President updates campus community on response to current financial environment, February 2009
Feb. 10 memo outlines budget assumptions for the coming year
President Jake B. Schrum sent the following letter to all members of the Southwestern Community on Feb. 10, 2009:
To Members of the Southwestern Community:
This letter is to update you on how Southwestern is responding to the current financial environment.
In January, our Board of Trustees met with members of our newly appointed Commission on Planning and Action to begin the process of developing our next strategic plan. This meeting coincided with our immediate planning for the next budget year.
Both groups were briefed on our current situation at Southwestern and how we are preparing for next year, as well as assumptions we are using for future years. Our Trustees affirmed their high regard and their gratefulness for everyone in our community.
We told both groups about our strengths, which include a bright and dedicated faculty and staff, academically capable students, a sizeable endowment, and a beautiful campus. We also have a philosophy that emphasizes balanced budgets, models that are developed to cover five-year periods, conservative projections, and a strong risk management program.
We also told them about success we are experiencing in enrollment services. We have a record number of applications for the class of 2013 - running more than 580 ahead of last year at this time. With a smaller graduating class this May and the possibility of a large entering class this coming August, the additional tuition revenue will help with 2009-2010 financial challenges. We are encouraged by this and by results from the integrated marketing initiative begun three years ago.
Before the holidays and as recently as Monday, February 9th, the Senior Staff and I have met with the Budget Advisory Committee, which now includes both faculty and staff representatives. Prior to presenting financial assumptions and plans to the Board of Trustees, we shared highlights with the Committee, and we provided updates of actions taken by the Trustees at their January meeting. Going forward, we will continue to meet with the Committee, and I am announcing today how anyone will have an opportunity to meet with me and other members of the Senior Staff. We will meet with students, faculty, and staff at the following meetings:
- Student Forum - 11 a.m., Tuesday, Feb. 17th
- Faculty Meeting - 11 a.m., Tuesday, Feb. 24th
- Staff Affairs Council - 11 a.m., Friday, Feb. 27th
These meetings are open to all members of the respective constituent groups and we encourage you to attend. If other meetings are needed, we will work to schedule them.
Making the best assumptions we can, we will face serious financial challenges next year and in the coming years. Much of the stress on budget planning is from the projected decline in endowment income that is a direct result of the decline in investment markets. Southwestern’s endowment reached a peak value of $341 million in 2000. As of June 30, 2008, our endowment was at $284 million*. In recent weeks, as the economy has worsened, the value has been in the range of $220 million. As we reported last summer, our endowment is now invested in a much more diversified portfolio that should produce results consistent with other long-term pooled assets such as held by other college endowments and charitable foundations.
Because Southwestern uses a 20-quarter moving average of market values to determine the endowment income spending, the impact of the current market crisis is somewhat mitigated by the smoothing effect of the spending formula. But it also means these lower values will have a lingering effect over the next few years. At the peak, in fiscal 2002-2003, our annual endowment spending was about $18 million. In the current fiscal year, our endowment spending will be about $15.8 million. Over the next few years, the amount available could be closer to $11 million. Our endowment income change will be offset over the years with changes in enrollment income, cost and expense adjustments, and other changes.
We are also fortunate to have the generosity of Southwestern alumni, parents, and friends who make annual gifts. Annual giving has grown over 42 percent since 2000. What we do not know is how our donors will be affected by economic conditions going forward. The same is true for Thinking Ahead: The Southwestern Campaign, which has raised nearly $90 million in annual, capital, and endowment gifts to date. Already, the campaign has changed the face of the campus with new and renovated facilities, the addition of 18 tenure-track faculty positions, scholarships, and the Paideia Program.
As we have changed the tuition rate each year, we have made a commensurate adjustment in student financial assistance. Our goals and priorities remain to support the welfare of our students, faculty, and staff; to sustain the excellence of our academic program; to maintain the quality of student life; and to be true to our core purpose. Most importantly, there are no current plans for faculty or staff job reductions.
Below you will find a listing of the major budget assumptions we are using for the fiscal/academic 2009-2010 year:
- No “new” faculty or staff positions
- No salary increase for faculty and staff in September 2009 (except for raises that would come as part of the tenure and promotion process)
- Reduction of visiting full-time faculty expenses
- Continuation of the 9-month hiring freeze on staff vacancies
- Reduction of non-essential administrative travel expenses
- Significant reduction of holiday expenses - events, cards, etc.
- Tuition, room, and board cost increase of 6-7 percent
- Student enrollment of 1,265 students vs. 1,232 in 2008-2009
- Increase of student financial assistance awards in line with cost increases
- Reduction of academic and administrative department expenses by 5 percent and some other specific adjustments
- Initiatives in the Strategic Plan for 2010 will proceed only as they are funded by new gifts
At this point, it is too early to report on any changes that might be reflected in our health benefits program, but we will update you as soon as information on this becomes available later this year.
There are many ways for you to contribute to the conversations about the actions that will be necessary in the coming years. I will remind you of my desire to hear your ideas at the meetings in February. I also encourage you to convey your thoughts and suggestions directly to members of the Senior Staff or to me. If you wish, you can mark these “personal and confidential,” and I assure you the information will be held in confidence. I encourage you to share your ideas and assure you that each one will receive my consideration. Your thoughts and ideas are important to me.
In the coming months, the Commission on Planning and Action - which includes trustees, faculty, staff, student and alumni representatives - also will be seeking your input on our next strategic plan.
We enter these uncertain times with the knowledge that we must take prudent steps to care for our community now and to protect Southwestern for the long term. Thank you for everything that you do to make this the very special place that it is. I look forward to hearing from you and to discussing these and other matters with you.
Jake B. Schrum
*Our endowment as of June 30, 2008, was inadvertently omitted from a study conducted by the National Association of College and University Business Officers (NACUBO) that was published in the Feb. 6, 2009, issue of the Chronicle of Higher Education. If Southwestern had been included in the study, our endowment would have ranked 207th out of more than 4,000 institutions in the country. The most commonly reported information from the study is beginning and ending market values and the percentage change in the market value for the year. Our beginning market value, as of June 30, 2007, was $313,999,000. Our ending market value, as of June 30, 2008, was $284,272,000. The percentage change in market value for the year was -9.47%.