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activities) totalled $262,086,000. This is $2,036,000 higher than the projection reported in September. Fiscal year 1987 Federal funds were in line with budget. The Institution returned to the Treasury an unobligated balance of $343,000, two-tenths of one per cent of its final 1987 appropriations totalling $188,874,000 for salaries and other expenses.

Net income from Auxiliary Activities was $1.4 million, or 5.5%, higher than previously projected. Increases were provided by [[underlined]] Smithsonian [[/underlined]] Magazine, Business Management Activities, and the Smithsonian Press. These more than offset additional losses of $295,000 incurred by the [[underlined]] Air and Space [[/underlined]] magazine. The General Unrestricted Trust Fund balance also benefitted from increases in other income categories. The increases to net income coupled with decreases in spending for both programmatic and administrative areas allowed the Institution to restore the General Unrestricted Trust Fund balance to $5.2 million a year earlier than planned and to establish needed reserves for 1988.

As proposed in writing to the Executive Committee, three reserves were set up in the process of closing out the Trust Funds for fiscal year 1987. First, an amount of $2.0 million was set aside at year end as a contingency for Quadrangle construction costs. This action was necessitated by the delay in the sale of the National Museum of African Art properties on Capitol Hill, proceeds from which are budgeted for the Quadrangle. The contract for the sale of these properties to the National Association for Home Care is contingent upon obtaining a zoning variance. Home Care has requested this variance and a decision is expected shortly. If the decision is affirmative, settlement should occur by March 31, 1988. Inquiries as to the status of the sale have been received from people still interested in purchasing the properties. Also Representative Louis Stokes of Ohio has written to the Secretary with respect to his interest in turning the properties into an Afro-American art museum. (See below, the report on Legislative Actions and Issues). Secondly, $1.5 million was added to the reserve for the construction of the National Air and Space Museum Restaurant. This reserve allows the Institution the flexibility of accelerating payment of construction and interest costs and, in so doing, freeing up future concession revenues for programmatic needs. And finally, $200,000 was set aside to complete the implementation and documentation of the first phase of the new Payroll/Personnel System which in fact was successfully implemented on November 5, 1987. Total costs for the project were roughly $1.3 million from both Trust and Federal resources. Additional costs were borne directly by individual offices assisting in the project. Advantages of the new system are increased consistency between Federal and Trust applications, the ability to make changes required by law, policy, and other dictates in a timely and efficient manner, a greater degree of accuracy and control, improved report generation, and improved access to payroll data.

After consulting with the staff and the independent auditors, the Executive Committee concluded that the establishment of these reserves was both necessary and prudent. Accordingly, it was