College Faces Budget Concerns

As the Student Government Association (SGA) begins to discuss how to budget student organizations, namely club sports, it looks to the College for potential financial support; however, the College is confronted with its own short-term fiscal concerns and has started conversations to address where changes can be made in the budget in order to ensure long-term financial stability.

At the end of last semester the College held two open meetings to discuss financial stability. The meetings, held at the College and at the Middlebury Institute of International Studies at Monterey, were hosted by Vice President for Finance and Treasurer Patrick Norton and Provost Susan Baldridge. Over 450 members of the Middlebury community attended the meetings. “The overall message is that while Middlebury’s permanent condition and our long-term outlook are positive, we do have some short-term financial challenges,” Norton said.

Norton described Middlebury’s present situation as a “convergence of factors” which have led to current negative operating margins; a result of total operating expenses exceeding total operating revenues. In the fiscal year 2015 (FY2015), Middlebury experienced an operating margin of negative four percent. This year, the budget is expected to operate at a margin of negative five percent.

In FY2015, Middlebury’s operating expenses totaled $268,455,000 and financed the cost of salaries, wages and employee benefits; food, utilities and supplies (including books and periodicals); travel; debt payments; taxes, insurance and interest. Not included in operating expenses is the price of financial aid.

Total operating revenue, $258,820,000 in FY2015, is a culmination of tuition and other student fees, endowment returns and contributions in the form of donations. Over the past five years, revenue has been constrained by CPI+1, the College’s plan to cap increases in tuition at one percentage point above the annual increase in the Consumer Price Index. Although the program is no longer in place, it lowered revenue growth and affected the College’s budget.

Financial aid expenses have also increased by six percent annually from 2006 to 2015, a result of the College’s dedication to its policy of need-blind admissions.

Another major factor contributing to negative operating margins is a decline in the number of enrollments at the Middlebury Institute of International Studies at Monterey (MIIS) over the past three years. Although enrollments have stabilized at about 700 students, the College lost important tuition fees they count on for overall revenue.

Additionally, Middlebury’s growth as a College and a global liberal arts institution has introduced a number of new expenses and natural increases in operating costs.

Revenue sources have also been constrained by outside factors, namely volatile endowment returns over the past few years. Although the College’s endowment, $1,101,054,000 in FY2015, continues to grow, annual distribution of the endowment is determined by investment returns, which are not as stable. Endowment funds, managed and invested by Investure, are available to the College based on an annual distribution policy approved by the Middlebury College Board of Trustees.

The College aims to maintain a five percent return for the endowment but current spending is slightly over and therefore unsustainable for long-term budgeting practices.

Endowment investment policies can remain sustainable as long as the College works to restore a five percent return model. “Our investment philosophy is rooted in both long-term thinking and risk mitigation,” Norton said. “This approach has served us well. It has ensured that our endowment continues to grow and meets our spending needs for current students and faculty and future generations of students and faculty.”

This goal was one of many that Norton and Baldridge outlined at the meetings last fall. The College hopes to reach a positive three percent operating margin by 2019. To accomplish this, Norton and Baldridge  introduced a series of plans to re-evaluate undergraduate tuition, room and board prices; compensation costs; financial aid packages; non-salary operating costs; and how long-term debt is financed.

“We are confident that we can achieve the positive operating margins by addressing all the issues described above - and without dramatic changes in any one area,” Norton said.

The College has also resolved to increase enrollment at Monterey and at the College. Norton mentioned plans to introduce ten new undergraduate students per year until enrollment at the College reaches 2,490.

These potential changes are being discussed across various groups on campus including the Faculty Resources Committee, the ad hoc Budget Committee and the Resources Committee of the Board of Trustees. Furthermore, the College will host another round of open meetings this April.

Norton emphasized that changes will be implemented in accordance with the College’s core priorities: “continued focus on academic quality, access and affordability, among other things,” he said.

“We’re looking at every line item in our budget,” Norton said. “We have to figure out how to recycle the dollars we already have.”

The SGA, as it works to refinance its own budget, looks to the College to fill gaps. “There are a lot of things that we fund, especially larger ticket items that are either in partnership with the administration or which we are lobbying to be picked up by the College as opposed to us,” Aaron de Toldeo ’16, the SGA treasurer, said.

“That’s a complete process of negotiation and it’s a long-term process but we don’t feel comfortable even starting when parts of the College are having to reduce their budget,” he added. “Theres no surplus, it’s shortfall.”