New Path Plan for the Libertarian Party: Money

Via email from George Phillies. New Path for the LP is a slate of candidates for the Libertarian National Committee, and George Phillies is their candidate for Chair. This is Step 3 of Part Three of the 63-page New Path plan for the LP. IPR is not endorsing any LNC candidates, and is interested in articles from all the different campaigns.



We are going to ask people to give us money. How will we handle it?

First, we will spend more and more of the LNC’s money on doing real politics. The quick fixes mentioned above are going to free up very substantial chunks of change. That money will be going into our most important Mission-Critical Activity, real politics.

Second, we’re going to move to fiscal transparency. We’re moving to a budget that makes clear how we are spending your money, as opposed to a budget that hides all spending under a few nebulous categories. We’re going to fundraisers that let you know how we actually spent your money, so you can see we’re not raising for doing politics and spending the money on the back office.

Third, we’ll be giving financial reports that match what a political party should be doing, not categories appropriate if we ran a steel mill. We’re under entirely different rules on reporting, taxes, etc., and our reports to you should match our mission and our activities.

Fourth, we’re going to move to budget allocation processes that make sure that your donations are spent the way they should be. An example of this approach is provided by the Massachusetts budgeting plan. Our Massachusetts state association has adopted a budgeting scheme under which there is no need to guess how many people will join or renew their memberships this year. Instead of fixing spending totals, as though newsletter printing costs were independent of the number of members, LAMA tells members in advance how their membership dues will be divided. The division includes so much toward printing the newsletter, so much for sending renewal notices, so much for administrative costs, etc. Dues allocations center on items where the donation covers the marginal cost per member, and on targets where spending totals can be flexible, such as internet advertising. This scheme averts many pointless arguments about budgeting for an unpredictable membership count.

The Massachusetts budgeting scheme clarifies spending patterns. A member knows how his dues are being spent, and what his membership costs the party. If estimates of marginal costs are good, the cost of each member is covered by the member’s donation, so the party budget is not perturbed if the membership fluctuates. Adoption of the Massachusetts plan, with numbers suited to our particular needs, would allow the National Committee to center its attention elsewhere.

Having said that, we are confident: These steps will revive the confidence of libertarian donors. They will see that their hard earned contribution dollars are being spent in ways that actually advance us into the Libertarian future. And then with the right approach, they will give us more and more money. That’s not just the best way to revive our party’s finances. It’s the only way.

Fundraising and Outreach

Without money and people, the Libertarian Party will die, no matter how appealing or persuasive its political ideology. The good news is that people tend to give of themselves, both in terms of money and time, if they find something worth supporting.

Given the number of Libertarian candidates and issues finding their ways onto more and more ballots across the country, this is an ideal time to reach out to new Libertarians, to affinity groups, to lapsed members and spark their enthusiasm. While the economy is not that great, still, where there’s enthusiasm and hope there’s money, as the “money bombs” have shown.

Unfortunately, the Libertarian Party has not lately been very successful at tapping into that wellspring of libertarianism, either financially or in terms of membership. What can we do to change that?

First of all, we need to change the way we think. Rather than think of these donations as gifts or donations, we need to earn that money and see it for what it is: An investment in the party.

New Fundraising Activities

Letters and phone calls have their place. They can be effective ways to raise money when carefully targeted. In addition to letters, calls, emails, and the internet, we should offer appealing events tailored to different people and different levels of giving.

Some Libertarians might enjoy a wine tasting cruise around San Francisco Harbor while others might prefer a Liberty music festival. Some might enjoy a golf tournament while others might enjoy a night of dinner theatre in DC. House parties also work very well and allow a more intimate venue for Libertarians to meet each other personally. Once we start looking for ways to earn our donors’ money instead of simply asking for it, the possibilities open up.

Fundraising events, as opposed to letters, have the added advantage of tying fundraising and outreach together, which allows people to invest in the party personally as well as financially.

Never Waste An Opportunity

With only a few exceptions, every fundraising event should offer an opportunity for outreach, whether to affinity groups, new members or lapsed members. Likewise, fundraising at an outreach event can be as simple as putting out cards or envelopes for donations or as elaborate as an additional event like a dinner or something.

Joint fundraising events with affinity groups and with eligible state parties can also serve as outreach, creating stronger relationships between these groups and the national party and creating that important investment from one side in the other.

If we can raise $25,000 by tapping a single donor, we’ve only reached one person. But if we spent the same amount and get 1000 people to give $25 each, it means we’ve not only raised the $25,000 but we’ve reached 1000 people as well.

That’s 1000 more Libertarians who are personally and financially invested in the party. We’re not saying we should turn away the single large donor. We should welcome him, too. It means we should look creatively at how we spend our fundraising dollars.

Spending A Dollar’s Worth of Nickels to Make A Dime

It’s important that we use our fundraising dollars as efficiently and profitably as possible. Taking a lukewarm profit as “the best we can do” is almost as bad as taking a loss.

The rather simplistic example I like to use is a bake sale where each cake is sold for $5. That’s fine if the donated cakes cost the bakers less than $5 apiece to make. But what if the bakers are spending $15 apiece? Technically, since the cakes were donated, you still make $5 apiece, but in actuality, you’d have made three times as much if you’d have had the bakers donate the $15 directly and skip the bake sale. Or, given the quality of the cakes, raise the prices to $20 and make four times as much.

It’s not enough only to look at the bottom line. We need to look for hidden opportunities, as well, which means we need timely, clear and complete bookkeeping on events, including cost of donations so we can be sure we’re using donated items well.

What’s It All For?

Last but perhaps most important, we need to remember why people donate to the Libertarian Party. Sometimes they donate because they want to support an initiative or because they want to see ballot access. Sometimes they see a candidate they really like. But always, they donate because they care about Libertarian politics. Iit’s rather disheartening for them to discover that they’re mostly donating to cover overhead. Is it any wonder they’re donating less and less?

A final word on how to improve our fundraising and outreach: We need to put our donors’ money to work in very visible ways, which again ties back to fundraising events and outreach events. When donors can see their money working, building ballot access, supporting candidates, creating connections with affinity groups, supporting initiatives and bringing in new members, they’ll be more inclined to give, and the process can build on itself.

Prudent Financial Reserves

Let’s begin this section with a quote from the great economist Adam Smith:

“What is prudence in the conduct of every private family, can scarcely be a folly in that of a kingdom.” (Adam Smith, The Wealth of Nations, 1776.)

Every financial adviser you can name recommends to their clients that they build a prudent reserve fund, held in cash or equivalents, for a “rainy day.” You never know when you’ll have an unexpected expense, medical emergency, temporary job loss or cash flow crunch. Sometimes you know well in advance you will have big expenses. The time to begin saving to cover them is yesterday.

Most experts believe that three months of such a reserve is a bare minimum; six months is more comfortable.

Consider the situation of today’s Libertarian Party, however. At November 30, 2009, the cash balance was $49,000. That would be roughly two weeks’ expenses, at the current run rate.

That’s right. Two weeks. The situation has improved a bit in the last couple months, but the Party is still in a precarious state.

If you don’t want to take the word of a financial advisor, consider the words of the Nonprofits Assistance Fund. This is a Minneapolis-based nonprofit whose mission is to build financially healthy nonprofits that foster community vitality. They discuss the need for an operating reserve and discuss the prudent level for that reserve:
An operating reserve is an unrestricted fund balance set aside to stabilize a nonprofit’s finances by providing a “rainy day savings account” for unexpected cash flow shortages, expense or losses. These might be caused by delayed payments, unexpected building repairs, or economic conditions.
Reserves should not be used to make up for income shortfalls, unless the organization has a plan to replace the income or reduce expenses in the near-term future. In short, reserves should be used to solve timing problems, not deficit problems.
A commonly used reserve goal is 3-6 months’ expenses. At the high end, reserves should not exceed the amount of two years’ budget…. each nonprofit should set its own reserve goal based on its cash flow and expenses. Organizations that have contracts or fees with regular and reliable payments don’t need as much in cash reserves as organizations that rely on periodic grants, fundraising events or campaigns, or seasonal activities.
Yikes!

Yes, an “urgent” fundraising appeal went out from the LNC leadership recently. That’s another cry of wolf. But you can only cry “Wolf!” so often, even if the wolves are howling at the door.

In the age of the Internet, anybody who has a clear and attractive message can raise huge amounts of money. Ron Paul proved it. Barack Obama is in the White House because of it.

A strong and clear message – coupled with the donor’s confidence that we will use their money wisely, that we are a strong custodian and operate with purpose – is the recipe for success.

How would you score our current leadership on how they spent your money? Do you think their tickets should be punched for another two years? Or is it time for a different approach?

We need new leadership, including in particular a new treasurer, to put the LNC on sound financial footing. The party must build a prudent financial reserve – first with what we can, then more as time passes.

A new and revitalized LNC will manage the LNC finances as well as we would expect any family living in freedom to manage their finances. Our donors and partners deserve no less.

Aside:

When the dominant coalition on the LNC passed their budget, they implicitly went through an allocation exercise on our behalf. Theirs was the budget under which the committee operates. That budget as carried out is described by the following pie chart. (Data per the LNC’s 2009 FEC filings. For a complete review of every dollar of the expenses and how they were allocated to the four categories, please see http://bit.ly/LNCexpenses

)

Someplace in the black “build the party” triangle is candidate and affiliate support. We have to say, and we know most of you agree: This is an utterly ridiculous allocation.

Let’s go back to saving for expected expenses. New Path knows the LNC will have to run a National Convention. New Path knows there will be a Presidential election in 2012. We’re not going to wait. We’re going to start immediately setting aside cash for the next National Convention. We’re going to invest in ballot access steps we can take in 2010, and set aside money in 2011 so we can handle ballot access in 2012.

Direct Mail: Not the Recruiting Answer

An important part of prudent financial management is identifying bad investments that we will not pursue. One such investment is a massive cold call direct mail campaign. We rent mailing lists, send them unsolicited papermail letters, and wait for the cash to come in. We tried that in 1996-2002, pursuing right-wing, far-right-wing, and financial investment mailing lists. The Party almost went broke.

The incumbent treasurer, for reasons that are not clear, has been pushing for some time for a massive direct mail effort. This is his mistake. Direct mail to blind lists is the latest thinking — of 1995, that is. Modern voices talk not about blind mailings to mailing lists but about targeted mailings to warm contacts, reaching back to people who have already taken the initiative to contact us. Yes, if we could find a list of people highly likely to support our party, we should pursue them. Those lists are few and far between.

A direct mail campaign is highly sensitive to many variables. A mis-estimation of any of these variables could be financially disastrous.

In the best of circumstances, a direct mail campaign will incur significant upfront financial costs and may – may – produce net gains in later years. But the gains are not certain.

The LNC has tried direct mail. Response rates have generally been 0.5% (that is one half of one percent) or lower. At current lapse rates and contribution levels, such mailings bring in much less money than they cost, even allowing that those new members stay with us for a while and make further donations.

There are, of course, better ways to recruit members. In contrast to the incumbent treasurer’s proposals, we propose the latest thinking of 2010.

We first calculate how much money a typical party member will give to the LNC before his membership lapses. To do that we need the lapse rate and the average donation — those numbers are available — and then we make a present value calculation at a discount rate of one’s choosing.

Using an 8% discount rate and the current contribution and lapse assumptions, the lifetime giving of one member is estimated to be $125 on a gross basis. To get a net value of the member, you have to deduct the cost of persuading him to join.

What does this number mean? Simply put, the LP could spend up to $125 to acquire a new member and at least break even on the recruitment effort. If we spend more than $125 to get him to join, we lose money. If we spend less than $125 to get him to join, we have increased our financial resources. Of course, the less spent on recruitment costs, the greater the value of the member to the party. Improving membership retention rates has the same consequence as reducing retention costs.

From the standpoint of membership acquisition, we can map out any activity in terms of how many new members it will generate, the cost of acquisition, and the ultimate financial gain or loss to the party from the project. Of course, membership recruitment is not our party’s only objective, but if we run out of members, we won’t be here any more.

Consider direct mail. Say for example we wanted to increase the membership by 15,000 members. Using the average costs and returns from the LNC’s most recent direct mail campaigns, the projected cash flow for each year would be:

Year 1: (1,500,000)
Year 2: 363,000
Year 3: 239,000
Year 4: 158,000
Years 5-10: 281,000 total

That is, we would have an expense of $1.5 million in year 1, and in year 2 the return would be $363,000. If you add up all those costs and returns, and apply an 8% discount rate, the net loss to the party would be $697,000. That’s right. A direct mail campaign that recruited 15,000 members, if it were as good as our most recent campaigns, would cost $1.5 million and bring in $800,000 (in today’s dollars).

The LP doesn’t have $1.5 million to spend on an investment that will ultimately lose $700,000. Even if it did, you should ask if that investment is the best was to spend our money. We might make that an investment, but only if other strategic benefits justified the cost.

The most effective (and cheapest) way to add members is to have our existing members go to family and friends and persuade them to join us.

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