offices and studios?
If you are housed in a public building, how is that relationship going to change if you divest? Can you stay or will you be forced to move? How long will you have to make that decision (and to adjust your budget accordingly)? Local commercial real estate conditions will of course vary widely, if not wildly. I would not be surprised if office rents chew up 4% to 10% of your overall station cash budget, depending on your market conditions and, of course, the lavishness of the digs.
On the bright side, you might find that you save some dollars as an independent non-profit. We have found it just as cheap to buy our office supplies at the local Office Max, or though the Quill catalog as to deal with a state purchasing system. Sometimes cheaper (if you are thinking about the aggravation factor of state purchasing, youíre getting ahead of me again). It can be very productive to negotiate with local vendors if you have healthy coffers and earn a reputation as a "good-paying" client.
These are some of the major considerations you will tackle if you choose to pursue a divestiture. The list will of course lengthen as you get further down the road.
But suppose you get this far in your budget projections and you find that you cannot run the station independent of your institution. Donít be disheartened. Youíve learned a very valuable lesson in itself. In the long run, you may gain far greater respect for your institutionís financial support of your public radio mission. Your analysis may prove very beneficial in other ways over the long term.
Whatever your choice or situation, best wishes for success.