College Tightens Alligator-Skin Belt in Throes of National Recession

Author: Andrea Gissing

In order to counter the effects of a national economic decline, which has affected all forms of businesses including educational institutions, the College has begun to revise its budget for the upcoming 2003-2004 fiscal year. President John McCardell outlined the College's financial plan in a letter that was sent to all faculty and staff and posted on the Middlebury College Web site Nov. 21.
The main reason for the budget revisions is because of the declining value of the endowment. In the present fiscal year's operating budget, endowment income comprises about 23 percent of the College's revenues. However, over the course of the next two years Middlebury will not be able to rely on the endowment as much as in the past decade. "Given the state of the economy," McCardell wrote, "we must be conservative in setting assumptions that guide us in our budget planning."
For many institutions, being conservative in financial planning includes drastic budget cuts and letting staff members go. This is not in Middlebury's forecast; McCardell asserted that in preparing the budget for the next fiscal year, vacant positions -- especially requests for new positions -- would be examined thoroughly, and filling vacancies would be postponed, when possible, in order to reduce expenditures. "As a result of these measures, layoffs are not, and will not be, part of our planning and budgeting for 2003-04."
McCardell also addressed the Library and Technology Center and Atwater Commons expansion projects in his letter. While it may seem counterintuitive to be pushing forward with new construction projects while the College is in a monetary slump, McCardell said that the cost of the construction does not take money out of the school's operating budget, as external loans have been taken out to cover the construction costs. The money for financing debt comes from a separate fund, made from a specific portion of endowment monies. The new library and the Atwater residence and dining hall will not start to affect the College's operating budget until they are finished in the fall of 2004. According to Philip Yauch, assistant treasurer and comptroller for the College, when that happens, based upon the financial model created to evaluate future costs, the effect on the operating budget will be approximately 1.3 percent.
Several steps are planned to minimize the impact of bringing the projects online. The College's fundraising efforts are strong, as strong as they were during the recently-completed capital campaign.
For example, a $10 million challenge has been extended to the College. If Middlebury raises $10 million, $40 million dollars in gifts will be donated to the school over the next two and a half years, (See "Fundraising Challenge," The Middlebury Campus, Oct. 16, 2002). Also, "there is every expectation that the endowment will, over the long run, maintain its historic rate of return and thus resume supporting the operating budget at levels that will enable us to pursue and achieve the College's major goals," wrote McCardell in his letter to the community.
"Historically our donors have supported us in good times and bad," Yauch said. "Sally Holland [vice president for college advancement] has an excellent staff. Our donors want us to continue to be a leader in higher education. Accordingly, I believe they will continue to help us meet the challenge."
At this point, the College is in a relatively secure position financially because, according to McCardell's statement, "funds prudently set aside in previous years, when excellent endowment returns generated funds that were higher than budgeted estimates," will provide needed relief in the upcoming years. McCardell noted in his letter that the Board of Trustees, recognizing Middlebury's "ambitions agenda" for the future, has granted that the degree to which the College relies on endowment income to support annual operations to exceed the normal spend rate of 5 percent to 7 percent for the next few years.
McCardell concluded his letter by saying, "We cannot compromise the future in order to get through a difficult present." This is why projects that were approved by the Board of Trustees in February will be continued. This is also why the degree to which the College relies on endowment income in any year cannot exceed a certain point.
Middlebury has faced budget challenges before, and while more conservative approaches might have been employed, this time, McCardell asserted, "we can overcome this latest economic downturn in a way that is less disruptive of our mission or our morale while maintaining the College's momentum. In order for this approach to work, everyone must help, all will bear some of the burden, so we can convey the message that quality remains high despite budgetary constraints, [which] depends on the efforts of all of us to think and speak positively as a unified College community."