Were the Finances of the CDS in the Red?

Forum to discuss business matters, commerce and the economy of the CDS

Moderator: SC Moderators

Post Reply
User avatar
Sonja Strom
I need a hobby
I need a hobby
Posts: 608
Joined: Fri Sep 21, 2007 12:10 pm

Were the Finances of the CDS in the Red?

Post by Sonja Strom »

This post is in response to questions made of me in the last RA Meeting, on the 11th of July. The transcript of the meeting can be found here: http://forums.slcds.info/viewtopic.php?f=2&t=2985

These questions had to with whether or not I was correct when I made this statement:
[9:27] Sonja Strom: Our finances have been slowly improving over the last six months, and now we are again in the black,
[9:28] Sonja Strom: no longer in the red,
[9:28] Sonja Strom: which means that now we have some money we can spend :)

Especially there seem to have been questions about my use of the term “in the red.”

One thing is, I believe there may have been some misunderstanding about my use of the term “in the red.” I never intended to say that the CDS had reached the bottom of its funds. What I was trying to say was (only) that for a while we experienced an average negative revenue flow, in other words that there was a time during which the community was spending more than it was bringing in - the result of this negative balance being that for a while we paid for our expenses with our Reserve.

My use of the term “in the red” is described here http://financial-dictionary.thefreedict ... in+the+Red as:
“Operating in the Red: Describing a business that continues operations while losing money. A business may continue to operate in the red due to the extension of a loan or credit line, or because of cash flows that exist despite losses. Obviously, a company can only operate in the red for a certain period of time before making a profit or declaring bankruptcy.”

Did the CDS go through a time when it "continued operations while losing money"? When I went to the RA Meeting I believed this was the case. Although I was speaking in general terms when I made this statement, I did want to be accurate in my description of the finances of the CDS. My understanding of the finances was questioned, however, and I promised to give a response to those questions here in the Forum. Currently I am investigating the issue, in order to give a more complete and accurate description of our past finances than I was able to in the moment of questions being asked in the meeting.

Cindy Ecksol
Master Word Wielder
Master Word Wielder
Posts: 449
Joined: Thu Jan 10, 2008 8:37 pm

Re: Were the Finances of the CDS in the Red?

Post by Cindy Ecksol »

Well, being as I was the one who asked the question, I guess I should follow up.

Finance is a technical discipline. "In the red" is a technical term in that domain. It means either that CDS expenses exceeded revenue over some period of time OR (alternative definition sometimes used) that our cash flow was negative over some period of time.

To date I have seen no data presented to substantiate your statements according to either of these definitions. The discussion that took place in RA a number of months ago was not a discussion of fact, but merely the brandishing of speculations and assumptions.

If you maintain that your statement that CDS was "in the red" is accurate, I would appreciate it if you could please point us to the data (for example, published financial statements) that your statement is based upon. Specifically what was the extent of the deficit(s), and over what time period did it/they occur? And if you can explain why it occurred, that would be even better.

If you can clarify both the time period and the extent of the deficit you're referring to I think we'd all be a little more comfortable with our understanding of the financial status of our community. Right now I'm concerned that I may have missed something critically important and it would be good to understand how that might have happened.

Thanks!

Cindy

User avatar
Sonja Strom
I need a hobby
I need a hobby
Posts: 608
Joined: Fri Sep 21, 2007 12:10 pm

Re: Were the Finances of the CDS in the Red?

Post by Sonja Strom »

Cindy, I am now investigating the issue, and will post about what I find in this thread.

Thank you for your understanding.

Cindy Ecksol
Master Word Wielder
Master Word Wielder
Posts: 449
Joined: Thu Jan 10, 2008 8:37 pm

Re: Were the Finances of the CDS in the Red?

Post by Cindy Ecksol »

Sonja Strom wrote:

Cindy, I am now investigating the issue, and will post about what I find in this thread.

Thank you for your understanding.

Perhaps this would be helpful:

http://portal.slcds.info/index.php?id=224

Cindy

User avatar
Sonja Strom
I need a hobby
I need a hobby
Posts: 608
Joined: Fri Sep 21, 2007 12:10 pm

Re: Were the Finances of the CDS in the Red?

Post by Sonja Strom »

Thanks, Cindy. :)

From what I have seen so far, the CDS did operate in the red for five months within an eight-month time period between July, 2009 and February, 2010.

This can most easily be seen in the Financial Reports available at the web address given by Cindy above:
http://portal.slcds.info/index.php?id=224

In these reports, the second-to-last page of each report gives the “Income and Expenses” for the CDS. On this page in each report, the bottom line shows the overall “NET INCOME” of the community.
The first column of numbers given there for Net Income shows the Net Income for the Month. The second column shows the Net Income Year-to-Date. Where this number is negative, there was a net loss of income.

A "net loss" of income is defined here: http://financial-dictionary.thefreedict ... m/Net+Loss as
"The operating result when expenses exceed revenues for a given period.”

Another way of saying there was a net loss of income is, the CDS was “in the red.”

My review of the Financial Reports shows that the CDS experienced negative numbers of net income in July of 2009 (-L$1198 for the month), then again in October (-L$965860 for the month, -L$288996 for the year-to-date) and November of 2009 (-L$104915 for the year-to-date), then again in January (-L$320073 for the month, -L$320073 for the year-to-date) and February, 2010 (-L$77625 for the year-to-date).

It is possible that in the meeting my speaking in such general terms about our financial situation - both past and present – was confusing to some. However, my review of the financial records shows that I was not incorrect when I said the CDS had gone through a time period when it operated in the red.

Soro Dagostino
Sadly departed
Sadly departed
Posts: 271
Joined: Sun Aug 17, 2008 11:28 am

Re: Were the Finances of the CDS in the Red?

Post by Soro Dagostino »

If that is so, Sonya, where did CDS get the money to operate? It must have been flat broke and borrowing from a bank or some financial institution. Did it?

Bottle Washer
CDS SC
User avatar
Sonja Strom
I need a hobby
I need a hobby
Posts: 608
Joined: Fri Sep 21, 2007 12:10 pm

Re: Were the Finances of the CDS in the Red?

Post by Sonja Strom »

During those months the CDS made payments by taking money from its Reserve. If the Reserve had not been there, the CDS would have run out of money and been unable to make any payments - unless, as you suggest, it had been able to borrow the money from somewhere else.

User avatar
Jamie Palisades
I need a hobby
I need a hobby
Posts: 639
Joined: Sun Aug 05, 2007 3:56 pm

Were the Finances of the CDS in the Red? No.

Post by Jamie Palisades »

When the CDS RA approved the AA merger, it was clearly informed by Sudane that the tier payments on a nonprofit were made six months in advance -- so that the cash flow of CDS would change seasonally. In other words, we would pay the nonprofit tier in month 1, then recover it by month 6, in cycles. Sudane (and others) informed the RA,that this would leverage CDS cash reserves -- they would drop, and then be replenished, by the amount of the tier, in six-month cycles. The RA considered this, and decided that this plan only would borrow against an acceptable fraction of our then-very-large, and mostly unused, reserves. Our reserves had increased steadily, at a rate above our projections, for about 3 years, at that time.

If that's what happened, that's not going into the red. That's an investment (in expansion) that returned correctly.

Sonja, I am concerned that some people might mistake your statements as a suggestion that we operated unwisely ... or that the RA, executive and treasurer were not doing exactly what our elected officials voted to do. Unfortunately, the many non-economic, political arguments about AA, and who helped it and who resisted it, make this a sensitive topic.

So let's try to stay with objective financial data, here. The task of managing CDS finances should not be mixed with, or slanted by, politics or personal rivalry.

Here are some statements which can be evaluated, as true or false, based on data:

  • I believe that the rent collected by AA and turned over to CDS (sometimes without CDS help) covered CDS tier costs for AA sims: in other words, the planned cyclical cash flow leverage always was restored, as the RA planned.

  • I believe that CDS incurred no loss during the AA merger that was caused by AA.

  • I believe that CDS reserves have not materially degraded, comparing the state before the merger, and the state after the merger is dissolved and fully accounted for, by any transaction involving AA.

Note: AA has been ON our books for the last twelve months, ending two weeks ago, and with that burden on CDS, our Finance Commission reports:

Finance Commission Chatlog 3 July 3, 2010 8:OO AM SLT
Our third meeting of the Finance Commission was held at the Alhambra Fortress Garden on July 3rd at 8:00 AM. Sudane Erato, Treasurer provided insight into our current financial situation and prospects for the future ...
... First we are doing very well financially. We currently have about $11K USD in our account, but soon will owe tier of about $2800.00.

http://forums.slcds.info/viewtopic.php?f=7&t=2976

I watched this carefully at the time. It was my job to do so, as it is Sonja's now. Some informal CDS accounting assertions were unclear. (In other words, opponents of AA made dark vague comments, but showed no numbers, and others dodged the question.) But all of the audited and auditable evidence that I saw supported the conclusion that each of these things was completely true. Does anyone wish to offer any numerical evidence that disputes this?

Regards JP

== My Second Life home is CDS. Retired after three terms
== as chancellor of the oldest self-governing sims in SL.
User avatar
Jamie Palisades
I need a hobby
I need a hobby
Posts: 639
Joined: Sun Aug 05, 2007 3:56 pm

Were the Finances of the CDS in the Red? Ask :)

Post by Jamie Palisades »

As a citizen, I suggest that the RA solve this by enacting a bill that requires the Treasurer, in the next annual CDS financial statements, at the regular time of delivery of those statements, to specially show as separate tables:

  • The rent income received from AA land, and the tier payments relating to AA land, and any turnovers or refunds of rents made between the two EO accounts, over the twelve-month merged period (which bridges 2009 and 2010);

  • The beginning and ending balances of CDS reserves over that period; and

  • The same AA rent income/AA tier/refunds data, for only the relevant portion of the reporting year 2010. (The last one is going to be lumpy, but it still would be useful to "foot" it -- that is, to see the effect on the current reporting period.)

I recommend that the legislation also provide that, if the Treasurer reports that this break-out requires an infeasible amount of work for that official personally, that he or she be asked to state reasonable compensation for the task, within 15 days, and that the RA then either, within 15 days thereafter, agree to that compensation, or instruct the Treasurer to make the US$ and L$ Linden Labs transaction accounts for 2009 and 2010, of the CDS administrative avatar Rudeen Edo only, fully available to a neutral person for confidential review. Real world names may be redacted (erased) from the reports, but no other data, which should be provided in otherwise unedited form. That neutral person must be known to but not politically active in CDS or AA, must be reasonably mutually acceptable to the Treasurer and the RA, and must agree to provide the data above in a written report, with no personal liability but to the best of their knowledge. Maybe Desmond Shang will volunteer to look at them for us :)

Comments: I recommend you consider making any comments at the Legislation thread, not here, to keep it easy to follow: http://forums.slcds.info/viewtopic.php?f=7&t=3037

Regards, JP

== My Second Life home is CDS. Retired after three terms
== as chancellor of the oldest self-governing sims in SL.
User avatar
Sudane Erato
Forum Wizard
Forum Wizard
Posts: 1178
Joined: Thu May 25, 2006 8:44 am
Contact:

Re: Were the Finances of the CDS in the Red?

Post by Sudane Erato »

Jamie,

In April 2010 I published the following "Budget Report" over a concern about the very "beliefs" which you are expressing.

http://picasaweb.google.com/sudane.erat ... April2010#

I feel that while it caused considerable political turmoil, it was not read carefully. And quite frankly, I was never asked to help explain it for people who may not have understood it completely. While people on all sides of the discussions had their own deductions drawn from this data (and some questioned its integrity), it is quite simply objective data. For those of you who might be reading it again, or for the first time, please read it closely before commenting.

I MUST emphasize. I agree entirely with your administrative points. They exactly express my approach to the matter of managing the finances. But in April, looking at the accumulated data for the first 9 months of the CDS/AA merger, I became concerned about a revenue shortfall of AA tier. This report is prepared entirely from data in the monthly financial reports and can be retrieved and duplicated. I will add that during the last three months of the 12 month "target period", some of the shortfall was regained, but not enough for AA tier collections to exceed AA tier expense. CDS tier collections went very well, and we ended that particular 12 month period with higher reserves than when we began, despite the tier AA shortfall.

I'm reluctant to continue to press this data into the community public space, since it is now "water under the bridge". But I can surely do so if requested... as can anyone who takes the time to look at the reports and retrieve the numbers. They are very clearly presented there.

Sudane..............................

*** Confirmed Grump ***
Profile: http://bit.ly/p9ASqg
User avatar
Jamie Palisades
I need a hobby
I need a hobby
Posts: 639
Joined: Sun Aug 05, 2007 3:56 pm

Re: Were the Finances of the CDS in the Red?

Post by Jamie Palisades »

Sudane, as you know, I always read your reports .. and appreciate them .. and I'm not sure that puts me in the majority in CDS.

Let's either have informed debate about money matters, or none. A constant stream of nyah-nyah-we-lost-money, nyah-nyah-we-didn't is unnecessary. The most telling point here is what you point out: the government didn't ask you! That does not speak well for any of its branches at that time.

Regards JP

== My Second Life home is CDS. Retired after three terms
== as chancellor of the oldest self-governing sims in SL.
User avatar
Sonja Strom
I need a hobby
I need a hobby
Posts: 608
Joined: Fri Sep 21, 2007 12:10 pm

Re: Were the Finances of the CDS in the Red?

Post by Sonja Strom »

Jamie Palisades wrote:

The most telling point here is what you point out: the government didn't ask you! That does not speak well for any of its branches at that time."

Jamie, I want it to be clear that during the time I was Chancellor I was regularly in contact with Sudane about the CDS finances. My feeling is, during that time I always asked Sudane for assistance in understanding her reports and projections, especially when any financial decision would be made. Maybe she did not feel like I asked for clarification as much as I felt like I did, that could be. At the same time, I fully believe that to say the Executive Branch never asked for help in understanding the financial projections of the Treasurer is a huge overstatement; or, actually a false statement.

petercheck wrote:

...why don't they just sell you the real thing?

Peter, what is the real thing we should be sold?

User avatar
Sudane Erato
Forum Wizard
Forum Wizard
Posts: 1178
Joined: Thu May 25, 2006 8:44 am
Contact:

Re: Were the Finances of the CDS in the Red?

Post by Sudane Erato »

Who is PeterCheck?

*** Confirmed Grump ***
Profile: http://bit.ly/p9ASqg
User avatar
Sonja Strom
I need a hobby
I need a hobby
Posts: 608
Joined: Fri Sep 21, 2007 12:10 pm

Re: Who is PeterCheck?

Post by Sonja Strom »

Good question, I don't know either. :)

Soro Dagostino
Sadly departed
Sadly departed
Posts: 271
Joined: Sun Aug 17, 2008 11:28 am

Re: Were the Finances of the CDS in the Red?

Post by Soro Dagostino »

Regarding PeterCheck:

Several of she/his/its post have been scrubbed by Calli. I tried to scrub this one, but found I couldn't. Don't know why. He did poke into some really old threads . . . really old!

Bottle Washer
CDS SC
Post Reply

Return to “Business, Commerce and the Economy”