THE IMPORTANCE OF A
REPLACEMENT FUND
By Keith Sessions, AMA Chief Financial Officer | keithsessions@hotmail.com
Happy New Year, and hopefully it is the start of a much better financial year than 2022. As I wrote this column, the Federal Reserve Board was still increasing interest rates in an effort to battle inflation. The equity markets have had a hard time. The first half of 2022 was the worst performance for the S&P 500 in 52 years (since 1970). It was the second-worst performance since AMA was founded in 1936. The news is also reporting a potential recession. By definition, two quarters of negative Gross Domestic Product (GDP) growth indicate that we are already in a recession.
The AMA’s financials are not as bad, but it still feels the effects of the economy. Through the end of September 2022, we were running a slight deficit after taking out investment fluctuations. This is typical because a number of membership renewals occur in the fourth quarter.
Our expectations for next year are conservative. With a “potential” recession and an increase in the cost of dues, we expect a decrease in membership and a flat revenue stream. On a positive note, AMA has two sizeable grants, which are expected to be received in 2023. These will go directly toward membership programs.
The AMA budget has taken into account an expected increase in costs for several large items. The cost of the magazine continues to go up. Paper, ink, and postage all saw significant increases in 2022. Insurance premiums went up as well. Although we have had a fantastic track record for safety, insurance premiums are impacted by more than just our relationship with the insurance provider.
Finally, labor costs are going up across the country. Muncie, Indiana, is a city with a low cost of living and lower labor costs, but we still must remain competitive. Employees no longer have to work near where they live. Higher-paying remote jobs, which were rare a few years ago, are becoming much more mainstream.
As I wrote this, unemployment was at 3.5%. Anything less than 5% in the US is considered fully employed. When it falls below 5%, companies have to pay more to attract the workers they need. Part of the reason for the increases by the Federal Reserve Board is to increase unemployment to a slightly higher level in order to control wage growth.
Wage growth is one of the two largest factors when calculating inflation. Housing (e.g., rent) is the other.
For our clubs, this is a great time to review your long-term plans as you go into 2023. So often, I see issues where equipment gets older and there is not a replacement fund. Mowers wear out, buildings need maintenance, and runways always need work.
Although you might only replace a mower every 10 years or so, it is much easier to save the replacement cost over a number of years. I have been in the market for a replacement for my aging mower. The cost is roughly 50% higher than what I paid 10 years ago for basically the same mower.
