Cascading Benefits

When I began studying the historical budgets and accounting materials that I have discussed this week, my primary aim was to answer a central question of my dissertation. There have been some auxiliary advantages, however, that I did not expect:

1.     Between this work and the corpus analysis project I completed this summer, I got a lot more practice with Excel.  I already knew the basics—inputting data, adding and deleting rows and columns, and building formulas—but I learned a lot more about how to create graphs and charts. My sister created the first few line graphs for me, and by taking them apart and swapping data in and out, I learned how to create generate my own. I also played around with different formats and settings and discovered new ways to make my data visualizations more helpful.

2.     I have a better understanding of the value of money—both as currency with variable purchasing power, and as a resource that organizations and businesses carefully allocate. For most organizations, labor and personnel are both the most costly line items in their budget and the most necessary to keep their programs productive, successful, and innovative. To pay for staff and for high quality programs, there is always a balance to strike between raising income and raising barriers. For organizations that serve working class or lower middle class clients who do not qualify for subsidized or public programs, there is always a risk that clients will not be able to afford higher fees—leaving the organization with even less income and the client without a valuable resource.

3.     Finally, the biggest benefit to pursing this forensic accounting was the satisfaction of learning something new. I never expected to perform so much arithmetic in the course of my dissertation research! I’ve been surprised to find how much I enjoy using quantitative methodologies to analyze the past. I would now like to do even more quantitative work in future research projects.

Even though my foray into historical accounting and budget analysis was intimidating, I found it enormously valuable and would encourage other scholars to attempt similar inquiries in the context of their own projects. 

The Value of Money

The question that initially prompted my examination of four New York City JCCs’ accounting documents was: why did JCCs start taking government money to pay for programs and services? If, as I hypothesized, it was because JCCs needed the money, my analysis of the accounting documents had to show that these JCCs ran bigger and bigger deficits from year to year throughout the 1960s. I also hypothesized that these deficits occurred because, at the same time, the FJP was running bigger and bigger deficits and so was giving the JCCs less and less money.

Testing this guess required compiling and analyzing the FJP’s working account balance from between 1946 and 1973 (the year after which I had more difficulty finding this information). As I discussed in my post yesterday, I used Excel to compile FJP financial data into four columns. The first was the total amount that the FJP collected during its annual campaigns, and the second was the total amount of income FJP earned (the campaign contributions plus the income from  FJP's endowment and investments). A third column listed the total amount FJP disbursed in allocations to its beneficiary agencies plus the amount of money it spent on administrative overhead, and the final column listed the FJP’s end-of-year account balance.

All work is property of Avigail S. Oren. Please do not use without permission. 

I was surprised by what I found when I reviewed this fourth column. Without even needing a graph, I could see from the data that there was no clear pattern in the balance of working capital that FJP had at the end of every fiscal year. I had expected that they would begin to run big deficits in the late 1960s, explaining why JCCs began to need another source of money in the early 1970s. Surprisingly, however, deficits became neither more frequent nor more severe in the 1960s--in fact, FJP ended only three fiscal years with a surplus during the 1950s, but yielded a surplus in at least six years during the 1960s! More interestingly, the deficits occurred despite the fact that, with a few exceptions, the annual campaign brought in more and more money every year. 

I realized that the existence of a deficit was not the best indicator of the Federation's health. Using Excel, I was able to create a formula that calculated what percentage of FJP's total income came from their annual campaign contributions. In 1947, it was 88%, meaning that Federation was very reliant on its annual campaign that year, but twenty years later, in 1967, the campaign only accounted for 61% of FJP's total income. That revealed that not only was campaign income increasing overall, but revenue generated from the endowment and other investments was as well. If the Federation working account balance ran a deficit, it was not because they were taking in less money. Deficits were a function of FJP spending--if they chose to allocate more money to their agencies than they predicted they would make from their campaign and investments. That showed me that deficits may not have been the biggest concern of the FJP when it made its allocations to its beneficiary agencies, because they never reduced the total amount of their spending to close a deficit (for example, reducing their expenditures by $100,000 the year after running a $100,000 deficit). Usually they continued to increase their allocations, or perhaps made a marginal cut in order to prevent future losses.  

So if FJP was not concerned with running a negative balance in their operating budget, I wondered if there was another way to understand their fiscal health. It was clear from the language used by the Federation Distribution Committee that they felt concerned about financial losses--and even more clear, from the pleas made by the JCCs, that agencies needed more money and were having to cut programming and staff. So what was causing the consternation, if the numbers all appeared copacetic? I decided to turn from the FJP’s finances and look at the JCC’s.

In an attempt to figure it out how much bigger the JCC’s deficits were growing from year to year, I asked my sister, who works with accounts and budgets every day, to help me create an Excel formula that would show the percent change in the account balance that the individual agencies reported at the end of each year. She pointed out that this measure was not particularly helpful, because the value of money is not static.

I confess that this comment blew my mind. I had not even considered how inflation was warping the comparisons I was making from year to year. Now, after examining hyperinflation in the 1970s, I recognize how fortunate I am to live at a time when the dollar has experienced reasonable levels of inflation. I do not acutely feel the purchasing power of my income decreasing on a daily basis, and so I completely neglected the role of inflation in my historical analysis of JCC budgets.

As it turns out, inflation played a very significant role in why JCCs felt constrained by the tiny incremental increases (or, yes, sometimes decreases) in their FJP allocations. My colleague and friend Kevin C. Brown taught me how to use the U.S. government’s Bureau of Labor Statistics CPI Inflation Calculator to adjust the nominal value of each allocation for inflation (I used 2016 as my comparative year to make it easier for readers to understand). I found that although FJP allocations were increasing, the purchasing power of these dollars decreased. And, at the same time, JCC’s personnel costs were increasing due to union contract renegotiations winning better pay for Jewish Center workers. FJP’s money did not go as far as it used to!

FJP Disbursements to Affiliated Agencies, Nominal versus Adjusted for Inflation to 2016 Dollars. All work is property of Avigail S. Oren. Please do not use without permission. 

As a result of this finding, my current answer to my initial question is that New York City JCCs did begin taking government money because their FJP allocations were decreasing—but not in nominal value. The allocations were no longer keeping up with JCC’s costs. Although I had assumed the issue was that FJP was not raising as much money during their annual campaigns, contributing to a deficit, the truth is that they raised about the same amount of money from year to year. Unfortunately, it just was not enough to keep up with inflation. 

Using Excel to Examine Historical Accounting Data

In yesterday’s post, I discussed how difficult it was to learn how to read the accounting tables in the multi-page budget worksheets submitted every year by each JCC (and all FJP beneficiary agencies) to the Federation Distribution Committee (FDC). I felt a brief moment of satisfaction when I managed to decode all the information included in these tables, but it quickly gave way to anxiety when I realized that there was much more data in each budget worksheet than my mind could keep track of—not to mention that I wanted to compare over twenty years of data. I needed to find a way to separate out the data I wanted to study from data that was a distraction.

Excel worksheets were the obvious solution to this problem. In one sheet, I could easily replicate the parts of the accounting tables that I wanted to study and input the relevant data for multiple years. For example, the first worksheet I created was to track the success of FJP's fundraising efforts. I began by compiling data on the total amount that FJP raised each year during their annual campaign. In the first column, I listed each fiscal year (FY), and in the second column I inserted the amount of dollars raised (which I found, with difficulty, in intermittent financial reports included in the minutes of the FJP Board of Trustees meetings, which the AJHS conveniently compiled and digitized for public use). This allowed me to track growth over time, without having to repeatedly consult individual archival documents. I made similar Excel sheets for each JCC that I am studying, to track the amount of the annual allocation they received from the FDC from year to year.

Federation Annual Campaign Totals By Year, 1946-1973. All work is property of Avigail S. Oren. Please do not use without permission. 

Even more valuable to me was the ability to modify the worksheets while I was working on them, particularly to add new columns as I realized that I wanted more data, or to generate new data with a formula. I did not anticipate how frequently I would use the formula functions, but I have found formulas especially helpful for calculating percentages. For example, when I began to wonder how dependent the FJP was on the success of its annual campaign, I decided to see if they had other forms of revenue. They did, and so I created a new column listing their total revenue each year, and then another new column where I calculated what percent of that total was made up of the annual campaign contributions. Unsurprisingly, as FJP’s various endowments and investments matured, the annual campaign comprised a smaller percent of their income. I would not have necessarily seen this, or intuited just how dramatic the decline was, if I had not used the formula function to calculate this percentage. 

Federation Annual Campaign Totals By Year, 1946-1973. All work is property of Avigail S. Oren. Please do not use without permission. 

The most helpful part of using Excel, for me, has been the ability to create graphs. Like most people, I find that data visualizations are easier to interpret than a long string of numbers. My sister, who has a B.A. in Business Administration, helped me create line graphs that respond to a number of different questions: some compare streams of income, some track surplus and deficits over time, and others compare the nominal value of a dollar amount (for example, the total amount of an agency’s allocation) to its value once adjusted for inflation.

Budget Details for the YM-YWHA of Washington Heights-Inwood, 1954-1970. All work is property of Avigail S. Oren. Please do not use without permission. 

Through the process of collecting and compiling this accounting data, I discovered so many new questions that I had never thought to ask before taking a deep dive into the weeds. It had never occurred to me, for example, that all income is not created equal. When I began my analysis, I simply looked at “total allocation” and “total income” as basic measures of a JCC’s financial health—similar to learning a human’s Body Mass Index and declaring them healthy or obese without examining the relationship between their height, weight, and age. It is significant whether a JCC ended its fiscal year with a deficit because they received a smaller allocation from the FDC or because they made less money from membership and special activities fees (their “other income”). I began calculating the allocation as a percent of the total income to see how dependent a JCC was each year on the money they received from Federation, as well as measuring the allocation as a percent of the total amount spent by the JCC that year to see how much of that allocation they needed in order to pay for their programs.

Without spending the time compiling, organizing, and creating visualizations of the historical accounting data from four different JCCs, I would have an overly simplified understanding of how each agency made its financial decisions. Check back tomorrow, when I will elaborate on how I discovered the important role that inflation played in JCC's financial decision making!

Making Sense of Federation of Jewish Philanthropy (FJP) Agency Budgets

As I mentioned in yesterday’s post, I knew that in order to discover why JCCs in New York City began taking government money in the 1960s and ‘70s I would need to read through the accounts and budgets that they submitted to the Federation of Jewish Philanthropies of New York (FJP) during those years. These documents can all be found at the Center for Jewish History; the United Jewish Appeal-Federation of Jewish Philanthropies of New York Collection is one of the most expansive, comprehensive, and informative collections held by the American Jewish Historical Society (AJHS).

Jewish philanthropic societies, known as Federations, were established beginning in 1895 and proliferated across the United States in the first two decades of the twentieth century. For more on this history, I highly recommend reading Deborah Dash Moore’s classic At Home in America, which discusses the formation of the FJP in chapter six. Federations took on the responsibility for communal fundraising and planning, with the intent of eliminating duplication of agencies, services, and donor solicitation. They created a more efficient system for soliciting donations, eschewing bazaars and raffles and galas for an annual campaign, during which they collected pledges and cash donations from Jewish individuals throughout their metropolitan area. Federation beneficiaries were prohibited from conducting their own fundraising campaigns and obligated to support the Federation’s annual fundraising efforts. Most JCCs, for example, stipulated in their by-laws that members of their Board of Directors make an annual pledge to Federation. Agencies benefitted from this coordination and came to depend on an annual allocation to support their operations and overhead—particularly the maintenance of highly utilized buildings that experienced extensive wear and tear.

New York City's JCCs were guaranteed an annual allocation because they were Federation beneficiary agencies, but the amount could fluctuate from year to year. Each beneficiary agency went through an annual budget review by the Federation Distribution Committee (FDC) to determine how much they would be allocated. This was true for beneficiaries in all of the Federation functional groups, not just JCCs.

The Annual Agency Files are organized by year, and each agency has its own file folder containing the materials that the FDC’s review process generated each year. At minimum, the file folder always contains a multi-page budget worksheets (chronicling that agency’s income and spending for the last fiscal year) and the budget recommendation that the FDC made for that agency for the upcoming fiscal year. Usually the folder also includes: minutes from meetings between the FDC and agency leaders; correspondence about the allocation or requests for additional funds; and an annual document in which an agency responded to FDC questions about specific functions or trends at the agency. Sometimes additional reporting was also added to the folder. This qualitative material is valuable for historians interested in how social welfare agencies prioritized and changed their activities over time, and it is not difficult to parse if one is familiar with organizational history and archival materials. By contrast, when I first encountered the accounting documents, I had absolutely no idea what I was looking at.

From my own experience as a financially independent adult, I understood a few basics about budgeting:

·      All income is listed together, and all expenditures are listed together.

·      “Housing” costs include more than just a rent or mortgage payment. Buildings and spaces are expensive to maintain.

·      There are fixed costs (rent/mortgage) and variable costs (emergency repairs).

·      Labor is always the most expensive item in a budget.

·      The goal is to spend less than you make.

A budget for an institution the size and scope of a community center follows similar principles, but is like a family budget on steroids: the costs are much higher, and there are many more of them. Through slow and careful reading of over twenty years of budgets and accounts for four JCCs, I began to assemble a basic understanding of a) how accounting tables function; b) how JCC finances work; and c) what the FJP wanted to know about their agencies’ financial operation and health.

The easiest place to begin investigating how the budget tables worked was to take one JCC's budget from a given year and to examine the section listing their income, because their funding did not come from very many places. Although they charged an annual membership fee and smaller fees for other special programs (like dance or music classes, or drama programs, for example), the majority of the money that New York City JCCs made came in the form of their annual allocation from the FJP. As a result, there were very few line items, and most were pretty self-evident from their short description—day camp fees, art classes, and towel and locker rentals being a few examples.

Expenditures make up the vast majority of each budget, particularly salary lines and overhead costs for the building and administration of JCC programs (such as utilities, educational supplies, and insurance). The first two pages of the budget list the total amount spent for each line item, but on later pages the individual expenses are broken out and elaborated upon. The total amount spent on salaries, for example, would be listed the first page, but on later pages each individual role (like Executive Director or Group Worker) would be listed along with the annual salary paid or the employee’s rate per hour and number of hours worked. This was also done with administrative expenses and maintenance costs, so it’s possible to trace how much an agency spent each year on items as varied as telephone calls, food, publicity materials or repainting the walls. I haven't looked deeply at this but if anyone is interested in labor costs in voluntary agencies, or the effects that aging buildings can have on non-profit entities, these budgets offer a wealth of information.

At the top of each budget, the FDC tallied the total amount of income earned by the agency, added to it the amount of the allocation that they disbursed to that JCC for the fiscal year, and then subtracted the total expenses.  In some years, a surplus would remain—but I have found that it was much more common for agencies to run deficits. It was expected that the allocation would cover the JCC’s overhead costs, its administrative costs, and subsidize most of its program. The agency was responsible for raising the balance through membership and program fees. If an agency added new programs, or hired more people, or bought expensive equipment—even if it was absolutely necessary in order to keep the doors open and serve their members—the Board of Directors was responsible for covering the added costs that contributed to a deficit.

In addition to the allocation, the FDC also provided special reserve funds to JCCs for non-recurrent expenses, like to cover start-up costs for new programs, make improvements to facilities, or hire a consultant. Agencies did not always fully indent the reserves they were granted. Federation did careful audits, so there are also plenty of documents in each folder from consultations made by a building inspection firm they used. Every reserve allocation had to be carefully justified. The budgets also demonstrate that the FDC added additional lines to each allocation to pay for employees' insurance and retirement contributions so that the agency did not have to indent their allocation to pay into Social Security or Medicare. Historians interested in employee compensation could use these budgets to track how social welfare organizations covered such costs. Finally, the budgets also include statistical information on JCC membership and enrollment in programs like the nursery school, day camp, and senior center.

If this description makes these documents seem organized or simple, I must confess that there are several pitfalls to examining them over a long durée. The template of the budget sheets changed over time as the FDC changed its accounting practices, making certain comparisons difficult. Also, frustratingly, if the JCC ran any programs that were funded entirely by another source of income (meaning it received zero dollars of support from Federation), the agency did not have to list that form of income. The Federation budgets worksheets, unfortunately, are not a complete accounting record for each agency. 

The FJP Annual Agency Files are nonetheless valuable sources to anyone interested in the history of New York City, social welfare, or American Jewish communal politics. The frequency with which agencies ran deficits raises questions about how, and on what, these agencies spent most of their FJP allocation. By digging into the back pages of the budgets, it’s clear just how many items JCCs had to pay for beyond salaries and space rental—and thus, how often they had to prioritize program maintenance over innovation. 

Forensic Accounting

Early on in my dissertation research I noticed that, in the 1960s and '70s, JCCs in New York City began to receive money from the government to pay for programs like Head Start preschool classes and senior citizens centers. The question for me then became, why? Why would a Jewish agency funded by private Jewish philanthropy and devoted to serving the local Jewish community take public money? Especially considering that public money must be used to serve the public, not only one distinct group of Americans.

I had a few hypotheses:

  1. They needed the money. Maybe, because of suburbanization, fewer people were joining the JCC and so they were making less money from membership dues? Maybe, because of suburbanization again, fewer people were living in New York and so fewer donations were being made to support the city's Jewish communal organizations?
  2. They wanted to provide more social services. Maybe the social workers that staffed and lead these JCCs wanted to improve the lives of their members? Maybe they wanted to improve their communities? Maybe they believed it was more important to take care of the public good and welfare of society than to maintain the JCC as an exclusively Jewish space?

I suspected that the answer was not so simple, and that the truth would be a combination of several of these hypotheses. While I could read about the opinions, decisions, and actions of JCC workers and leaders in the minutes of JCC board meetings, or in their annual reports, or in professional journal articles they wrote about their experiences, I could only find information about money in one place: their annual accounting audits.  

That's how I found myself, in February 2015, digging through archival boxes filled with budget spreadsheets from four different JCCs located throughout Manhattan and the Bronx: Educational Alliance, the YM-YWHA of the Bronx, the YM-YWHA of Washington Heights-Inwood, and Bronx House. I took thousands of pictures of legal-sized paper divided into elaborate tables filled with numbers. I had no idea what I was looking for, nor what I was looking at, so I just snapped the photos and hoped that I could figure it all out later.  

A year and a half later, I finally reached the point in the dissertation where I was ready to write about how the JCC financed their programs. About a month ago I began to read through the documents I'd photographed, and I realized that I had a lot to learn before I could understand what I was looking at. It wasn't just terminology like "a/c" (accounts current) or conventions (fiscal years versus calendar years) but also basic mathematical and economic principles. 

I never expected that, in becoming a professional historian, I would find myself practicing a form of forensic accounting. My work may not be intended for the court of law, but I am piecing together how funds were made and spent in order to establish evidence for an argument. As someone who is not particularly facile with mathematics, accounting, or economics, I would not have expected to enjoy this foray into quantitative analysis. Surprisingly, I’ve actually loved it! It has forced me to learn new skills (especially in Excel), brush up on old ones (basic math calculations), and to think in new ways about the value and purchasing power of the dollar. So this week, I will be posting a series about how to work with historical budgets and accounting documents—particularly those created by the agencies of the Federation of Jewish Philanthropies of New York (FJP)—and how to analyze them to support historical arguments.

Stay tuned!