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President Glotzbach's Message on Finances and Planning
September 9, 2009
Following is the text of the message sent to faculty and staff today by President Philip A. Glotzbach.
As we begin a new academic year, I write to update you on our continuing efforts to manage the College's finances through the current economic situation and over the coming years. I plan to continue these communications on a periodic basis, much as we did this past year. My objective is to help everyone in our community understand the challenges we face and the steps we are taking to address those challenges. Last year we spoke of strategic literacy; this year we need to stress the complementary notion of financial literacy. This letter will be posted along with our previous communications on the "Economic Challenge" page of the Skidmore web site.
CONTINUING BUDGETARY PRESSURES
Despite hopeful signs of a coming economic recovery, the recession continues to place considerable pressure on our budgets, both for this year and into the foreseeable future. Though financial markets have begun to recover some of their losses and other indicators have begun to turn in positive directions – and we all hope these trends continue – the overall economic situation has not returned to where it was even a year ago. Nor can we expect it to do so anytime soon, either for our families or for the College.
The severe economic disruptions we experienced last year resulted from a "perfect storm" of economic forces that affected our families (of both current and prospective students), our donors, the College's investments, and our long-term prospects for increasing our comprehensive fee at the rates we have seen in the past. As a result, we were forced to revise the core assumptions underlying all of our budgetary projections for the next few years. To give you a sense of the magnitude of those changes, we have reduced our revenue projections for next year (FY '11) by 8% from our previous estimates of May 2008[1] – nearly $12.6 million overall. This change results from lowered projections in almost every area:- Endowment income – down $6.7 million (reflecting declining markets and gifts).
- Tuition income – down $3.4 million (lowered rates of increase).
- Short-term interest income – down $1.0 million (market changes and less invested funds).
- Annual Fund – down $1.2 million (effects of the economy on our donors).
These are only the most significant projected reductions, but they indicate the scale of the challenges we continue to face. Moreover, our budgets have been further stressed by a significantly increased demand for financial aid, which we estimate in FY '11 to be nearly $1.9 million (6%) greater than originally projected in May 2008.
We have been heartened by a steadying of the financial markets, and our endowment has begun to rebound – moving from a low of just under $220 million last February to an estimated $250 million at the end of July (according to the most recent data available). But even if our endowment continues to recover over the fall, it still will not be anywhere near where it had been in December 2007 (just under $300 million); nor, more importantly, will it be where we had projected it to be by FY '11 (over $340 million), when we initially modeled that budget year.[2] Furthermore, because we calculate the amount we withdraw from the endowment each year for our operating budget on a three-year weighted average, we will continue to feel the effects of this downturn for at least two more years.
In
the long run, however, the most significant factor limiting our capacity for
revenue growth will be our increasingly constrained ability to raise our
comprehensive fee – which represents more than 80% of our revenues in any given
year – at rates similar to those we have seen in the recent past. Our comprehensive fee of nearly $51,200 in FY
'10 already makes us one of the twenty most expensive colleges and universities
in the
Another telling indicator of the new economic environment in which we are operating is the rapid increase in demand for financial aid we experienced last year, from the families of both current and prospective students. We needed to add $3.3 million to our total financial aid budget for FY '10 (based on the approved budget of FY '09) to respond to those needs, and some of the 14% drop we saw in last year's applicant pool almost certainly can be attributed to the economy and concerns regarding our cost. Accordingly, we must anticipate that future increases in our price – no matter how much we restrain them – will result in more and more families deciding that they simply cannot afford to send their daughter or son to Skidmore. This is an issue that we must take up over the coming year, independent of our more focused budget discussions.
REVIEWING PAST ACTIONS
To meet the immediate economic challenges of last year, we took a number of steps to reduce costs and boost revenues. While these efforts have not eliminated the problem, they have moved us in the right direction. As a way of contextualizing the work that lies ahead, it may be helpful to review some of those key decisions:
- We made no general salary adjustments for FY '10.
- We continued the strategic hiring freeze that began last November and imposed significant restrictions on overtime.
- We reduced all non-academic services and supplies budgets by 10%, and reduced by 5% those directly supporting the delivery of the curriculum.
- We reduced travel, entertainment, and related expenses and strictly limited the use of outside consultants.
- We reduced capital expenditures, including funding for deferred maintenance and technology replacement.
- We placed a moratorium on all but a few carefully chosen strategic initiatives.
- And we deferred temporarily our planned reduction of the size of the student body to 2,280, thus holding our enrollment at its current level of 2,380 (NFE).[3]
I now can report that we have implemented a number of additional cost-saving suggestions received from across the College. Many of these ideas were submitted by community members as part of last year's "savings suggestions initiative," while others originated from task forces or other groups on campus. Actions taken so far – where appropriate, in consultation with the Institutional Policy and Planning Committee (IPPC) – include the following:
- We have reduced energy expenditures by, among other things, adopting new building temperature guidelines and installing light sensors.
- We have revised the College's Travel and Entertainment Policies to include a general prohibition on reimbursement for alcohol (exceptions are allowed only in special circumstances and with the prior approval of the appropriate Cabinet officer).
- We extended for this year the computer-replacement cycle from four to five years.
- We have shifted, as much as possible, from paper to the use of electronic mail and cut printing costs in several offices (e.g., reducing the number of printed Scope magazines annually from four to three).
- And we indefinitely suspended some high-cost campus-wide events (e.g., the JEJ day picnic and the January holiday party) while scaling back others.
One additional item that deserves particular mention is the decision reached this summer to close the Faculty Staff Club for noontime dining. This recommendation was made by the Case-Ladd Task Force in its report from last year, based on declining use of dining services in that location. Following consultation with the Cabinet and the IPPC, I have accepted this recommendation. No decisions have been made yet as to how that space will be used in the future (including the disposition of the Eric Weller Lounge); those deliberations will continue, with appropriate consultation, during the coming year.
I am pleased to report that these initiatives have made a difference. We were able to use a small surplus generated last year to fund the one-time bonus payment for most regular non-union employees earning $40,000 or less. A budget deficit that we had projected last winter at $1.4 million for FY '10 has now been eliminated. Furthermore, the carry-forward from our previous actions has reduced – though not eliminated – the projected deficit for FY '11 and beyond. As of today, we still anticipate a shortfall of approximately $4 million for FY '11, if we do not take additional steps. This projected deficit is less than what we had reported to you last spring. But, as outlined earlier, the presenting reasons for the deficit remain the same.
Despite our progress, it is important to acknowledge that although the steps we have taken over the past twelve months have allowed us to balance our current budget, they have not created what I would consider a sustainable budget. A sustainable budget is one that includes reasonable investments in compensation, program development, and capital renewals. Because we have been able to balance our current budgets only by reducing our investments in all three of those areas we must, I believe, establish a new financial framework within which such investments once again are possible. Doing so will require even more difficult choices than those we have already made.
ACTIONS TO COME
Last spring we outlined several additional measures that likely would be needed to close the projected gap of approximately $4 million in the FY '11 budget. Our preliminary planning included the following steps:
- no general salary increase for FY '11;
- additional reductions of 3% in services and supplies budgets;
- a continued strategic freeze on open positions and a reduction of part-time and temporary positions (which already is being felt across the College);
- continued strict limitations on the use of outside consultants; and
- additional reductions of $3.25 million in ongoing personnel or other costs.
The last of these is, of course, the most significant – both financially and in terms of its potential impact on the community. We anticipate achieving some of the reductions in personnel costs through the continuation of the strategic hiring freeze. Nevertheless, this alone will not be sufficient to attain our budgetary objective.
Therefore, I am announcing that, with the concurrence of the President's Cabinet and the IPPC, I have recommended to the Board of Trustees and the Board has approved a limited voluntary early retirement incentive program that will be open to eligible members of the faculty and non-union staff. Even with these steps, however, it is clear that an additional, non-voluntary reduction in force also will be necessary.
EARLY RETIREMENT INCENTIVE PROGRAM
Beginning tomorrow, we will launch a voluntary early retirement incentive program (ERIP) for members of the faculty and staff (support staff and administrative/professional staff) who meet certain criteria relating to age and time of service. Later today, Barbara Beck, Associate Vice President for Finance & Administration and Director of Human Resources, will send an e-mail to all faculty and staff members formally announcing the ERIP and providing program details. Eligible non-union employees will receive an additional letter and financial packet providing detailed information on the program. Although we risk losing valued employees and considerable institutional memory by offering this option, we believe that doing so will give some members of the faculty and staff additional flexibility in planning their retirements. It also will achieve a limited number of necessary position reductions through voluntary means.
Reduction In Force
With the support of the Board of Trustees and in consultation with IPPC, the President's Cabinet has begun the difficult process of identifying work and services that the College will need to reduce or eliminate in order to effect further reductions in continuing costs within the budget. This process will proceed over the fall and winter, as Cabinet members review all proposals to eliminate work and services and consider the implications of such proposed changes. After the Cabinet and I have determined what work and services will be reduced or eliminated, and after updating our planning projections and long-term financial outlook, early next spring we will inform those employees whose positions will be eliminated.
The elimination of work, services, and positions will be carried out in accordance with the College's Reduction in Force Policy or, where applicable, with bargaining unit contracts. Employees whose positions are eliminated will be given appropriate notice, outplacement services, and consideration for any subsequent posted vacancies. Eligible employees also will receive severance compensation based on their length of service to the College. Additional information may be found here.
The loss of co-workers and friends through either of these processes will be difficult for our community to bear. We will feel their absence deeply and sorely miss their contributions. Recognizing this reality, I want to assure the community that the Cabinet and I will make these decisions thoughtfully and deliberately. That is why it will take us the better part of the coming year to complete and implement this planning. We will continue to consult with IPPC throughout the fall and into the winter on the best ways to achieve our goals, and I will keep the College community informed regarding further developments.
MOVING FORWARD
Though painful in the extreme, the economic disruptions of the past year and the steps required to deal with them serve as powerful reminders of our need to
- reaffirm our central educational mission and the priorities articulated in our Strategic Plan and to understand the contribution that each of us makes to that mission – the value we add to the College and, above all, to our students;
- direct our efforts toward identifying efficiencies in the use of our time, energy, and financial resources wherever we can find them; and
- do all in our power to make the case for the value of a Skidmore education to an increasingly skeptical public.
As noted above, even as the economy recovers over time, we will face significant ongoing financial challenges and, above all, higher levels of competition for the students who can take best advantage of our curricular and co-curricular offerings. In this environment, we must do all we can within our available resources to
- restrain the escalation of our comprehensive fee,
- continue to increase the financial aid we make available to our families, and above all
- continue to enhance the real and perceived value of a Skidmore education.
We must reposition the College's budget on a revised foundation that again permits us to invest appropriately in our people, programs, and physical plant (including technology). We also must accelerate our efforts at assessment – both to improve our performance and to demonstrate the value of a Skidmore education in all its complexity. Most important of all, however, will be our continuing commitment to the College's fundamental mission of making available to our students the best possible educational opportunities.
Over the coming months, I will return to these themes as we explore their implications for virtually every area of the College's operations. Soon we will have available this year's "Strategic Action Agenda," the fifth in a series of documents guiding our implementation of the Strategic Plan. The preamble to this year's document will discuss in more detail both the challenges we face over the coming years and actions we collectively need to take to move the College forward to achieve our strategic objectives – even in these difficult times.
For now, let me thank you for your careful attention to the important information in this message and, most importantly, for your ongoing commitment to Skidmore College.
[1] Note that the original projections – made in May 2008 for the fiscal year ending May 31, 2011 – looked forward three years. In the interim, we have developed a much clearer and more detailed picture of the FY '11 budget situation, factoring in especially the economic downturn that took place subsequent to those initial projections.
[2] Although the stock market has seen significant improvement over the last several months with the greatest percentage gains in market history for the quarter ended June 30th (e.g., S&P 500 up 15.9%), for the year markets still were down overall: for example, 26.2% for the S&P 500 and 29.5% for the MSCI World index. Skidmore's investment performance for the year ended June 30th was down 17.3%, a relatively strong performance compared to similarly invested funds.
[3] NFE – "net financial equivalent" – represents a financial measure of enrollments, as opposed to headcount.
Tags: president, economic challenge
