Tag Archives: December 2008

Celebrity Fight Night

Nonprofits And Corporations Continue To Work Together As The Economy Falters

Ravaged by the effects of a devastating disease, boxing legend Muhammad Ali can still draw a crowd. Fans who remember the former heavyweight boxing champ in his prime as the handsome, graceful pugilist with the mile-a-minute mouth, still flock to catch a glimpse of this now frail man.

That’s helped turn the annual Celebrity Fight Night into one of the most successful charity events in the Valley. The creation of Jimmy Walker, president of Walker Financial, an estate planning and wealth management firm, Celebrity Fight Night has raised millions for the Muhammad Ali Parkinson Center at the Barrow Neurological Institute.

Celebrity Fight Night is a perfect example of where corporations and philanthropy intersect. However, that intersection is now threatened.

Corporate philanthropy pumps millions of dollars into Arizona nonprofits every year, but there is concern that a troubled economy will result in some restraints on giving.

Cutbacks could occur, even though businesses see philanthropy as a win-win: Organizations that benefit from corporate generosity are able to continue to do all the good things they do, and at the same time, corporations reap the benefits of good PR. They are seen as good citizens giving back to the community. Of course, tax write-offs generally enter into the philanthropic picture.

Even though corporate donations that support myriad causes are estimated at about 20 percent of the total, with individuals giving by far the lion’s share of philanthropic dollars, nonprofits agree that they couldn’t survive without corporate help. Which means it will be up to nonprofits to be more creative and innovative in telling their story.

Robin Dunn, CEO of the Make-a-Wish Foundation of Arizona and president-elect of the Association of Fundraising Professionals, Greater Arizona Chapter, cannot emphasize enough the importance of corporate philanthropy.

“We have a lot of corporate alliances,” Dunn says. “Our brand is one that companies like to use for cause-related marketing. As a result, quite a bit of income comes from corporate philanthropy.”

Make-A-Wish’s mission is to grant the desires of children with life-threatening medical conditions.

“It lets the community know that a company is helping a charity, which ultimately helps the company,” Dunn says. “We could not do what we do without corporate philanthropy.”

Despite that, Dunn says cutbacks in giving are a distinct possibility.

“I think it’s obvious to think people are being more frugal and maybe a little more tentative,” she says. “I think it’s too soon to say whether that’s going to impact overall giving, but I think there’ll be some impact.”

Patricia Lewis, senior professional in residence at the Lodestar Center for Philanthropy and Nonprofit Innovation at Arizona State University, expects a slowdown in corporate philanthropy.

“So much of our community is tied up with the financial markets, so it’s bound to have an impact. I think we are already beginning tosee a decline in support for nonprofit events and activities,” says Lewis, who is a former president and CEO of the Association of Fundraising Professionals. “That includes direct support, as well as support in buying a table at an event. The economy is having an impactful trickle-down effect.”

Perhaps the fundraiser with the most star power is Celebrity Fight Night. Since its inception in 1994, it has raised more than $52 million, primarily for the Muhammad Ali Parkinson Center at the Barrow Neurological Institute. Sean Currie, executive director of the Celebrity Fight Night Foundation, says the event last spring pulled in $6.5 million.

Ali clearly is the draw. Entertainers, including Celine Dione, Garth Brooks, Diana Ross and Rod Stewart, are among those who have performed at the fundraiser. Some 50 to 60 celebrities attend each year.

buyers market

Real Estate Companies Are Seizing Opportunities During The Bust

With dark clouds hanging over the country’s economy and property prices tumbling, many people consider the idea of buying real estate absurd. Yet Valley real estate experts contend right now is the best time to buy.

Jeff Pavone, principal of Commercial Plus in Scottsdale, says smart, experienced commercial real estate investors only buy property when the market is down and no one else is buying. Buyers today are sophisticated, have cash and are looking to pay a good price for quality, he says.

“A year ago everyone could buy real estate and get financing,” Pavone says. “But today, it’s only qualified buyers with a strong portfolio, which puts the buyer at an advantage.”

In spite of economic hurdles, Commercial Plus is still closing deals weekly and getting financing done for clients. It recently closed a deal on a property on Seventh Street and Camelback Road that sold for 20 percent less than last year. Pavone says the buyer was qualified to close, so he obtained 80 percent financing and closed right away.

UTAZ founder Craig Willett says his company stopped buying properties four years ago because prices were too high. Now they are back in the game and in negotiations to buy a number of parcels near hospitals in the Southeast and West Valley. UTAZ specializes in developing professional office villages for small businesses. Since many small business owners have a hard time getting financing, UTAZ offers a lease with option to purchase. Willett says that model used to be 15 percent of the company’s business, but is now 45 percent.

“Leasing with the option to purchase makes a lot of sense in today’s market,” Willett says.

Pollack Real Estate Investments in Mesa is also buying again after taking a three-year hiatus. Founder Michael Pollack is shopping around for multiple commercial properties from single sellers in California, Arizona and Nevada. The company’s focus is redevelopment and renovation projects. Pollack Investments currently owns, operates, manages and leases its own portfolio of more than 100 commercial and industrial properties in California and Arizona.

“Investors are getting more for their money right now than a year or two ago, so it’s a good time to buy,” Pollack says. “But it’s harder to get loans unless you have good credit and put down more money, which I support wholeheartedly.”

Pollack says great buys exist today on land in Arizona and in all sectors of real estate. However, buyers need to look hard for quality opportunities and analyze the numbers, since many sellers want the same price today that they could have gotten three years ago.

“We put a property in Mesa up for sale a couple months ago and sold it the same day,” Pollack says. “So, if a property is priced realistically and reflects the conditions of 2008, it sells.”

Local experts agree that residential property is also a good investment right now, especially homes being sold by banks and by homebuilders forced to sell standing inventory. Greg Vogel, chief executive officer of Land Advisors Organization, says many of these properties are back to pre-boom prices, so they’re a real bargain.

Phoenix-based investment firm Najafi Companies bought Trend Homes in June for $86.5 million. The deal allowed the homebuyer, which reorganized under Chapter 11 bankruptcy, to grow and expand its Valley operations. CFO Tina Rhodes says Najafi is committed to homebuilding in Arizona and looks to invest in companies with strong management teams and long-term potential.

Paradiso Development Corporation is moving forward on development plans for Paradise Reserve, a 40-acre, exclusive, luxury residential enclave bordering the Phoenix MountainPreserve on Lincoln and 40th Street in Paradise Valley. The desert retreat has 14 hillside estate lots ranging in size from one to three acres. Lot prices are $2.7 million to $5.4 million.

“The 14 lots at Paradise Reserve are the crown jewels of our project,” says Scott Schiabor, principal of Paradiso Development. “They are rare and unique, and that will help maintain their value and attract investors. A big part of our market is also immune to economic changes, so while we expect some downturn due to the economy, based on the rarity of the lots, location and our target market, we expect sales to go extremely well. For many people it is still a good time to buy real estate and make quality investments.”

Merl Waschler

Merl Waschler’s First Job

Merle Waschler
President and CEO, Valley of the Sun United Way

Describe your very first job and what lessons you learned from it.
As a young adult in high school and my early college years, I worked at Greystone Park Psychiatric Hospital in my hometown state of New Jersey. I consider my time at Greystone to be one of those pivotal life-shaping experiences. As an orderly and camp counselor, I worked serving the needs of mentally ill adults and children from all walks of life. Here I learned the power of empathy, patience and the true meaning of human potential. These virtues continue to shape my life and career daily.

Describe your first job in your industry and what you learned from it?
Upon graduating from Penn State University, I began my finance and accounting career at Arthur Andersen. Throughout my tenure at the firm, I sharpened my skills in business management and developed a business approach to accounting. I continue to utilize the financial management, operations and strong business ethics I learned early in my career at Arthur Andersen. I am genuinely grateful that my first industry job led me to a strong relationship with United Way. During my career at the firm, I served as a United Way loaned executive. As such, I worked alongside United Way staff helping to increase the understanding human service needs, and encouraged donations to the annual fundraising campaign. This journey has come full circle for me, as loaned executives are tremendous support to Valley of the Sun United Way.

What were your salaries at both of these jobs?
I made minimum wage at Greystone Park (around $3.25 an hour) and earned about $10,300 a year at Arthur Andersen.

Who is your biggest mentor and what role did they play?
My career and professional mentorship hit its pinnacle as Valley of the Sun United Way’s president. I am fortunate to have the counsel of leaders that span diverse industries, leadership levels and areas of expertise. As a leadership group, I look to corporate CEOs, nonprofit leaders, community philanthropists and many others for advice on pressing issues in the areas of education, income and health to guide Valley of the Sun United Way’s work. Equally important is the community’s voice to ensure pressing human care needs continue to be met. This wide-range community perspective is powerful and reflects a desire from all to create opportunities for a better tomorrow.

I continue to be inspired by my professional and community mentors and will work vigorously to improve the quality of life in our community for individuals, families and children.

What advice would you give to a person just entering your industry?
The nonprofit sector continues to innovate and transform to meet community needs. I would encourage individuals entering the field to consider that changing community conditions takes time, tenacity, innovation and a degree of risk. I’ve seen an increasing number of nonprofits moving toward the integration of business models and social change theories. All of this represents a great opportunity for individuals, organizations and the communities served by nonprofits.

With this in mind, find an organization that fits your passion and has bold community goals. Surround yourself with innovative thinkers and agents of change. Reach for the opportunity that maximizes results for you and the organization. Remember that long-term change will not be achieved overnight — look for an opportunity with longevity.

If you weren’t doing this, what would you be doing instead?
I can honestly say that I cannot imagine doing something else. We often seek to find that job we can be so passionate about that it does not seem like “work” or a “job.” I am very lucky to be living that today. It’s so rewarding to work with business, nonprofit, faith-based, government, academia and so many other sectors to strengthen the quality of life in our community each and every day. I’ve met so many inspiring individuals whose lives have been touched by Valley of the Sun United Way and our many partners. I am humbled to be serving our community and will continue to do so proudly.

Evolution Tea Team

David Watson Revolutionizes Tea Industry

Revolution Tea — the name of the company says it all. In the late 1990s, after watching a rise in tea plarity at his wife’s tea room in Scottsdale, Larry DeAngelis recognized that the tea industry would soon experience a transformation, and he wanted to get involved prior to the “revolution.”

In 2001, he was joined by David Watson, who acquired majority ownership. Today, DeAngelis continues to serve as CEO, while Watson is chairman.

Watson is no stranger to making a company successful. He has dipped his hand in several industries, including real estate and cosmetics. In fact, he was president of BioMedic Clinical Care, which was sold to L’Oreal in 2001.

Watson says that when he joined Revolution Tea, he “saw what Starbucks did for coffee has happened (for tea at Revolution Tea).”

The company revolutionized the industry with its Infuser tea bag, which contains full-leaf teas and a carefully researched blend of natural fruits, herbs and spices. The special bag produces a fuller-bodied flavor due to its larger size and material. It now has 26 flavors to choose from; the five best-selling blends are Tropical Green, Sweet Ginger Peach, White Pear, English Breakfast and Earl Grey Lavender. They even have several organic flavors, including Organic Scottish Breakfast Tea and Organic White Chai Tea.

“The biggest challenge,” Watson says, “was educating the consumer they can have better packaged tea.”

They not only educated the consumer – they changed an industry. Today, more than three-dozen companies use the Infuser bag.

In May, the company continued making headway with the launch of Revolution 3D, which was introduced, Watson says, as a healthier alternative to soda and energy drinks. The canned beverage is a blend of fruit juice, multivitamins, and white tea, and is available in green apple, blueberry, mango and pomegranate. It is currently only available in Arizona and California, but it will be rolled out to the rest of the U.S. over the next 18 months.

The company has experienced rapid growth since 2002. In both 2005 and 2006, it grew 40 percent and its 40 employees work in a 37,000-square-foot warehouse in Phoenix. Watson is quick to give credit where credit is due, and says Revolution Tea would not be where it is today without all of its employees.

“Surround yourself with experts,” he recommends to other entrepreneurs. “Be humble to know what you’re not good at.”

The company also works out of contract warehouses in three other states that help distribute the products throughout the U.S. and to more than 40 countries worldwide. In addition, the products can be found in approximately 2,500 restaurants and 6,000 grocery stores. Every new product launched, however, is initially only offered in Arizona and California.

“Arizona historically has been a testing ground for new products and services,” Watson says. “It has a makeup of diverse constituencies. … If (a product) will work in Arizona, it will work anywhere.”

working to revive customer trust

Arizona Banks Work To Revive Consumer Confidence After Market Upheavals

Bank failures are in the headlines and that has raised questions for Arizona consumers.  As a result, many of the state’s banks have drawn up their own plans of action to keep customers informed and confident.

“In a period of financial distress and instability, the more banks do to indicate the strength of their portfolios — the fact that they are not tainted by a lot of very risky debt, that the balance sheet does not have a lot of assets that are suspect — the better off they are going to appear,” says Herbert M. Kaufman, professor of finance at the W.P. Cary School of Business at Arizona State University. “It makes some sense for banks that are strong to emphasize that.”

In addition to other bank failures around the country, federal regulators closed First National Bank of Arizona in July, and Nevada-based Silver State Bank in early September. First National is now owned by Mutual of Omaha, and Silver State offices in Arizona reopened as National Bank of Arizona branches. In late September, federal regulators seized Seattle-based Washington Mutual and struck a deal to sell the savings and loan’s operations to J.P. Morgan Chase & Co. WaMu and Chase have branches in Arizona.

Consumer confidence in the country’s financial system has weakened, but Capitol Bancorp has not seen a strong response to Arizona bank failures, says John S. Lewis, the company’s president of bank performance. Capitol Bancorp has 10 community banks in Glendale, Mesa, Phoenix, Scottsdale, Tucson and Yuma.

“There is an underlying concern out there, but we’ve not seen any panic,” says Lewis, who is located in Phoenix.

Concerning the tumultuous first three weeks of September, Wells Fargo Bank’s Gerrit van Huisstede says some customers went to branches with questions about financial industry news.

“The recent news and developments have sparked considerable interest and concern from our customers. Some have asked about their investments, others about FDIC insurance and the safety of their deposits,” says Huisstede, regional president for Wells Fargo’s Desert Mountain Region encompassing Arizona, New Mexico and Nevada. “We’re working with each customer to provide the information that meets their individual needs.”

Banks have options to provide as much federal deposit insurance as possible, including the Certificate of Deposit Account Registry Service operated by Promontory Interfinancial Network in Arlington, Va. CDARS disperses deposits at participating banks into different individual CDs of up to $100,000 each, up to a maximum covered amount of $50 million.

Capitol Bancorp is educating its line employees on FDIC insurance and the status of their individual banks.

“The worst thing bank employees can do when asked if a customer’s deposits are insured is say, ‘I don’t know,’ ” Lewis says.

Wells Fargo builds confidence by “really getting to know our customers, then providing them with the right advice and financial products,” Huisstede says. The bank is reaching out to customers to tell them “they are working with one of the best capitalized large U.S. bank holding companies in the country.”

Education and information are the key to consumer confidence, says Tanya Wheeless, president and chief executive officer of the Arizona Bankers Association.

“Most of the community bankers are being proactive with their customers,” she adds. “Some send letters to customers providing information. For others, maybe it’s statement stuffers providing information. And they’re being available to answer questions. We’ve also seen all our banks put time into training their employees to answer customer questions.”

Meanwhile, Kaufman at ASU emphasizes that American banks are safe.

“The banking system is, right now, one of the stronger positions in the economy, especially the larger banks,” he says. “If anything, consumers are feeling positive about banks as compared to other alternatives.”

As it has responded to crisis situations in the nation’s financial system, the federal government has taken on a role of lender of last resort, and that should be comforting to bank customers, says Marshall Vest, an economist at the University of Arizona’s Eller College of Management.

“Not only does it insure your accounts at banks, the government also has stepped in to provide a backstop for money market mutual funds and it has taken extraordinary and unprecedented measures to fight off the freezing of credit markets,” Vest says. “That offers a great deal of comfort, knowing that the Federal Reserve and the Treasury are there doing their jobs. If they were doing nothing, then we would all be scrambling to pull money out of the bank. There’s no need for that.”

Money Flow

State-Chartered Banks Are Still Lending Despite The Credit Crunch

The credit crunch is gripping much of the nation, but Arizona banks are still lending money and most are well-capitalized to weather tough economic times. The state’s core capitalization rate of 10.31 percent is well above the national average of 7.89 percent. That means Arizona banks have a good cushion to ride out the mortgage-induced banking crisis.

Arizona has approximately 83 banks, and of those 33 are state chartered. It also has roughly 58 credit unions and 26 are state chartered. Felecia Rotellini, superintendent of the Arizona Department of Financial Institutions, which oversees all state-chartered banks and credit unions, says state-chartered banks were not involved in subprime mortgage lending, so the mortgage meltdown is not impacting them. But capital drying up and lack of funds for borrowing, which precipitated the federal government’s $700 billion Wall Street rescue package, do impact state banks and make it more difficult for them to do business. Thus, state regulators across the country are closely monitoring the policies and proposals coming out of the U.S. Department of Treasury to make sure the advantages large national banks acquire from Treasury Chief Henry Paulson’s plan have equal impact on state community banks.

“As a result of subprime mortgages, foreclosures and the drop in property values, banks are seeing a reduction in profits and asset quality,” Rotellini says. “But I believe our state-chartered banks are well-managed and well-capitalized to weather the storm. It’s a matter of good management and reserves.”

In September, National Bank of Arizona’s strong capital position enabled it to acquire the FDIC-insured deposits of Silver State Bank’s Arizona offices in Tolleson, Chandler, Sun City and Scottsdale, after federal regulators took over the Nevada-based bank.

National Bank of Arizona’s plan is to merge all Silver State offices into its own nearby branch locations. National Bank of Arizona President and CEO Keith Maio says the bank is currently lending money to small and mid-sized businesses and for commercial real estate projects. But unlike a few months ago, the bank now has a stronger pre-leasing requirement on commercial real estate and a slightly higher credit quality hurdle for small business transactions. The bank also takes into consideration whether a prolonged economic downturn will significantly affect a business and whether management has the ability to maneuver a company through a protracted economic slump. Assessing management is critical, Maio says, because good managers have a solid business plan, they don’t look for excessive leverage and they can run a business successfully through good times and bad.

“Whether you’re an individual, business or bank, you can weather the storm if you have adequate capital,” Maio says. “Our goal is to work with customers the best we can while preserving our capital for future opportunities. That doesn’t mean we’re not making loans. It means we’re going to be judicious about capital. For the last eight to 10 years, there’s been too much leverage in both the business and consumer sectors and that’s what’s caused this financial crisis in its simplest form. Credit was too easy and too cheap. Now it’s harder to get and more expensive.”

The spiraling economic downturn has been a blessing in disguise for Bankers Trust Phoenix, a wholly-owned subsidiary of the $2.5 billion Midamerica Financial Corporation. The bank opened in January with $15 million in capital and a clean balance sheet, enabling it to build relationships with local real estate professionals and lend against high-quality assets that are strategically well-positioned to ride the economic upturn early in the next cycle.

“The fact that we missed the boom of the last several years has turned out to be an advantage for us,” says Patricia Rourke, president and CEO of Bankers Trust Phoenix. “As a newcomer in the market with no troubled credit and nothing in our portfolio, we were ready and able to lend when developers and real estate professionals were being turned away from other local banks.”

Harry Mateer, president and CEO of Altier Credit Union in Tempe, says credit unions have also been affected by the country’s financial crisis, but to a lesser degree. Credit unions have strict investment policy guidelines that prohibit them from entering into many of the lending areas of banks and other financial institutions. They focus on specific areas of lending, such as auto loans, home equity and credit cards.

“We’re currently seeing some liquidity shortages in the system,” Mateer says. “And I’ve heard this from other credit unions around the state, too. Members don’t have as much to save so there’s not a lot on deposit. Nevertheless, we’re focused on helping members in light of the economy and working with them when they have difficulties. People can still get loans, but we’ve changed our loan to value requirements to be a little more conservative. We’re now doing 80 percent loan to value, not 85 to 90 percent. And I think that’s what’s being done across all banks and credit unions.”

As a result of the mortgage-induced banking crisis, Arizona legislators passed a law during the 2008 legislative session (SB-1028) requiring all loan officers of mortgage companies in the state to be licensed after 2010. The Arizona Department of Financial Institutions is developing the licensing system for the state. Arizona has approximately 8,000 to 14,000 loan originators that will need to be licensed.

“Over the past few years, there’s been a breakdown in education and training of loan originators in Arizona who explain nontraditional loan products to consumers,” Rotellini says. “A lot of borrowers got into a loan product they didn’t understand and couldn’t afford over the lifetime of the loan, and the loan originators didn’t carry out a loan transaction that was suitable for the borrower. Loan originators also made more commission on option ARM (adjustable rate mortgage) products that over time yield higher interest rates, so conventional loans and FHA loans fell out of favor.”

The Department of Financial Institutions recently investigated a case that resulted in a Phoenix man losing his home. The man was put into an option ARM product with a teaser rate he could afford, even though he would have qualified for a VA loan. In time, the loan adjusted to a higher interest rate and the man couldn’t afford to make his house payments. When the man complained, the loan officer threatened to harm him, so the Department of Financial Institutions intervened. Unfortunately, it was too late. The man had no money to refinance, his credit was destroyed and he lost his home.

“Requiring loan originators to be licensed raises the level of accountability,” Rotellini says. “It’s going to improve the whole mortgage-lending experience for consumers and provide assurance that the loans they enter into will not default and are legitimate. Of course interest-only products will still be available, but they will no longer be abused.”

What It Takes To Form A Nonprofit Or Tax-Exempt Organization

It usually starts with a phone call from a client, or maybe another attorney in your office. Someone wants to set up a nonprofit corporation, usually a tax-exempt charity, often on behalf of a pro-bono client, and assumes it should be pretty easy.

Unfortunately, it’s not.

First, “nonprofit” is not the same as “tax-exempt,” although many people use the terms interchangeably. Nonprofit is a state law concept and is governed by the relevant state statute for nonprofit corporations. In Arizona, that would be Article 10, Chapters 24-40 of the Arizona Revised Statutes. Tax-exempt usually refers to being exempt from federal income tax under section 501(c) of the Internal Revenue Code. Furthermore, there are different types of tax-exempt organizations. The most common are 501(c)(3) organizations such as schools, hospitals, museums, community foundations, etc. But there are also other types of 501(c) organizations such as trade associations, which are exempt under section 501(c)(6), and social welfare organizations, which are exempt under section 501(c)(4).

Second, although the state filings to establish a nonprofit corporation are not unduly burdensome, there are a number of technical requirements that need to be followed. Also, the IRS exemption application, Form 1023, is not a simple one-page form; instead, it requires anywhere from 12-20 pages of information depending on the nature of the organization. With few exceptions, such as churches, an organization must file Form 1023 and receive a determination letter from the IRS in order to be tax-exempt, and cannot represent to potential donors that it is tax-exempt until such time as it receives such letter.

State law requirements for Arizona nonprofit corporations
In order to create the corporation under state law, an Arizona nonprofit corporation must file articles of incorporation. These will contain the name, purpose, powers and directors of the corporation, as well as the statutory agent for the corporation. The articles will also state whether the corporation will have members. Nonprofit corporations are not required to have members; in the absence of members, the directors will govern the corporation. However, if there are members, the members will elect the directors and will vote on major corporate actions. The procedure for electing members, and the rights of such members, is often set forth in the articles, but can also be contained in the bylaws of the corporation.

The articles are signed by the incorporator of the organization and are filed with the Arizona Corporation Commission. The filing fee is $40 ($75 if expedited treatment is desired). The articles are accompanied by a certificate of disclosure, which must be signed by the incorporator and any individuals who are directors or officers at the time the articles are filed. The articles must then be published (within 60 days after the articles are filed) in a newspaper of general circulation in the county in which the corporation carries on its business for three consecutive publications.

Once incorporated, the organization must file annual reports with the Arizona Corporation Commission and the Charities Division of the Secretary of State. The filing fees for such reports are nominal.

IRS tax-exempt filing (Form 1023)
IRS Form 1023 requires fairly extensive information about the operation of the organization. The two most important sections are Part IV (narrative description of activities) and Part IX (financial data). The IRS will want to know, in some detail, what activities the organization will carry on. In order to qualify under section 501(c)(3), the organization must be operated “exclusively for religious, charitable, scientific … literary, or educational purposes.” The narrative description should go into some detail (at least a page) outlining the exempt purposes of the organization and why such purposes qualify under Section 501(c)(3). If possible, prior IRS rulings relating to similar organizations should be cited as evidence that the new organization qualifies as exempt.

In Part IX, assuming the organization in question is a new organization, Form 1023 asks for projected budgets for the current year, plus the next two years. These budgets require both income information Ñ expected contributions, investment income, operational income Ñ and expense information, such as outgoing grants, fundraising expenses, wages, rent, interest and professional fees. The organization should make a good-faith attempt to be as detailed and accurate as possible, even though it is understood that actual operations may diverge from the projections. The IRS is simply interested in understanding the scale of magnitude of the organization’s operations, as well as the relative allocation between internal administrative expenses, and expenses directly used to carry out the exempt purposes of the organization.

The filing fee is currently $750 (reduced to $300 if the organization expects its annual receipts to be under $10,000). The form should be filed within 27 months of its date of incorporation and, if approved by the IRS, will be retroactive to the date of incorporation. The IRS review time will vary substantially depending on the complexity and size of the organization. For a simple charity with no complications, IRS approval may only take six to eight weeks. However, if the organization has substantial activities or is expected to be involved in significant transactions with private parties, such as an organization focused on community development, it may take six to 12 months for IRS approval. If the IRS has any questions or concerns, it will contact the organization in writing while the application is pending and will normally give the organization 21 days to respond.

Once approved, the organization will be required to annually file Form 990 disclosing the income and expenses of the organization, the compensation paid to officers, directors and key employees, and other information. Form 990 does not normally require the payment of any tax, but is an information return for the IRS to monitor the activities of the organization. Form 990, and Form 1023, are publicly available documents and must be disclosed if someone contacts the organization requesting copies. Thus, organizations should keep such potential disclosure in mind when preparing the forms.

Conclusion
Forming a nonprofit and securing tax-exempt status is a little bit more involved than simply filing two pieces of paper with the state and with the IRS. Anyone working with a new nonprofit should also work with an accounting or legal professional that is familiar with the state and federal requirements pertaining to such organizations.

Michael G. Meissner is a partner at Squire, Sanders & Dempsey’s Cleveland office. He works with the firm’s Phoenix office on tax issues. Meissner can be reached at (216) 479-8593 or at mmeissner@ssd.com. The firm’s Phoenix office can be reached at (602) 528-4000.

Blood Systems Inc

Blood Systems Inc. Succeeds With A Delicate Balancing Act

When donating blood, many people probably only have a vague understanding of how the entire process works. Most donors certainly don’t understand how complex the mechanisms are that take blood to its final destination, or about the people who make it all happen.

“The general public does not understand what goes on behind the walls of a blood bank,” says Susan Barnes, Vice President and Chief Financial Officer for Blood Systems Inc. “I actually had someone say to me, ‘Oh, you’re the guys who take my blood, don’t give me anything for it and then sell it to the hospitals and make a fortune.’ I said, ‘There’s a lot in between that you don’t know.’ ”

Founded in 1943 as the Salt River Valley Blood Bank, the nonprofit Blood Systems is one of the nation’s oldest and largest blood service providers with operations in 18 states. Blood Systems is also a high-tech, efficiently run company entrusted with a life-or-death mission.

“We budget very carefully to return to the bottom line just enough to allow us to re-invest in our facilities, in processes that the FDA requires, and to keep things state-of-the-art so we can make sure we always provide the quality of blood product that the community expects,” Barnes says. “Not everyone understands that we can’t have a zero bottom line just because we’re a not-for-profit. It’s important to make money to re-invest, because if you don’t re-invest in the organization, you can’t continue the mission.”

Blood Systems mission is “to make a difference in people’s lives by bringing together the best people, inspiring individuals to donate blood, producing a safe and ample blood supply, advancing cutting-edge research and embracing continuous quality improvement.”

To keep such a noble mission in these trying times is a difficult balancing act, says Blood Systems President and CEO Dan Connor.

“In this particular environment that we have now with the economy, we see many companies laying off folks, so there are fewer people available to donate blood and that makes our job more difficult,” Connor says. “Our hospitals are less able to withstand any new tests or new procedures or new costs that we might have to pass along. As a result, we are trying to do that balancing act between doing everything we can to ensure an ample and safe blood supply, while also understanding the limitations that hospitals face as far as paying a reasonable cost for the blood products that are provided to their patients. That’s particularly difficult right now.”

Thanks to Barnes’ financial acumen, Blood Systems has built up a strong bottom line in its cash reserves.

“These reserves allow us to proceed with projects and expenditures, as well as still give our employees a cost-of-living increase in those years that we are not going to generate as much cash,” Barnes says. “There are also those years that we know our customers (hospitals) cannot afford to absorb our entire increased costs, and these reserves allow us to hold some of these new costs without our usual reimbursement.”

Perhaps Blood Systems greatest strength to its bottom line is its diversification, which has helped the company create new and needed revenue streams. That diversification is centered on four main divisions.

The Blood Centers Division is a network of more than a dozen regional blood centers and about 70 donor centers stretching from the West Coast to the Gulf of Mexico and from the Canadian border to the Rio Grande. The centers are operated through United Blood Services and Blood Centers of the Pacific, and serve patients in more than 500 hospitals. Last year, nearly 700,000 people donated blood an average of 1.5 times through the Blood Centers Division.

The Blood Systems Research Institute in San Francisco has conducted scientific research into transfusion medicine for more than 50 years, studying infectious diseases such as HIV and the West Nile virus. A second institute is located in Tempe.

Blood Systems Laboratories operates two of the most highly rated and high-volume blood-donor testing and infectious disease reference laboratories in the nation. The labs in Tempe and the Dallas area tested about three million donations in 2007, with two-thirds of the blood coming from other nonprofit blood centers.

BioCARE distributes plasma derivative therapies available to patients 24 hours a day, every day of the year at more than 200 locations across the country.

Blood Systems is also extending its reach internationally. For about the last four years, Connor says Blood Systems has sent the plasma portion of blood donations to the United Kingdom in order to help that country reduce the risk of transmitting the human form of Mad Cow disease.

But diversification alone hasn’t made Blood Systems a company that just recently received an upgraded ‘A’ stable credit rating from Standard & Poor’s at a time when many other companies are being downgraded. Blood Systems has instituted performance-improvement efficiency standards such as Six Sigma and LEAN tools, which have resulted in the reengineering of processes in the Blood Centers Division and Blood Systems Laboratories. That in turn has improved efficiencies and ushered in cost savings of more than $2.5 million throughout the organization in 2007 alone.

Blood Systems is also investing in its human capital by developing its own program to produce specialists in blood banking.

“We were having trouble finding qualified blood banking specialists to staff our laboratories,” Barnes says. “We partnered with the University of Texas Southwestern Medical Center (at Dallas), and wrote the actual online modules to train the students and taught them through the University of Texas to become specialists in blood banking.”

Blood Systems graduated its first class of specialists in blood banking in 2007.

“It’s basically growing our own blood banking specialists,” Barnes says. “We have the opportunity to put our own staff through the course and allow them to earn the certification. This enhances their careers while staffing our laboratories with the most qualified specialists.”

Making such long-term investments in its employees’ futures has helped Blood Systems decrease turnover by more than2.5 percentage points from 2006 to 2007, with the average length of service now up to almost seven-and-a-half years. And then there’s the mission.

“When I interview a candidate for a job here at Blood Systems,” Barnes says, “one of the things I always make a point of telling them is it doesn’t matter whether you’re collecting blood from a donor, or volunteering to give the donor a cookie and juice afterward, working in our testing laboratory, or working in accounting and finance — everyone who walks in the door every morning understands and is proud of the fact that they’re helping to save a life that day.”

Web 2.0

Web 2.0 Offers Companies A New Way To Conduct Business

Those unable to offer a clear definition of Web 2.0 are not alone. Even computer industry experts have a hard time agreeing on exactly what it is.

“The reason why there are so many different opinions is because the term is so comprehensive,”says James Windrow, director of interactive strategy for Scottsdale-based I-ology, an Internet strategy firm. “It’s misused so often to include absolutely everything, all new technology that’s been developed for the Internet for about the past four to five years.

“The way I define it, and I use Web 2.0 and social media interchangeably, I define Web 2.0 as just technology that’s used to facilitate communication or collaboration amongst different people.”

David van Toor, general manager and senior vice president for Sage CRM Solutions North America, a business software company with offices in Scottsdale, looks at Web 2.0 technology from a business perspective.

“It’s describing, really, the concept that it’s the way that businesses can derive value from treating the Internet as a technology platform and as a business platform,”he says. “To me, it’s a way of conducting business – a different way of conducting business.”

Although the term implies some major redo of the Internet experience, “in reality, it’s just the next version, it’s the next step, it’s an evolution of the process,”according to Tyler Garns, director of marketing for Infusionsoft, a business software company in Gilbert.

The tools that come under the vast Web 2.0 umbrella have led to online communities and social networking, video sharing, blogging and wikis. If you post a page on MySpace or Facebook, watch and comment on a YouTube video, review a product on Amazon or glean information from Wikipedia, you are taking advantage of Web 2.0 technology.

Some businesses have fully embraced Web 2.0. When General Motors stock took a major dip in October, CEO Rick Wagoner appeared in a short YouTube video to state his company’s case. Cable giant Comcast is effectively using the social networking and micro-blogging site Twitter as an element of its Comcast Cares program. Go to Sage’s Web site for ACT! (www.act.com), its popular contact and customer management software, and you can join discussion forums, access an executive’s blog or suggest a feature for a future product update.

“I don’t need a marketing team to communicate with customers now,” van Toor says. “I can do it directly on the blog. I don’t have to force my customers to go through a service department to reach me.”

That’s part of the big change brought about by Web 2.0. In the past, the Internet experience was pretty much a one-way conversation. There was some modest interactivity, but many companies were satisfied using their Web sites as online brochures. Today, businesses are able to engage customer and employee collaboration as never before. Corporate executives are instantly accessible. Active participation results in lightning-fast dialog and feedback.

Another important point is there is now a type of corporate transparency never available before.

“The way that businesses today are leveraging that is they’re opening up their companies and being fully transparent,”Garns says. “What that allows the customer to do is to have a direct view into the company. And when they see things they like, they then trust the company much, much more.”

Windrow points to a change in the way Web 2.0 impacts a company’s ability to control its brand message. In the past, he says, businesses sought complete control.

“In today’s Web 2.0 world, that’s just not the case,”Windrow says. “Now the brand message has left the control of the company and is firmly with the consumers. They are controlling what’s being said about companies. They’re controlling what information is being shared. And they’re actively seeking ways to punish companies that they feel are socially irresponsible in one way or another, or reward companies that they feel are acting in the best interest of consumers.”

That’s why it’s especially important for businesses to offer consumers direct communication options.

“If you invite them to your business and to your sites, and allow them to communicate there in the way they want to, then you can respond to them in a way you can’t if they do it on other people’s chat rooms or places like Amazon,”van Toor says.

Selling, in particular, has been dramatically impacted by the Internet and Web 2.0 technology. According to Garns, today’s consumers educate themselves. They read reviews, hop into forums and find out what others are saying.

“By the time you go to purchase a product or service, you know exactly what you want and you know the price you want to pay,”he says. “When you walk in the door, you’re ready to negotiate. And so the business that you’re buying from has now been cut out of the sales process.”

ROI on mba

Higher Degrees Are Still A Solid Investment In Corporate America

If ever there was a time for a Master in Business Administration to pay dividends, this is it. In a troubled economic climate, experts say businesses are more careful about who they hire. Having an MBA opens doors to jobs and salary levels otherwise out of reach, and it provides a layer of protection against downsizing.

When the economy is in a downturn, the employees businesses let go first are the least valuable. People who are investing in themselves, gaining new skills through an MBA, send a signal to the marketplace that they are the one a business wants to keep.

Gerry Keim, associate dean for the W. P. Carey MBA in the W. P. Carey School of Business at Arizona State University, says MBAs are better off in the job market under any circumstances.

“They’re more likely to get hired in today’s environment than people without an MBA, and when the economy is booming and everybody is getting hired, these are the people who tend to move up,” Keim says.

Craig Bartholomew, MBA, vice president/director of the Phoenix Campus of the University of Phoenix, says economic downturn, slow market and rising prices are terms being used to describe the current economic landscape.

“The word recession is looming over everyone’s heads, employers are hesitant to add staff, and one’s climb up the career ladder may look like it is coming to a sudden halt,” Bartholomew says.

Earning an advanced degree goes a long way toward enhancing one’s economic future.

“Initially, it might seem like a risky investment, but trends traditionally indicate that now is the time to gain a competitive career advantage through a higher-education degree,” Bartholomew says. “A slow economy is temporary, but higher education is a long-term investment that can make a professional more valuable today and in the future.”

But Keim doesn’t necessarily believe that having an MBA in and of itself makes a difference.

“The market is very discriminating,” he says. “Having a degree is not enough. Having an MBA from a school with a very strong program is a good investment. You have to have skill sets and mind-sets that enhance your ability to manage in today’s business world.”

Last year, 97 percent of ASU’s MBAs landed jobs within three months of graduation, and the program was on target to match that mark in 2008. In what Keim calls “a very down economy,” salaries and bonuses are in the upper $90,000 area, perhaps even six figures. MBAs are making almost double what they were before entering the program, he says.

One of the key elements of the MBA field involves competition. Schools compete for the best students and the students compete against one another for the best jobs. Competition among students gets especially tense. Earning an MBA from an elite, private university can cost upwards of $120,000, compared to $32,000 for a full-time student at ASU, Keim says.

Some students from elite schools, such as Harvard, wind up owing $100,000 when they graduate.

“Our students graduate with virtually no debt,” Keim says. “They get to take home their entire salary. I’d say that’s a pretty good investment.”

Richard Bowman, area chair for graduate business at the University of Phoenix, a faculty member for 16 years and a financial planner, sums up the value of an MBA, telling his students: “You will run into a point in your career that to move up to the next level, a master’s degree is required or desired. If you want to be promoted to operations manager, director, vice president or general manager, you will not be competitive without an MBA degree or a master’s in general.”

An advanced degree is also vital in the military if an officer hopes to rise above the rank of captain, Bowman says.

Pursuing an MBA online has the advantage of flexibility. Bowman says he has taught students online who were in such places as Iraq, Kosovo, Japan, Great Britain and China. It’s convenient for mid-level managers who travel a lot, he says, but there is little opportunity for interaction with other students and the instructor.

He tells of working mothers who are full-time employees.

“After they put the kids to bed, they can do their master’s degree,” Bowman says.

money squeeze

Tips On How To Navigate The Current Credit Crunch

The credit crunch is making its way from Wall Street to Main Street and squeezing businesses across all industries. There are some proactive steps Arizona companies can take to prepare for potentially challenging days ahead.

Cash is king

If you have cash on your balance sheet, you have a greater degree of flexibility in your decision making.

Issue: In a slowing economy, understanding and managing cash flow are paramount.

Action Steps: Negotiate aggressive credit terms with suppliers and customers. As soon as invoices are late, begin subtle but firm collection efforts. In the short term, it may be wiser to sacrifice profitability in order to generate cash.

Be relentless on cost control

Look hard at discretionary expenses and remove unnecessary spending — but don’t compromise business strategy.

Issue: To maintain your current levels of profitability, you will almost certainly need to cut costs and spending where possible.

Action: Employ zero-based budgeting to review all costs carefully in terms of their value to the business.

Evaluate customers and suppliers

Understand the financial well-being of customers and suppliers. Look for signs of financial distress and express concerns.

Issue: Challenges in credit markets have put increased pressure on the purchasing power and credit worthiness of customers, resulting in a tightening of credit terms and product availability.

Action: Reevaluate credit terms with customers and negotiate the shortest reasonable terms.

Get smarter on taxes

It is important to look at how to manage those costs and the related impact on a company’s cash flow.

Issue: Taking appropriate advantage of the opportunities available to reduce tax liabilities.

Action: Take advantage of available tax credits, such as the fuel tax credit or deductions for domestic production or property depreciation. Take extra care when considering the calculation of quarterly estimated tax payments.

Reconsider capital investment plans

Is now really the time to invest in new capital assets?

Issue: Investing in new assets in a downturn can bleed you of cash. Carefully consider capital investment plans, and question the proposed value and timing.

Action: Take into account the timing of investments. If it isn’t mission critical, consider delaying or deferring.

Get closer to banks

Take a hard look at your reporting and accounting systems. If these are not quite what the bank would like to see, consider improving them.

Issue: Banks will be more cautious and concerned about credit quality. Borrowing will likely come at a higher price — both in terms of interest rates and fees — and will almost certainly include more restrictive covenants and require increased monitoring and transparency.

Action: Treat the bank as a partner by keeping it informed about the status of the business and giving it plenty of notice if you need help.

Consider financing options

Talk to a professional about arranging financing and consider alternatives to traditional lenders.

Issue: Having issues with your bank can result in a severe restriction in your borrowing capacity. It’s not as easy as it used to be to secure an alternative source of capital.

Action: Consider other financing sources such as leasing, asset-based lenders, factoring companies or even government-supported financing programs. Look at negotiating payments on long-overdue accounts receivable or obtain financing through trade vendors.

Keep an eye out for bargains

Be alert to opportunities where business valuations are falling and where business owners are looking for quick exits.

Issue: The current feeling of uncertainty will drive many shareholders to seek an exit rather than hunkering down and trying to weather the storm independently, creating buying opportunities at depressed prices.

Action: Whether playing the stock market, engaging in real estate or considering acquisitions, the best buys are made in a down market. But make sure the action makes sense with your growth plan.

Protect personal wealth

Before agreeing to become more personally exposed for the sake of the business and less diversified personally, think about options.

Issue: It is likely that businesses will have greater borrowing needs. Solving business cash needs with personal assets will reduce diversification of overall personal net worth and further expose you to the recessionary economy.

Action: Equity financing provides resources if the economy does not improve as quickly as expected. If debt financing is the best course, avoid personal guarantees and pledges of personal assets. Employ experienced counsel to help with the transaction.

Worst case scenario

Get help far in advance of a financial crisis, if at all possible.

Issue: The future is uncertain and trade credit is contracting.

Action: Look at your business without its existing debt and determine its debt capacity based on the most current financialprojections. Do not wait until you are almost out of cash.

The more time you have to identify your options and craft a plan, the better your chances of success. Contact your professional services advisors immediately to discuss your current situation.

Ed O’Brien is the managing partner of Grant Thornton’s Phoenix office. For more information, call (602) 474-3444 or visit www.grantthornton.com

Wall Street Rescue 2010

Wall Street’s Rescue Package Is Changing Tax Laws For Businesses

The recent financial rescue package signed into law by President Bush on Oct. 3 contains not just $700 billion in federal assistance, but also a number of tax measures that are significant for Arizona businesses.

Renewable energy tax incentives
The renewable energy tax incentives extension was widely anticipated by the industry. Many states, including Arizona, are adopting or expanding their renewable energy standards, and these provisions are designed to make the conversion to renewable energy more tax-efficient.

The 30 percent investment tax credit, particularly the eight-year extension of the Section 48 credit for solar energy, is especially important given Arizona’s potential for solar and alternative energy-related businesses. These incentives are expected to not only continue current investment levels, but also to attract new business investment in Arizona’s alternative energy efforts.

It’s key to note that the energy tax incentives apply to businesses that use them — not to solar energy manufacturers. For example, mixed-use developments adding solar panels to parking garages, construction firms building LEED (Leadership in Energy Efficient Design)-certified structures, and retail centers adding solar roof panels will benefit from the incentive.

Another aspect of the energy credit changes is the elimination of the public utility exception. Two years ago, the Arizona Corporation Commission ruled that regulated electric utilities must generate 15 percent of their energy from renewable resources by 2025. However, utilities have been unable to benefit from this incentive. Regulated utilities may now obtain a 30 percent investment tax credit from their investment in qualifying property.

For instance, if APS purchases solar panels and installs them on your property to provide your electricity, APS will be allowed to take the credit. This provision allows public utilities to own and operate solar and other energy tax credit facilities and include them in their rate base for rate-making purposes.

Research and development credit
The bill extends the research and development tax credit through the end of 2009, increases the alternative simplified research credit from 12 percent to 14 percent for the 2009 tax year, and repeals the alternative incremental research credit for the 2009 tax year.

Given the current economic conditions, this retroactive extension potentially creates both cash benefits and earnings-per-share benefits. Businesses will need to consider the financial statement effect of the research credit now available for 2008, as well as the effect of the retroactive extension on their estimated tax payments for the 2008 tax year. Fiscal-year taxpayers who have already filed their 2007 tax year returns should consider filing amended returns to claim research credits for the period for which the credit had expired. In light of increasing IRS scrutiny, consider your approach and your documentation for the research credits you take. This retroactive extension also provides the opportunity to consider a pre-filing agreement with the IRS for the research credit for the 2008 tax year and beyond.

Alternative minimum tax (AMT)
The AMT is a separately computed tax that eliminates many deductions and credits that are allowed in computing regular tax liability for individuals, estates and trusts. In recent years, Congress has repeatedly enacted a temporary “patch” that significantly raised the applicable AMT exemption amounts. The AMT exemption amounts are phased out for higher-income taxpayers.

The AMT patch for 2008, without which more than 20 million taxpayers would have been hit with AMT liability early next year when filing their 2008 returns, was included in the financial rescue legislation. The legislation also increases the AMT refundable credit amount for individuals with long-term unused credits for prior year minimum tax liability, eliminates the income phase-out, and abates any underpayment of tax (including interest) outstanding on Oct. 3 related to AMT that was generated from the exercise of incentive stock options.

Changing tax law, increased IRS audits and the direct negative ramifications that follow from financial statement restatements mean that achieving certainty in tax positions is more important than ever. Many taxpayers are planning upfront and substantiating all their positions. As companies experience flat or negative results, tax considerations become more important to the bottom line. Tax departments are being asked to find efficient ways to maximize cash and strengthen balance sheets. The new legislation can benefit businesses in this challenging time.

Wayne Hoeing is a partner with Ernst & Young LLP in the firm’s Phoenix office.