Hard times forced NCSEA not only to cancel its annual conference in July at the Marriott Marquis in New York City, but also file for bankruptcy.

The alarm bells started going off at the end of last September,” says Colleen Eubanks, executive director at the Washington-based association. NCSEA had just closed the books on its 2008 annual conference, held August 3–7 in San Francisco, and the numbers were down. Attendance was off by almost 25 percent, with about 900 attendees, and revenues were down about one-third. Fortunately, the association hit its room block, just barely, and avoided attrition. But there were some unsettling trends afoot that made Eubanks nervous heading into 2009.

First, many states had already imposed travel restrictions on employees, and since the association is made up mostly of state workers in the child-support enforcement field, attendance was likely to take a big hit. Second, by mid-October the bottom had fallen out of the economy.

Soon thereafter, Eubanks started hearing from members that their states and municipalities were really feeling the stress. In November, NCSEA reached out to all of the state or county agencies that oversee NCSEA members and found that 25 states had already imposed out-of-state travel restrictions for all of 2009. By the first quarter of 2009, 40 states had imposed out-of-state travel restrictions on state employees, she says.

“Since at least 70 percent of our attendees are employees of state or local agencies, we knew that it would have a huge impact on our conference.”

 

The Decision to Cancel
The annual conference is a huge source of revenue for NCSEA, as it is for most associations. Typically, the association nets $600,000 from the meeting, which helps pay for operating expenses throughout the year. The 2008 meeting, however, generated about $400,000. “We ended up doing OK in San Francisco, considering the environment, but we didn’t do as well as we had hoped,” she says.

On top of that, the association’s reserve funds shrank considerably after the stock market bottomed out—losing about one-quarter of its value between September and October and nearly 40 percent by January 2009.

Given the 2009 travel restrictions, the drop in revenues, the loss of reserve funds, and the outlook for a protracted recession, NCSEA was in a no-win situation. “When we looked at it, there was no way we were going to be able to have a successful conference in New York City,” explains Eubanks.

NCSEA crunched the numbers and looked at every possible scenario, but it looked bad. Even before the economy tanked, Eubanks was worried about the prospects for the 2009 conference, given the expensive location and contractual requirements, both of which were put in place before she took over as executive director in December 2006. “I was concerned about whether we would make any money on that conference,” she says. “A first-tier city like New York doesn’t make any sense for an organization like ours,” adds Eubanks, who would have opted for a second-tier city.

If NCSEA held the conference for the couple hundred people that might show up, they were looking at steep penalties because the contract had both room-block and food-and-beverage minimum requirements. “The food-and-beverage requirement was way above what we normally do for a conference, so it was a very onerous burden,” she adds. Faced with the option of few attendees and harsh penalties, the meeting would have lost a lot of money.

“So we had to make the very painful decision at the end of the year to cancel that conference,” she says.

But that’s just part of the story.

Going Bankrupt
The other onerous aspect of the contract was a severe liquidated-damages clause. For canceling, they had to pay the hotel $600,000 in liquidated damages. And if they didn’t cancel before January 1, 2009, they would have owed the hotel $900,000 in damages, since it was based on a sliding scale. A bad economy, after all, is not covered under a force majeure clause.

NCSEA’s problem was that it didn’t have the resources to pay the bill. If it did pay, the association wouldn’t have enough money for normal operating expenses, given the depletion of the reserves and the decline in revenues from the previous annual meeting. NCSEA attempted to work out an arrangement with the hotel, but was unable to reach an agreement, she says.

After reviewing all options, NCSEA hired a bankruptcy attorney and proceeded to file for bankruptcy protection under Chapter 11. “It seemed to be the only option to salvage the situation,” says Eubanks. In a letter to members written in February 2009, Eubanks wrote: “We want to be very clear that the reason we filed at this time is for protection from the liquidated damages from the conference hotel.”

NCSEA filed a voluntary petition for bankruptcy protection, which was granted by the court on January 15, 2009. From that point, the association has 300 days to present a plan to the court to pay off its creditors, the largest being the Marriott Marquis. The second-largest creditor is a third-party meeting planning company hired to work the conference. The court must then approve the plan and the creditors must accept it.

Once that happens, NCSEA must execute the plan and pay off its debts. Until all debts are paid, the association will be under court supervision.

Re-Emergence
Between now and then, NCSEA is not allowed to pay off any debts to creditors. What it can pay are normal operating expenses, like rent and payroll. Any major expenses or any new contracts have to be approved by the court. But NCSEA isn’t waiting to make some changes now to save money and generate revenues.

One change is deciding to hire an association management company. “The plan [to pay off creditors] obviously incorporates the association management company, so it is our intent to file the plan with the court no later than July,” says Eubanks. The staff at NCSEA will be retained and incorporated into the AMC, with Eubanks staying on as executive director. The move to an AMC is expected to save the association a considerable amount of money by using the AMC’s space, resources, staff, and infrastructure. “It will significantly reduce our overhead costs and make us a stronger organization,” she says.

NCSEA is also developing some new ways to generate revenues. The association ramped up an online training program, hosting two training webinars a month for people in the field. It is also looking to partner with another large human-services association in an effort to leverage resources and create more revenue opportunities.

NCSEA is also still meeting. In February, it held its Policy Forum and Training Conference in Washington as planned. About 100 people attended the seminar, which was down from last year, but it met the room block and actually made money, says Eubanks. And the organization plans to hold the forum again next January.

Membership numbers have held steady through the downturn, but to avoid slippage, the association is planning a big advocacy push on Capitol Hill this fall. “It’s going to be very important for our members’ voices to be heard on the Hill,” she says.

NCSEA is also hoping to form strategic partnerships with organizations with similar interests to broaden the community beyond state employees. “We think there are some potential synergies with other groups, so we are going to reach out to see if we can work with them to build our conference attendance and our membership,” says Eubanks.

Lesson Learned
NCSEA has been a victim of circumstance—crippled by a bad economy, travel restrictions, and onerous contracts. But if she has any advice to give association executives in a similar situation, Eubanks would tell them to know their organization’s conference history and be conservative in their pickup estimates.

“Don’t promise food-and-beverage and attendance rates that aren’t realistic, even in good times. That really was one of the major things about this contract that was quite difficult for us.”

She also cautions new association executives to review all future contracts to make sure they are comfortable with them. “Had I realized when I started, instead of a year into it, that we had an issue with this contract, we might have been able to do something earlier,” she says.

Finally, Eubanks’ advice to association executives worried about their conference is to contact your vendors right away to try and work out a deal. “We started by reaching out to the Marriott before we hired a bankruptcy attorney, just to get a feel for whether they would negotiate with us.” When it was clear they wouldn’t, NCSEA hired a bankruptcy attorney. “If we had waited too long, frankly, we wouldn’t have been able to hire an attorney and we wouldn’t be able to work this out like we did.”

So what about next year? As of now, the association plans to hold its 2010 annual conference in Chicago. “Our board is very committed to continuing to have an annual conference,” she says. A lot depends on the economy, but also, says Eubanks, NCSEA is hoping to work with the host property, the Sheraton Chicago, to reduce the room block. The meeting itself could change in other ways, but planning will wait until the new AMC is on board.

NCSEA has annual conferences booked through 2012, all done before Eubanks came on board. Right now, she’s not even thinking ahead that far. “We have to work through this first. It’s a matter of survival.”