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September 12, 2008

Use of the Proceeds from the Tri State Committee - NEAFCS Annual Session 2007

NEAFCS – Minnesota Affiliate is fortunate to have a once-in-a-lifetime opportunity to use monetary proceeds from our role on the Tri State Committee for the 2007 NEAFCS Annual Session held in St. Paul, MN. This opportunity comes because of the hard work by MN Affiliate members and past board leadership for fundraising /involvement in planning and implementing the 2007 Annual Session.

MN-Affiliate share of the proceeds totaled $8,215.45
Other MN-Affiliate funds totaling $1,293.88
(originally part of a joint MAEE Certificate of Deposit, now in checking account)
On Oct. 2, 2008, additional interest of $ 260.87
Will be added, bringing the total for investment to $9,770.20
Total will be put into 1 temporary interest-bearing CD

NEAFCS – MN Affiliate held a special meeting March 26, 2008, to obtain feedback on four scenarios. Based on this feedback, the 2007-2008 MN Affiliate Board has suggested two options for using the proceeds as well as the advantages and disadvantages for each option. Membership will vote on these options at the MN Affiliate Annual Meeting on Oct. 22, 2008, in conjunction with the Fall Program Conference in Duluth. The outcome of the vote will determine direction for use of the funds. The board will then develop a plan for implementing the selected option.

For whatever option is chosen, the specific purpose for using the funds will be delineated in the annual MN Affiliate budget. For option 1 which is a quasi-endowment, an overall intended purpose would be determined as it is set up. At this time, many are interested in having the funds support professional development for members. MN Extension Dean Bev Durgan has given approval for the MN Affiliate to develop a plan in consultation with administrative liaison, Karen Shirer.

Past “bare bones? MN Affiliate budgets have spent beyond membership dues income by “dipping? into carryover funds. From that history, it seems apparent that the organization needs another source of income. In 2008, approximately $800 was used from carryover funds to balance the budget. Even though there is currently no short-term budget emergency, if future membership, income, and expenses remain somewhat constant, the organization will deplete carryover funds in about 8–10 years.

Here are suggested options for using the funds:

Option 1:
Establish a long-term quasi-endowment fund through University of Minnesota Foundation

What Does This Mean?
A minimum of $10,000 is needed for a quasi-endowment* fund. Funds are invested with the nearly $3 billion currently in the U of M Foundation fund. A quasi-endowment fund begins to earn interest after the first month of investment. The fund must have two authorized signers who can request funds. One signer must be the Extension Dean or designee.

Advantages of Option 1:
- Enhanced support for member and organizational services
- Long term income source for MN Affiliate
- Options for contributions
- Potentially higher return on investment
(10% average return since 1998)
- Low management fee compared to similar fund options (.0090 of 1% or $90/year on $10,000)
- Interest can be drawn as earned
- Principal is accessible
- Manageable expectations for set-up and annual maintenance of fund
- Contributions are tax deductible

Disadvantages of Option 1:- Need to monitor annually
- Interest rate subject to economic change

*A quasi-endowment is similar to an endowment but differs in that the principal amount may be used at any time given adherence to the intended purpose.

Option 2:
Establish a short-term investment plan lasting for a designated period of years.

What Does This Mean?
Funds are invested in short-term funds i.e. CD(s) by MN Affiliate. Periodic decisions are made for who maintains the funds and reinvestment options. Funds are likely to be withdrawn for MN Affiliate use when interest income becomes available. Withdrawals would likely coincide with the annual MN Affiliate budget process.

Advantages of Option 2:  Enhanced support for member and organizational services
- Income source for MN Affiliate
- Options for contributions
- Interest income available at end of saving term
- Principal accessible at end of saving term
- Dollars may be split among more than one investment option
- Potentially no management fee

Disadvantages of Option 2:  Need to monitor savings terms and manage investment options
- Increased time spent on management
- Variable timing of interest payment(s) with annual MN Affiliate budget process
- Interest income available without penalty only at end of savings term
- Interest rate subject to economic change
- Money may be depleted in a few years.