What does the economic downturn mean for Middlebury?
A declining stock market has reduced the level of support the operating budget receives from the endowment, and a prolonged economic slowdown will also have a meaningful impact on charitable giving to the College. Thus, two of the College’s three main sources of revenue are likely to decline and fall short of the targets we had set in our multi-year financial model. The third major source of revenue, the comprehensive fee, cannot be increased to the level necessary to cover our expected revenue shortfalls.
How is the College dealing with the downturn?
As the president's recent memorandum noted, we have instituted a hiring freeze, will reduce travel significantly, limit the work of consultants and contractors, and slow the pace of implementing recommendations from the strategic plan. We will continue to look at ways of reducing expenditures across the institution. Vice presidents and senior managers are examining their operating budgets. The president will engage faculty and staff councils and SGA in discussions, and a campus-wide committee will make recommendations on how we might best reduce spending. We are also looking to the larger community for ideas and suggestions. In the past, some of the best ideas on how to realize savings have come from individual faculty, staff, and students. The College will also cut back on construction projects. New projects will need to be fully funded by donors and must include additional gifts to endowment so the maintenance and operations of the new structure will not have a negative financial impact on our operating budget. Similarly, renovation projects will need to be fully funded, either by donors or through the College’s existing maintenance and renovation reserves.
How does one determine if a job title is considered essential in terms of the temporary hiring freeze?
All jobs at Middlebury are important. But in challenging financial times some positions are critical to fulfill our mission as an educational enterprise. The Staff Resource Committee will review all positions currently open, and recommend to the president which need to be filled immediately, and which can be put on hold for the time being. Faculty positions will be filled in order to meet our existing student-to-faculty ratio of 9:1.
How will the reduction in travel be carried out?
Our overall goal for Middlebury is to reduce travel costs by at least 20 percent across the College. We hope that individuals will consider whether travel is necessary to achieve a particular project or task, or if a web conference or video meeting could suffice. We realize there are those who must travel to do their work, but we recommend that those who do a lot of traveling (e.g., admissions and development staff) combine trips or reduce the overall number of visits from their original plans. Each case should be considered first by the individual and then in consultation with his or her supervisor.
Are there areas where funding will not be cut?
Some areas will be protected longer than others. Financial aid is one such area. As our current policy states, which dates back to a Board of Trustees resolution in 1997, the College is committed to maintaining our need-blind financial aid program and meeting the full demonstrated need of our admitted students, resources permitting. Financial aid, and the socioeconomic diversity it brings to campus, is also cited as the number one priority in our strategic plan, and so we will do our best to retain our financial aid program through the current financial downturn and budget cuts. We remain committed to continuing a competitive compensation program for faculty and staff based on performance, and we are committed to investing in programs recommended in our strategic plan that are intended to strengthen us in the future. And we are committed to the additional faculty positions recommended in the strategic plan in order to ensure the kind of close student-faculty collaboration and mentoring that is the hallmark of a Middlebury education. At the same time, because of the expected decline in revenues over the next few years, the pace by which we will implement some recommendations in the strategic plan will need to be slower than originally planned.
Will there be layoffs?
At this time, any reductions in staffing will happen through normal employee attrition. The College has a very clear policy on how we go about a reduction in force (RIF), outlined in the handbook. The policy describes a comprehensive process that includes discussion, investigation of alternatives, and redeployment of staff if we were to pursue a reduction in force. This option is among the last we would pursue.
Does the College set aside resources in a reserves account to provide flexibility in a downturn?
Yes. The College has been using reserves for the past seven years to help bring our endowment spend rate down to the board-established 5 percent ceiling. We anticipate a challenging year ahead, and we expect we will again use reserves to help bridge the gap between our economic projections and the financial resources we have in hand. However, the reserves alone will not be enough to address our financial shortfall in the longer term.
I understand that the College has a nearly $1 billion endowment. Why don’t we simply take more money from the endowment to solve our financial issues?
While our endowment hovered around that mark earlier this year, it is currently closer to $900 million as a result of the recent declining stock market. In order to ensure significant and equitable resources for future generations of Middlebury students, we must preserve the purchasing power of the endowment and set a limit on spending from the endowment each year. Normally, the boards of trustees of colleges and universities set a ceiling of 5 percent spending from the endowment each year to supplement an institution’s annual budget. In 2001-2002, the Middlebury board allowed the endowment spend rate to increase beyond the 5 percent limit for a period of seven years, rising to a high of 7.1 percent, to finance the building projects that were then under way or were recently completed (Ross Commons, Atwater Commons, Bi-Hall, the new library, athletic facilities). We have worked diligently since that time to bring the spend rate back down to the 5 percent level this fiscal year. Spending more than 5 percent of the endowment now when investment returns are at their lowest point in many years would jeopardize the College’s long-term financial viability. The option to raise spending from the endowment above the 5 percent ceiling once again represents a lever of last resort, taken only after measures to control costs have proven to be insufficient to balance our budget.
Does the endowment performance reflect poor investment management?
No, the endowment performance has compared favorably to our benchmarks and to the endowment performance of our peers over the past three years. Last year our endowment was down less than 1 percent; the prior year our endowment return was 22 percent.
What was the impact of Middlebury’s investment in the Commonfund?
Middlebury is one of some 900 colleges and universities that invested cash in the Commonfund Short Term Fund. The fund manages almost $10 billion. Schools use the fund for short term investments of cash, such as fall and spring semester tuition payments. On September 29, Wachovia Bank resigned as the fund’s trustee and terminated the fund. Cash from the fund will be distributed in an equitable and orderly fashion over the next 6-12 months. Fortunately, we have less than 1 percent of our endowment invested in the CommonFund (approximately $8 million). The College expects to receive full value plus interest once the orderly liquidation has been completed, and views the temporary delay in releasing assets as an inconvenience.