Report of the Treasurer: For the Year Ended December 31, 2023 (2024)

Treasurer’s Statement

To the Council of the National Academy of Sciences:

This Report of the Treasurer of the National Academy of Sciences presents the financial position and results of operations as well as a review of the endowment and other long-term investments portfolio activities of our Academy for the year ended December 31, 2023.

Overview

The income that supports the activities of the Academy comes from two major sources: program revenue received from government and other sponsors to pay for the large number of studies and other activities undertaken each year by the National Academies of Sciences, Engineering, and Medicine (the Academies), and a much smaller sum that we withdraw from our own NAS endowment under the endowment spending policies adopted by the Council. In addition, NAS unrestricted revenue generated from membership dues and annual giving from members is utilized to provide partial support for activities of the Academy.

With respect to amounts withdrawn annually from the NAS endowment, a good number of restricted fund accounts support specific programs and awards, while a much smaller number of fund accounts provide unrestricted support for our mission. In today’s challenging environment, unrestricted funds are particularly important, allowing the Academies to respond quickly to unexpected events. The General Funds section below describes the annual unrestricted spending.

During 2023, the Academies continued to see strong programmatic growth and exceeded 2019 program revenue for the first time since the COVID pandemic began. The Academies continues to refine its implementation of our hybrid work model, along with improvement in hosting hybrid Committee meetings.

The 2023 program level increased significantly from the prior year due to growth in direct staffing and a sizable increase in travel and meetings costs, as more in-person meetings took place at a higher cost for each. Indirect costs grew from 2022 to 2023 to support the more robust program level with total indirect costs in line with the 2023 program plan.

NAS Highlights

Endowment and Other Long-term Investments Portfolio

As the chair of the NAS Investment Committee, I am responsible, along with the other committee members, for the prudent management of the NAS Endowment and Other Long-Term Investments Pool. The goal of the endowment is to provide stable support for the Academy’s programs and activities over the long term. To achieve this goal, the Council, acting on the recommendation of the Investment Committee, has historically authorized spending from the portfolio at a rate designed to maintain the purchasing power of the endowment over time. The current spending rule caps annual spending at 5% of the trailing 12-quarter average market value of the portfolio. The Council limited spending to 4.0% from 2009 through 2013, increased spending to 4.25% in 2014, increased it again to 4.5% from 2015 through 2020, and decreased it to 4.0% for 2021 through 2023.

The market value of the portfolio increased net of withdrawals and new contributions from $641.9 million at January 1, 2023 to $697.7 million at December 31, 2023.

• Included in the $697.7 million total market value of the portfolio at December 31, 2023, are $130.3 million for the National Academy of Medicine (NAM), and $13.2 million for The National Academies’ Corporation (TNAC). TNAC, which is equally owned by the NAS and the National Academy of Engineering Fund (NAEF), owns and operates the Beckman Center (see note 14 to the financial statements on page 68).
• Withdrawals of $15.8 million were made to fund the Presidents’ Committee program activities, NAS General Fund’s activity, and NAS prizes and awards for the current period. Additional withdrawals of $4.2 million were made to fund NAM and TNAC activity.

The approximate asset allocation of the portfolio as of December 31, 2023 was as follows:

The portfolio had a gain of 10.5% for the year, which is 6.9% less than the reference portfolio’s (defined as a 75% equity, 25% fixed income passive portfolio) gain of 17.4%. The Endowment and Other Long-Term Investments Pool underperformed its reference portfolio primarily due to weaker relative performances by quantitative hedge funds, private equity, and venture funds. By comparison, these fund types outperformed the reference portfolio for 2022, a year in which the market had overall losses. It should be noted that the reference portfolio is a “reference” and not a “benchmark” that we wish to achieve: its historical volatility is generally higher than we wish to accept, even at the cost of our foregoing some excess returns in “up” years.

The return and volatility percentages for the portfolio as of December 31, 2023, as compared to the reference portfolio were as follows:

NAS Indirect and General Funds Budget

The NAS General Funds Budget, which provides unrestricted resources to support the activities of the Academy, receives its funding from the unrestricted portion of the NAS endowment. As noted above, the Council has limited spending from the endowment in past years, including the unrestricted portion, approving a spending rate of 4.0% in 2023.

For 2023, funding for the General Funds Budget totaled $10.9 million and expenditures totaled $10.4 million, resulting in a surplus of approximately $0.5 million. The surplus is primarily due to timing of technology costs associated with NAS’ web migration along with staffing vacancies in the Development Office.

The 2023 NAS Indirect and General Funds activity is summarized as follows (in thousands):

Any surplus in the General Funds Budget at the end of the year is added to the NAS Reserve; similarly, deficits are funded from the Reserve, which is invested in the Endowment and Other Long-Term Investments Pool. The Reserve had a market value of $7.7 million on December 31, 2023, to which the 2023 surplus will be added. The Academy’s goal is to maintain a reserve balance equal to approximately one year’s annual draw from the NAS general funds. As the balance in the NAS Reserve had grown beyond that amount, in early 2024 the NAS Council approved reallocating $2.0 million from the NAS Reserve to the NAS General Endowment. This will increase the annual draw on the NAS General Endowment to support Academy operations.

The NAS Council has approved a General Funds Budget of $7.4 million for 2024, which is based on the approved spending rate of 4.0%. The Council kept the endowment spending rate at 4.0% to support the long-term health of the endowment and provide good stewardship of the NAS endowment resources.

In August 2023, the NAS sold its property located in Woods Hole, MA. The NAS Council will decide how the sale proceeds in the amount of $12.7M will be used in furtherance of the NAS mission.

Prizes and Awards

Several award funds have existed for more than 100 years, while others were established more recently. The Home Secretary oversees the nomination process that selects award recipients and recommends to the Council (subject to legal and financial review) changes in the award cycle, amounts of the honoraria, and any other administrative changes.

Journal Publications

The Proceedings of the National Academy of Sciences (PNAS) is an integral part of the membership activities of the Academy, and as such, the revenue and expense totals shown below (in thousands) are part of the overall financial results of the total membership activities and the financial structure of the institution as a whole.

*Includes variable payment for general and administrative services in accordance with the institution’s government compliant cost accounting practices.

PNAS Nexus is a broad-scope, multidisciplinary open access journal whose editorial board comprises members of the NAS, NAE, and NAM. It is published in partnership with Oxford University Press (OUP), which performs (at no cost to NAS) publishing services for the journal, including the production of accepted articles, online hosting, collection of article processing charges, and institutional marketing and licensing. NAS receives income from OUP through royalties, with additional payments to subsidize editorial honoraria and certain other expenses related to journal operations.

Facilities

NAS owns the following facilities:

• Keck Center of the National Academies at 500 Fifth St., NW in Washington, D.C.
• National Academy of Sciences Building at 2101 Constitution Ave., NW in Washington, D.C.
• Arnold and Mabel Beckman Center at 100 Academy in Irvine, California (jointly owned with NAEF through TNAC).

The J. Erik Jonsson Center of the National Academies in Woods Hole, Massachusetts was sold during 2023. NAS leases a facility in Vienna, Virginia for the National Academies Data Center.

Development Office Programs

The Development Office is supported by all three academies and operates for the benefit of all NASEM programs. Note that the National Academy of Engineering Fund (NAEF) is a separately incorporated tax-exempt organization established by NAE to raise funds to support its goals. Generous support from members, friends, and partner organizations help the National Academies address critical issues on behalf of the nation. Private support enables the National Academies to carry out its mission and brings us closer to achieving our vision of a nation and a world that rely on scientific evidence to make decisions that benefit humanity. Highlights from 2023 include:

• The National Academy of Sciences (NAS) members donated $2.7 million in total support for the NAS. Of that total, $718,000 came through as unrestricted support to the NAS Annual Fund, with 24% of NAS members making at least one donation to any fund at the National Academies in 2023.
• The NAS Council reached 100% giving participation for the seventh consecutive year.
• An additional $3.2 million was raised for the Safe Passage Fund that was established in 2022 to help Ukrainian scholars and their families who are being forced to flee Ukraine because of the Russian invasion. These efforts are taking place through the Scientists and Engineers in Exile or Displaced (SEED) program, which was launched in August 2021, after the fall of Kabul and the resulting escape of large numbers of Afghan scientists and engineers. As of December 31, 2023, over $11 million has been raised for the Safe Passage Fund and related activities, including $312,000 from over 400 individual members and friends.
• The National Academy of Medicine (NAM) members and friends donated over $1.4 million to the National Academies in 2023. Of that total, $678,000 came through as unrestricted support to the NAM Annual Fund, with 33% of NAM members making at least one donation to any fund at the National Academies in 2023.
• The National Academy of Medicine (NAM) closed out its campaign that it began in 2021, surpassing the $100 million campaign goal, and raising over $128.8 million.
• Twenty-four NAS members and twenty-six NAM members joined lifetime giving societies in 2023.
• Climate Crossroads held its official launch in July of 2023. It is a major initiative that will harness the full complement of expertise and skills across the National Academies to catalyze actions to meet the unprecedented challenges and opportunities of climate change. Climate Crossroads is partnering with existing divisions, boards, and other units with a goal to enhance cross-Academies strategy and coordination, program development and fundraising, communications and engagement, and collaboration. In 2023, over $1.6M was raised.

We are deeply grateful for this philanthropic support. Every donation helps the National Academies provide independent, trustworthy advice, and facilitate solutions to complex challenges by mobilizing expertise, practice, and knowledge in science, engineering, and medicine.

NRC Highlights

NRC program activities are often referred to as “NASEM” (National Academies of Sciences, Engineering, and Medicine) activities, reflecting the high degree of cooperation among the three academies and the formal representation of all three on the NRC Governing Board. The NAS Council, however, is the legal fiduciary for all NRC activity.

Overall, the NRC program level increased approximately 8.3% from 2022 to 2023, after an increase of 10% from 2021 to 2022. The 2023 increase is due to a 10.8% increase in direct labor costs from 2022 to 2023 as staffing levels increased, as well as a further increase in the levels of travel and in-person meetings.

Over the last few years, the share of the NRC program sponsored by public sources, both federal and nonfederal, has declined below 70%, and the share sponsored by private sources, both external and endowment funds from the Academies, has grown above 30%. In 2023, total privately sponsored revenue grew by 24%, due mostly to the growth of the Gulf Program, while federal sponsor revenue increased by 1% from 2022. It remains important for the future of the institution that we continue vigorous efforts to diversify its sources of income, noting that the long-term trend of federal funding (relative to total program) is downward.

U.S. Government Contracts and Grants

One main source of funding for NRC activities is U.S. government contracts and grants. These activities are conducted in response to requests from a broad range of U.S. government agencies and are primarily funded through cost-reimbursable non-fee contracts and grants.

NAS recognizes revenue on federal contracts and grants as recoverable costs are incurred. Accordingly, revenues will be equal to expenses in each year. The total amount of revenue from contracts and grants with U.S. government agencies in the year ended December 31, 2023, was $200.6 million (see following chart and the Statements of Activities on page 45) and in the year ended December 31, 2022, was $195.4 million.

Private/Nonfederal Contracts and Grants

The other main source of funding for NRC activities is private/nonfederal contracts and grants. NAS recognizes revenue on private contracts and grants either as recoverable costs are incurred or at the time the contract or grant is awarded, depending on the nature of the agreement. If revenue is recognized at the time the contract or grant is awarded, the net assets associated with that award are released from restriction as the costs are incurred. Accordingly, private/nonfederal funding (private contracts and grants revenue plus the net assets released from restriction) will be equal to private/nonfederal expenses in each year. Private sponsors provided for new initiatives and co-sponsored government projects by funding activities (accounted for as programmatic and related indirect expenditures) in the amount of $134.8 million in 2023, compared with $115.6 million in 2022. (See Statements of Activities on page 45.)

The Gulf Research Program started in 2013 and, over its mandated 30-year duration, will work to enhance oil system safety and the protection of human health and the environment in the Gulf of Mexico and other U.S. outer continental shelf areas by seeking to improve understanding of the region’s interconnecting human, environmental, and energy systems and fostering application of these insights to benefit Gulf communities, ecosystems, and the nation. The NAS Investment Committee oversees the investment of the (initially) $500 million in funds for the program (with some government-specified restrictions on type of investment), while the NAS Council oversees the strategic direction of the program. Investment earnings are required to be spent on furthering the program goals, while investment losses reduce the ultimate program funds accordingly. The market value of the Gulf Research Fund investment was $467.6 million at December 31, 2023. The Gulf Research Program spent $45.3 million and $40.8 million in 2023 and 2022, respectively. This increase in programmatic activity included a large increase in both direct program activity and flow-through payments to grantees.

Indirect Expenses

As in many universities and nonprofit institutions, indirect cost expenditures provide necessary support services and must be kept in reasonable proportion to program expenditures. Historically, NRC management has maintained a relatively constant relationship between program and support costs, i.e., the growth rate of indirect costs has been approximately equal to the growth rate of direct costs. In 2023, indirect expenses totaled $90.9 million, 8.3% more than 2022 and 0.4% less than the original 2023 budget. The increase in indirect spending included a number of investments in furtherance of the NRC strategic plan and other high priority initiatives. Investments in the NRC strategic plan included further development of the Office of Diversity and Inclusion and continued investments in technologies such as project management software and data governance. The high priority initiatives included investments in building operations, communications, and additional support for program and business services. For 2024, the indirect budget is set at $96.2 million, including continued investments in technology and related advancements. This level of 2024 indirect spending aligns with the projected 10% increase in program revenue for 2024.

Related Entities

Many financial transactions take place between the member organizations of the National Academies. The NRC serves as the clearinghouse for these transactions. However, it is important to note that only the financial activity and results of the NAS, NAE, NAM, and NRC are included in these financial statements. The financial activity and results of the National Academy of Engineering Fund (NAEF) and The National Academies’ Corporation (TNAC) are audited and reported separately. Financial information for the NAEF is available on request from the NAE Finance Office; information for TNAC is available from the NAS Controller’s Office. As noted above, TNAC, equally owned by the NAS and the National Academy of Engineering Fund (NAEF), owns and operates the Beckman Center in Irvine, California.

Conclusion

I thank the members of the Council, its Committee on Budget and Internal Affairs, the Investment Committee, and the Academies’ leadership for their continued involvement. Also, special thanks are extended to the members of the Office of the Chief Financial Officer, led by Ebun Johnson, our CFO, for their professionalism in managing Academy resources, providing steady oversight of the Academy’s various budgets, and paying careful attention to the Academy’s financial systems, records, and reports.

William H. Press
Treasurer