Faced with an operating deficit of $3 million to $4 million in the United States, State of Israel Bonds unexpectedly slashed its workforce Monday by 20 percent and closed its Long Island office along with two others, the largest cutback in its history.
Although the organization said sales would not be hurt, a source familiar with the Long Island operation insisted it would have a "major impact."
"Many people come to the office to buy bonds, especially the elderly," said the source, who asked to remain anonymous. "I don’t see them getting on a train to go to the New York office or adapting to the new format of picking up the phone. That group will be alienated."
The Long Island office, which opened more than 30 years ago and is now based in Woodbury, sells about $25 million to $30 million in Israel Bonds annually: among the most of any region in the state, the source noted.
Of the six people in the office, four have been laid off: three clerical workers and a sales representative. Two other sales representatives have been offered jobs in the Manhattan headquarters at 575 Lexington Ave.
The layoffs and office consolidations (the other offices being closed are in Columbus, Ohio, and Indianapolis, Ind., reducing the number to 19) are designed to close the organization’s budget deficit. Shortfalls in the past had been paid by the Israeli government.
The deficit stems from pension payments, health-care costs and mandatory annual salary increases for the staff, which has been reduced to 180, according to Joshua Matza, president and CEO of Israel Bonds.
"We have been having a series of reorganizations and retrenchments over the years, but this is the first on a massive scale," said a source familiar with the group’s operation. "We can’t keep going to the government to help us meet the shortfalls, so we had to bite the bullet."
Matza pointed out that some companies in the United States have filed for bankruptcy because they were unable to meet their pension and health-care expenses.
"With these steps I am taking, we will be strong enough to sell Israel Bonds and continue to pass the [sales] targets Israel needs for the U.S.," he said.
Israel Bonds, which has an operating budget of about $30 million, once had 120 offices in the United States, Matza said. He said he is taking "these severe steps to cure this organization for the coming years."
The cutbacks announced Monday should eliminate the necessity of further cutbacks for the next five to seven years, Matza said.
Matza said also that Israeli officials have told him that Israel will continue to view Bonds as the "cornerstone of the country’s efforts to raise foreign capital and provide funds for critical infrastructure and development projects."
He said the Foreign Ministry has told him that beginning in 2009, "Bonds will be asked to account for 50 percent of Israel’s foreign capital needs." Until then, Israel would rely on American loan guarantees of $10 billion.
Matza said he has been asked to sell $1 billion in bonds in 2006, the same amount as this year. This compares with $1.25 billion last year, $1.5 billion in 2003 and $1.2 billion in 2002.
Although the American loan guarantees allow Israel to borrow at the best rate, Matza said Israel Bonds can raise money at a lower cost than Israel is able to get in the international markets. And he noted that as Israel moves ahead with privatization, "a lot of foreign currency is coming to Israel."
"Investors are investing in Israel, the economy is strong and the need is less for foreign currency," he said. "But [the government of Israel] always looks to Israel Bonds as the umbrella [for cover] on days that are a little bit tough."