Where We Are Headed and How We Get There

Where We Are Headed and How We Get There

Edward J. Vigna, D.D.S.*:
 
At the June meeting of the Board of Trustees we approved the budget that will be sent to the House of Delegates in October for final approval. We also made a dues recommendation to the HOD.  Each year we improve the process, and I think this year we are better than ever, with the implementation of new software and other budgeting improvements. Above all, I think we have established long-term direction for future growth and financial stability. I would like to share that with you, and I think the following will give you an understanding of where we are headed and how we get  there. 
 
Overview
The ADA has as a strategic plan goal ensuring that the Association is a financially stable organization.
 
Long-term financial stability relies on a number of factors, some within the ADA’s control, and others that are beyond control. 
 
For example, while the ADA cannot control the downturn in the economy, low interest rates, and the decrease in investment performance, the ADA can and must focus on factors within our control,  such as growing non-dues revenue, increasing our membership market share, contributing to the ADA reserve fund, and controlling operational expenses. By doing so, we will ensure our longterm financial stability and achieve our strategic plan goal. 
 
Governing bodies have several important roles: setting the direction of the organization, enacting policies and decisions, overseeing the health of the organization, and ensuring adequate resources  in order to fulfill the mission and vision. The previous status quo of annual deficit budgets presents a significant threat to the long-term financial health of the ADA and is counter to building member value. In order to deliver a balanced budget, a new budgeting process was implemented this year to help in making tough but smart decisions for the best allocation of precious resources. Adequate  financial resources are required to sustain and grow the Association.
 
With this in mind, a financial plan was developed by the Board at its meeting in June that would become effective January 1 with the House’s passage of the 2013 budget. This plan, if passed,  ensures long-term financial stability that enables the ADA to remain relevant to members and vital to the public and the profession of dentistry. 
 
What the Plan Entails
Some of the changes proposed in this plan require bold but necessary decisions. The Board’s recommendations include increasing financial resources in order to remain impactful and innovative while decreasing costs in operational areas: 
• Increasing reserves to achieve the 50 percent of annual budgeted expense set by the House, with a modest annual operating surplus in order to replenish reserves to achieve the 50 percent target 
• Sunsetting low-valued member programs to strengthen member value and relevance by freeing up resources to invest in innovative higher value programs, products, and services
• Decreasing operating expenses by carefully controlling employee costs including adjusting the number of ADA staff to better match our current and projected revenues
• Adhering to newly approved reserve spending guidelines to limit contingency fund spending and long-term reserve fund spending 
• Increasing dues revenue through changes to the member dues discount for Active Life Members and a $30 dues increase 
• Increasing non-dues revenue through superbly managed business development activities within the ADA’s risk tolerance that generate positive returns on investment 
• Creating a Capital Improvement fund through a $50 per year special assessment for the next two years to enable appropriate investments in the ADA properties.
 
In addition, positive results are already being experienced by changes in the employee pension plan and retiree health benefits approved by the Board in 2011. Reductions to the ADA’s retiree health benefits reduced the December  31, 2011 liability and resulted in an immediate $10 million improvement in the ADA’s reserve status while eliminating volatile exposure to rising health care costs. Once the pension plan passes 100  percent funding status, the returns from pension plan assets are forecast to generate a net benefit to the Association and cover the annual “normal service” costs. As a result, the plan implemented  in 2011 is expected to deliver financial stability over the long term and be an asset to the ADA in the future. 
 
Why Bold Changes Are Needed
The ADA faces unprecedented business challenges: declining member market share, now at 67.3 percent, the lowest average in 15 years; low interest rate environment resulting in a weakening balance sheet; declining non-dues revenue; and rising operational costs. All of these challenges required urgent action, including sweeping changes to the budgeting process to ensure annual balanced budgets.
 
The previous budgeting process was driven line item by line item. The ADA lacked a method of comparing all programs across the ADA to measure the return on investment or objective to build  member value. Line by line budget eliminations here and there allowed for some immediate gains in financial efficiencies. However, this approach lacked focus as to how the programs related to the  ADA Strategic Plan, including the achievement of measurable results. 
 
All of these external and internal factors resulted in a decline in ADA net operating assets and a weakening of the ADA’s financial position. Progress to strengthen our balance sheet has been made  over the last two years through cost reductions, the most significant of which was the restructuring of pension and retiree medical benefits, which will save more than three million dollars of normal service costs in 2012 and future years. The ADA’s 2011 normal service cost of the previous pension plan was $5.2 million, and this has been reduced to $1.9 million in 2012 and future years. 
 
It is important that decisions be made judiciously as to how to best allocate precious financial and human resources. 
 
Presenting a Balanced Budget
For the first time, the Board was presented with a budget which included a single list of programs prioritized across the ADA based on a set of universal assessment criteria. In addition, each program  was presented with associated revenues and costs that included estimates of staff time required. This new budget report format provided by the Administrative Review Committee became the platform for a more thoughtful allocation of resources better aligned with the ADA’s long-term strategic plan goals. 
 
The initial 2013 budget projected a seven million dollar deficit. After careful review and consideration, the ADA Board took specific steps to deliver a balanced budget that includes a small surplus and  position the organization to deliver member value and long-term financial stability. 
 
For example, the 2013 proposed budget includes allocations for innovations, including practice management resources such as the Center for Professional Success; increased advocacy efforts to  prevent government and third-party payer intrusion on the practice of dentistry and the doctor/patient relationship; increased advocacy for both tuition debt relief for dental students and increased  funding for public dental benefit programs; the ADA’s new consumer-friendly website MouthHealth.org which will raise awareness of the importance of oral health and dental visits; and a national  public service campaign with the Ad Council focusing on improving vulnerable children’s oral health through improved prevention behaviors. 
 
Future Growth and Success
The ADA is being strategic and making well-informed, thoughtful decisions. These tough but important decisions are helping turn the tide after several years of financial instability. These bold recommendations will ensure the ADA remains vital and relevant to members, the profession, and the public. Adequate financial resources ensure that the ADA will achieve its mission and provide programs that have impact in delivering value to our members and the public. These investments will allow the ADA to achieve a positive return and grow membership market share. 
 
To accomplish this plan, the BOT has recommended dues for 2013 be $542.00 and there be a special assessment of $50.00 for 2013 and 2014 for the purpose of creating and funding a capital  building fund. 
 
This a sound plan and will set the ADA on a course of long-term financial stability. The dues increase and the special assessments are the best method to fund future growth and success. 
 
Stay Connected
As always, you may contact me with any ideas, concerns, or comments at vignae@ada.org, or (402) 770-7070.  
 
 
*Dr. Vigna is the Trustee to the Tenth District of the American Dental Association, representing Iowa, Minnesota, Nebraska, North Dakota, and South Dakota.