November 30, 2009
The work of the Budget Advisory Task Force has now begun and I write to provide the community with an update on budget matters and an overview of the work plan for the Task Force in the months ahead. As I have reported previously, the impact of the economic recession remains a pressing issue as we must identify options for deficit reduction for the current fiscal year and beyond.
The Trustees have asked me to identify options for making significant cuts in annual operating budgets for the next few years. I have convened the Budget Advisory Task Force to enlist their assistance in providing advice on the pros, cons and probable consequences of the various recommendations for deficit reduction. I am grateful to the members of the faculty, staff, Trustees and students who have agreed to serve in this capacity. Their perspectives will be invaluable as we work to prepare budget options for the Board.
To date, the Task Force has met twice, and has received an extensive budget briefing and outline of the inter-relationships among institutional budgets, sources of revenue, size of endowment, admissions trends and financial aid. In the weeks ahead, the Task Force will consider the largest expense items in our budget: salaries and benefits; academic program; co-curricular programs, including student services and athletics; information technology; plant and auxiliary services, and offices providing general institutional support. Each of the constituencies represented in the Task Force are also charged with communicating back the progress of their work and seeking the advice and counsel of the HWS community on how best to address the challenges we face, and you will be hearing from them in the weeks and months to come.
Given the pressures in the current fiscal year from the greater-than-expected need for financial aid, measures to reduce the deficit need to take effect as soon as possible. I charged the Advisory Task Force to provide me with counsel on the steps that could be taken in the next 12 to 18 months to substantially reduce or eliminate projected deficits. We will be placing a priority on measures with immediate effects and those that are easily reversible once our nation’s and HWS’ economic circumstances improve. I noted to the Task Force that while all options must be on the table for consideration, we will also seek to minimize the impact of potential cuts on our students’ educational experience. In the long term, we must organize our revenues and expenditures for the financial equilibrium required for our success.
We have closed the books on the 08-09 fiscal year – and I am pleased that the deficit, originally projected to be $1.2 million, was substantially reduced to a $130k deficit with cutbacks and diligent oversight. Our current fiscal year 09-10 has the challenges of fewer than anticipated first year students and financial aid demands, resulting in a $2.25 million deficit. If we assume similar admissions and financial aid results as this year, our deficits grow to $4 million, $6 million and $6 million in each of the next three years. Clearly these deficits are not sustainable, and are far larger than the operative reserve, so we must take steps for both revenue enhancement and expense reduction.
Our work on deficit reduction will identify possible cuts based on the necessity to plan for the worst case scenario – which hopefully will not occur. Prudent management requires that we embark on this approach. Planning for cuts does not compel us to make every one of the cuts and we will closely and continuously monitor changes in the internal and external environment and adjust as indicated. By the end of January, I will prepare an initial report of our budget recommendations for the Winter Meeting of the Board of Trustees. At the Spring Board Meeting in April, we will bring forward our final budget recommendations for achieving the balanced budget mandated by the Trustees. While the budget has many complexities, there are four major drivers that shape our finances. First, is the student revenue comprising 78% of our budget. Last year’s 3.5% increase in tuition was the smallest in 44 years. Second, is the growth of financial aid. We had projected a 9% increase in financial aid and we needed a 14% increase. Third, is the loss of our endowment income. The economic turmoil has resulted in a 20% loss in our endowment which will impact our annual budget in the next two years due to the effects of our three year rolling average for endowment draws. Adding to the challenge is the New York State law which forbids non-profits from tapping endowment if their current value has fallen below the value at the time of the gift. Underwater accounts law requires us to subsidize various programs and scholarships from other sources. Finally, overall philanthropy to HWS has also been affected by the economy with declines in both the overall total of annual support and participation.
As you know, we are not alone in these challenges. All of higher education has felt the impact of the recession. We have been able to take advantage of other institutions’ approaches and seek counsel from them. At the same time, working in parallel, we are identifying initiatives to address other aspects of our overall financial health. These include an intensified admissions outreach, new financial aid strategies, the Campaign’s extension toward a $200 million goal for scholarships and the performing arts initiative, increased summer use of the campus, retention strategies and other initiatives. The strategic planning process, set to take place over the next calendar year, will also serve as a source of initiatives for a strengthened HWS in the future.
I am well aware of the significance and extent of the challenges that lie before us. However, I am also grateful for the engaged sense of responsibility with which the Budget Advisory Task Force members have approached their work. Hobart and William Smith Colleges have a proud history of navigating times of major economic and societal change and rising to the task. I am confident that we will honor our past and plan our future with equal diligence and care.
With every best wish, I am
Mark D. Gearan