JSSA Financial Picture Structural Deficit and Operating Loss for FY 17

March Financial analysis September 30, 2016: 3-month operating deficit of $217,447 December 31, 2016: 6-month operating surplus of $37,654 March 31, 2017: 9-month operating deficit of $385,666

Budget Actual QTD YTD DESCRIPTION 9/30/2016 12/31/2016 3/31/2017   QTD YTD DESCRIPTION 9/30/2016 12/31/2016 3/31/2017 REVENUE TOTAL OPERATING PHILANTHROPY SUPPORT 688,318 1,582,857 1,119,087 3,390,262 TOTAL SERVICE FEES 4,037,441 4,159,026 4,551,527 12,747,994 TOTAL PUBLIC SUPPORT AND OTHER REVENUE 1,398,630 1,402,915 1,411,488 4,213,033 TOTAL REVENUE $6,124,389 $7,144,798 $7,082,102 $20,351,289 EXPENSE TOTAL PERSONNEL COSTS 5,103,938 5,148,521 5,279,697 15,532,156 TOTAL OCCUPANCY 243,748 243,749 244,431 731,928 TOTAL OTPS 1,245,076 1,296,187 1,279,585 3,820,848 Depreciation 84,750 254,250 TOTAL EXPENSE $6,677,512 $6,773,207 $6,888,463 $20,339,182 TOTAL REVENUE OVER EXPENSE before pension ($553,123) $371,591 $193,639 $12,107 Budget Actual REVENUE TOTAL OPERATING PHILANTHROPY SUPPORT 576,163 1,608,135 966,043 3,150,341 TOTAL SERVICE FEES 4,096,247 3,825,522 3,987,608 11,909,377 TOTAL PUBLIC SUPPORT AND OTHER REVENUE 1,350,749 1,378,383 1,522,317 4,251,449 TOTAL REVENUE $6,023,159 $6,812,040 $6,475,968 $19,311,167 EXPENSE TOTAL PERSONNEL COSTS 4,707,293 5,018,743 5,240,205 14,966,241 TOTAL OCCUPANCY 234,151 234,553 296,098 764,802 TOTAL OTPS 1,214,146 1,221,009 1,283,941 3,719,096 Depreciation 85,015 82,630 79,046 246,691 TOTAL EXPENSE $6,240,605 $6,556,935 $6,899,290 $19,696,830 TOTAL REVENUE OVER EXPENSE before pension ($217,446) $255,105 ($423,322) ($385,663)

What changed? The first quarter was budgeted to be a loss. Actual was better than budget Hospice census exceeded targets Personnel expenses were lower than budget due to staff vacancies The remaining quarters have steadily increasing revenue targets (Service Fees) due primarily to the planned growth in Hospice. Actual was worse than budget Hospice census dropped below target and received a rate cut in the 2nd quarter Philanthropy, though exceeding the target in the 2nd quarter, is not expected to reach its annual target

Causes of FY 17 Operating Loss vs. Budget Underperforming Profitable Program Services (negative $442k variance) Hospice $328k negative variance through March Specialized employment $114k negative variance through March Philanthropy is behind budget by $150k, excluding timing of event revenue Loss Leaders are at or better than budget (not causing budget variance)

RECAP Program Groupings by Financial Performance before overhead allocation Breakeven or Better Hospice ($2M surplus) Specialized Employment (positive margins in a growing business) Near Breakeven, small losses Premier (thin margins, need scale and pricing power) Senior Services (mix of svc, financial performance varies, Holocaust Survivor largest) Loss Leaders, require the most use of agency philanthropy as % of budget Mental Health ($2M loss, restructuring and pursing new revenue options) Community Outreach ($500k loss, little fee potential, primarily Jewish audience)

What is a structural deficit? Definition: A deficit caused by a structural imbalance in expense vs revenue, not just due to a one-time event or a short-term issue.

JSSA’s Case – Structural Deficit IF we remove hospice profits, philanthropy and endowment spending (which are all resources allocated at the discretion of the agency), THEN our remaining service and overhead costs are $9M more than the revenue they earn. This has been a long-term issue, sometimes masked by the Hospice program’s stellar growth and profitability. A solution requires reducing deficits, improving profitability and making tough choices about what we will continue to deliver.

Year-End Forecast: Expanding Deficit $800k-1M Negative Factors: Hospice expected to continue to underperform by $100k monthly Philanthropy gap will continue to grow through year end ($100-200k) April productivity hit across multiple programs (holidays) Positive Factors: Specialized Employment and Premier: stabilized and trending positive Hospice: recent increase in referrals outpacing discharges

FAQs Q: Is this a new problem? Have we returned to the financial problems of a few years ago? A: This is not a new problem, but the approach is different. The agency has had the problem of a structural deficit for years but there is a different strategy now to address the problem with strategic investments in growth versus exacerbating the problem with a starvation cycle Q: Why don’t we reduce costs in the profitable programs that are lagging? A: Investing in our “profitable” services still makes long-term sense Q: Why can’t we scale back expenditures on loss-leaders to close gap? A: We are restructuring in these areas to improve efficiencies and reduce deficits; but we are doing so in a way that preserves service which is slower and more complex. Remember these are the areas that serve the most people.

FAQs Q: Why wasn’t this problem evident the last couple of years? A: Hospice growth and profitability mitigated the problem, but we were taking steps to address the underlying structural deficit and competitive disadvantage. Q: Does this mean that next year’s budget will be equally challenging? A: YES and probably more so. The answer to a structural deficit is not a quick fix. We are changing structure and business models, which will take time. Additionally, we need to make infrastructure investments to make us competitive that will add costs without new immediate revenue relief.