5 May 2009



TO:

SFAI Faculty Union



FROM:

Espi Sanjana, SFAI's Chief Operating Officer



RE:

Howard Bunsis’s April 18, Memo Posted on Campus Bulletin Boards



On May 4, 2009 a memo was posted on campus from an accountant retained

by the Union. This memo purports to challenge the characterization of

SFAI finances, particularly as it relates to the issue of financial

exigency and the liquidity problems faced by the school in summer

2009. By ignoring the worldwide financial situation and two important

facts -- (i) credit markets remain frozen and (ii) SFAI’s endowment

portfolio (which is collateral for SFAI’s line of credit) has fallen

significantly in value -- his arguments are not simply flawed but in

fact fundamentally erroneous and misleading.



We understand that Mr. Bunsis works for the union and do not expect

him to provide an impartial opinion.

SFAI is accountable to many external and impartial sources, all of

whom agree that for SFAI to survive, SFAI must dramatically reorder

its finances to address the new cash flow reality. This includes our

bondholders, accreditation agenc and others, all of whom agree that

SFAI is in financial exigency. All of them are working with SFAI to

help SFAI.



The Union has received the same information and continues to draw the

incorrect conclusion that SFAI is not in exigency. SFAI understands

that this incorrect conclusion is more suitable for the Union’s

purposes than the actual facts.



What follows is an address of the most egregious mistakes in this memo:



1 a. The memo states “The amount of total debt on 2/28/09 is actually

lower than on June 30, 2008.” Students have paid Spring 2009 tuition

in late January/early February and debt is always lower in February

after tuition has just been received by SFAI and debt has been repaid

by SFAI.



Availability of funds at February end or September end is never an

issue. At SFAI, like at other colleges, liquidity/solvency is an issue

during late December/early January and July and August. The accountant

should know this and not make comparisons which would lead to

misleading conclusions - like comparing February end when tuition for

a semester has just been received to June which, relative to February,

is a higher period of borrowings at most colleges on a semester

system.



1 b. The memo states on the first page that “SFAI administration has

claimed that new borrowing was done in August of 2008. This statement

is either false or incredibly misleading”.



The memo, however, proceeds to undermine its assertions by rightly

stating in Item 2 a. that “Subsequent to the year ending June 30,

2008, the Institute entered a bridge loan with a bank in the amount of

$650,000.” Isn’t August of 2008 subsequent to June 30, 2008? Isn’t a

bridge loan additional financing? Is the writer confused or is he

trying to mislead the readers of his memo?



1 c. On page 1 the memo states, “what the organization needs, and what

it has been able to do in the past and will be able to do in the

future, is simply borrow money to deal with an uneven inflow of cash.

The memo knowingly fails to state that the collateral for SFAI’s

borrowings is SFAI’s endowment portfolio which has fallen

significantly in value in Fall 2008. To repeat, the value of this

collateral fell significantly last fall and the bank would not permit

SFAI to borrow additional amounts. Hence, the furlough at last year

end.



This selective presentation of information leads to misleading

conclusions by persons not having all the facts.



2 a. The memo states that “The notes to the financial statements for

June 30, 2008 do not indicate that SFAI is having problems borrowing

money. The financial world has changed dramatically since June 2008.

It is widely understood throughout the world that a fundamental aspect

of the wider economic crisis is the lack of access to credit, for

individuals and for institutions. Banks are simply unwilling to assume

even the most minimal risks.

As a further example, our bank has just informed us that they are

reducing the loan to value ratio for SFAI’s borrowings from the bank

to 70% from 80% of the value of the endowment - SFAI borrowing

capacity has been further reduced by 10%. This puts SFAI further into

the hole – the financial exigency at SFAI deepens.



To sum it up, SFAI’s borrowing capacity is tied to the value of its

endowment portfolio. With the decline in the value of the portfolio,

SFAI’s access to credit remains severely limited. This is the most

critical item and the memo does not once mention this fact.



Espi Sanjana

Chief Operating Officer

San Francisco Art Institute

<This letter was sent to all students in response to the report done by Howard Bunsis regarding SFAI's claim to financial exigency.  No part has been altered or omitted.  Please feel free to contact the administrator of this page with any further questions or comments.>