09/22/10: An Update on Finances, and a Look Ahead to a Busy Year
Address by President Ronald D. Liebowitz
McCullough Social Space, September 22, 2010
Thank you for coming today at a time I know is an extremely busy one for all of you.
It has now been two years since I sent my first memorandum to the College community about the global economic slowdown—that is what we called it then, as it was not yet recognized as a full-blown recession—and it's been about seven months since I provided my last detailed review of the College's financial circumstances in an address in Mead Chapel. Although there is still great concern over the health of the national and indeed the global economy, I am pleased to say that during the past two years, and I know it has seemed much longer, our College has made significant and truly remarkable progress in addressing what was likely to have been greater than a $30 million deficit by 2014 had we not instituted the changes and exercised the discipline we have since 2008.
I will go into some detail about those changes and where we are in terms of our financial health in a moment, but first I want to thank so many of you for our success to date in addressing what has been the most severe financial challenge the College has faced since World War II.
From vice presidents to middle managers to the newest members of the College's staff, so many individuals helped to make the steps we chose to take effective ones, despite, as I have said many times, the absence of any proven blueprint that might show us how to do what needed to be done.
This doesn't mean things were easy, or they were done with the kind of clarity one wishes for in anxiety-producing situations such as these, or that we would do things the same way we did them if we had to do them over again. But it does mean that many individuals were able to exercise the kind of leadership we needed to get us to where we are today—not fully out of the woods, but light years from where we were in March of 2009.
We are no longer thinking about layoffs, salary freezes, or major benefit cuts, but rather about finding the best ways to reconcile our ambitious institutional aspirations with our reduced financial capacity. For me, even though achieving such high aspirations with fewer resources will be a difficult and longer process than first envisioned, that challenge pales in comparison to what we achieved in bringing our expenditures in line with our revenues.
The highlights of the past two years' work, beginning with the Budget Oversight Committee's recommendations, and extending to work done in individual departments and on the Staff Resources Committee, include the following milestones.
- We recorded a budget surplus this past fiscal year (which ended June 30th). The surplus has gone toward our multiple-year payment for the Early Retirement and Voluntary Separation Programs and to cover the promotional raises that had been withheld the past two years.
- We show a balanced budget for the next five years, using the conservative revenue assumptions and financial model I had outlined in my February address. That model assumes more modest revenue growth from our comprehensive fee than in previous years by committing us to limiting our fee increases to no more than 100 basis points, or 1 percentage point, above the consumer price index; it assumes more modest revenue as a result of projecting smaller returns from the endowment than we expected in the past-we lowered the expected annual return from 9 percent to 5 percent (NOTE: over the past decade, our annualized rate of return was 6 percent); and we set our fundraising goals to reflect likely economic growth for the next five years, rather than simply increasing our goals by a set percentage each year.
- Our endowment rebounded this past year following a 17.7 percent return and is now valued at approximately $815 million. The near 18 percent return means our endowment has come slightly more than halfway back from its recession low of $649 million. While this is excellent news, the endowment, which represents the second greatest source of revenue for our operating budget, is still way behind where it once stood ($962 million) and where we thought it would be when the board of trustees approved our fiscal year 2009 budget and our multi-year financial model in May of 2008. In fact, since our previous financial model had assumed a 9 percent growth in the endowment each year, the gap between the value of what we expected our endowment to be today, and what it actually is as a result of two years of negative returns, is greater than $300 million. Since we allocate each year about 5 percent of the value of the endowment to the operating budget, the $300 million dollars missing from the endowment translates into having $15 million fewer dollars come into our annual budget than we had planned, and hence the large projected deficits.
- Yet, by increasing revenues, such as through record fundraising in our annual fund the past two years, and by increasing our budgeted enrollment by 50 students, combined with the discipline that many departments exercised in living within their budgets, and limiting replacement positions following the Early Retirement and Voluntary Separation programs, we have managed to operate within budget while preserving the institution's top four priorities: first, we avoided staff layoffs; second, we protected the academic program-we maintained our student-faculty ratio of 9-1 and continued to hire faculty into open positions from an incredibly talented pool of applicants; third, we retained our need-blind admissions policy for U.S. students; and fourth, we preserved the College's excellent benefits package for faculty and staff. Few peer institutions can make the same claims as these, including many that are far wealthier than Middlebury, but I only mention our peers to put our achievements into a broader context.
For sure the changes we have instituted have created stress, anxiety, and work overload for many staff, mostly due to the particular positions left vacant following the early retirement and voluntary separation programs. And the impact has not been distributed equally among College employees. We recognize this, and I want to extend a special thank you to Norm Cushman, Matthew Biette, and Tom Corbin for somehow continuing to provide us with a campus and physical plant that never looked finer and a meal plan at Proctor and Ross that is still the apple of our students' eye—no pun intended—despite the loss of so many positions in their respective areas.
But let's not fail to see what indeed has been accomplished, or claim the current stresses are something that came as a surprise. They certainly did not. I have said many times at open meetings that taking the more deliberate route to addressing our large structural budget deficit would prolong the uncertainty surrounding our responsibilities, but it was a conscious decision to choose the slower path, made with the knowledge that doing so meant avoiding the destabilizing and demoralizing impact of laying off at least 100 staff members.
We chose the slow and deliberate path—the one that gave our staff members the choice to retire or separate voluntarily, and gave the rest of us some much needed time to think through how we would best meet the College's mission with a smaller staff.
The Staff Resources Committee, led by Vice President Tim Spears and comprised of the College's five vice presidents, the dean of the College, the director of facilities, the president of staff council, and the associate vice president for human resources and organizational development, began work on this question more than 18 months ago. The SRC set out to assess the staffing levels across all non-academic departments in order to assist managers in either securing replacement positions to perform crucial tasks that became difficult to complete due to reduced staffing, or to work with managers to reprioritize their department's set of tasks so that, with fewer staff, the most important things would be done and the least important ones could be done less frequently or removed from a department's expected responsibilities. In addition, the SRC sought, and continues to seek, the possible consolidation of positions and/or small departments based on common work done in multiple offices on campus; the luxury of having staff in more than one department doing similar kinds of work can no longer be sustained.
When the SRC began its work, it was clear that completing these tasks would be difficult until departments had the experience of working with a reduced staff for a meaningful amount of time. Some departments, after an initial period of feeling overwhelmed, found ways to perform their most important tasks, and when they left aside some of the less important ones, they found general understanding and acceptance by those who were most affected by the reduction in services. Other departments, however, struggled and continue to struggle with what is an overload of work given their new staffing levels, or as a result of other departments cutting back services. In a perfect world, the vacated positions as a result of the early retirement and voluntary separation programs would be in those departments that could most afford to shed them, but of course that never seems to happen; the world isn't that perfect. As a result, SRC will continue its work in full gear throughout the current semester. With more complete information from managers on what can and cannot be done with current staffing levels, plus a clear set of priorities for departments that are unable to do all they used to do, the SRC can begin to allocate and reallocate staffing resources to help departments best complete their most important tasks.
The SRC's work is a labor- and communications-intensive process, because so much of what many departments do on campus has an impact elsewhere. Before a department can eliminate something it currently does, it needs to be sure the impact is understood across campus so that accommodations can be made where needed. And while I am confident that members of SRC will roll up their sleeves and go beyond the call to meet the labor-intensive nature of the important task of rationalizing expectations for departments given our new staffing levels, it is the communications-intensive part of the process that I believe will be most challenging. I, along with SRC members and all of our managers, will need to give extra thought and attention to how we communicate around issues involving reduced services and changes in a department's set of responsibilities. We have made too little progress in this particular area.
To assist the SRC process, I have asked vice presidents to begin specific discussions with managers about their department's set of responsibilities with the goal of rationalizing what each is asking their staff to do with current staffing levels. This will require managers to work with their VPs to prioritize all that their departments do, and come to agreement on what they might do less of, or do differently, to ensure their staff is being asked to do a fair amount of work. The VPs, in turn, must be sure to work with their administrative colleagues—other VPs, deans, and directors—to make sure the decisions taken at the departmental level can be absorbed across campus. This part of the process will be a "give and take," which, in the end, will result in allocating and reallocating staff positions to those departments whose work cannot be reduced and that remain understaffed.
The SRC and the Vice Presidents will discuss this process at a managers' meeting to be held sometime in the next two-to-three weeks. By the time of that meeting, I expect VPs will have begun to discuss departmental responsibilities with their direct reports and their managers. It is crucial that we all know the process we will use to ensure adequate staffing to meet our institutional mission and goals, along with a clear understanding of the expectations that senior administrators hold for each department for which they are responsible.
The SRC is also working on how best to structure staff salary increases. The committee is undertaking this work in tandem with the Wage and Salary Committee—a committee of five staff members appointed by Staff Council, Human Resources, and my office. The group began its work last spring under the leadership of Provost Alison Byerly, who was then chairing SRC. The committee's work has focused on developing a more equitable process for administering staff raises now that the salary freeze for those earning more than $50,000 is behind us.
We know that the majority of staff believes that salary increases should be tied to work performance. We also know that wage-earners at the top of their position's salary range—many of whom are past the maximum salary set for their cohort—receive disproportionately large raises-in real dollars-compared to their peers further down the salary range. This, of course, is because raises are currently set as percentage increases. However, in order to help more staff members reach at least the midpoint of their salary range more quickly, we need to find a way of reallocating dollars in our salary pool that under the current system go predominantly to those who have already achieved the maximum salary for their particular position. The SRC and the Wage and Salary Committee are currently wrestling with this issue, and I expect they will share their recommendations on how better to allocate the staff salary pool sometime next month.
As the SRC's important work goes on, I want to underscore the need for improved internal communications surrounding staffing and other issues. Based on what I learned in meetings with Staff Council and other groups this past month, it is clear that providing just a brief explanation for decisions taken by the senior administration would go a long way to building more trust and confidence among the staff in general, and among those asked to implement those decisions in particular. I pledge to make this a priority of mine this coming year—working with my senior staff to ensure that we give adequate explanations for our decisions, and that these explanations are communicated throughout the organization. I can't guarantee that everyone will agree with all of our decisions, but I am determined to make sure that decisions are at least understood. At the same time, I encourage all of you to ask questions when you don't understand something, rather than just wonder or think the worst. I am proud of how transparent we have become in sharing and discussing financial information, and I hope the community's comfort level with asking questions of me and of members of my staff will continue to rise as I believe it has during these past eighteen months. I believe that increasing the financial literacy of our students, faculty, and staff can only make us a stronger institution, more likely to work together effectively to solve the kinds of challenges we have been facing the past two years, and allow us focus our attention on some interesting and more pressing issues for the coming year.
Though we can't quite declare victory and ignore completely the economy and its impact on what we do and how we do it, I am determined to refocus the College's agenda toward what we care about most and do best: the education of our students. At our Bread Loaf faculty meeting earlier this month, we chose as our topic of discussion the curriculum of the future and how faculty see themselves and their disciplines within that future. Three colleagues gave inspired presentations that ignited many good discussions and set a terrific and positive tone for the faculty at-large. I hope that tone extends throughout the academic year and across the campus as we begin to reengage multiple issues of interest and concern to the entire community that were put on the backburner as we focused our energy and attention on financial issues.
With the return of Shirley Collado as Dean of the College and our chief diversity officer, we will give significant attention to issues related to institutional diversity, for lack of a better term. We will resume pursuit of recommendations from our Human Relations Committee report, and continue our discussions of building a more diverse and accepting community—a community that views difference as a strength and the diversity of human experiences as significant part of the education we seek for all of our students.
We will continue our curricular discussions framed but not limited by recommendations in our Strategic Plan. Proposals regarding senior work as a culminating and meaningful experience for all of our students, along with questions related to new programs in linguistics, global health, food studies, and topics yet to be brought forward, while possibly contentious, will no doubt be intellectually stimulating and help us to refocus on the most important things we do here.
We will advance our policies regarding compensation for both faculty and staff. Though this may appear to be yet another financial issue to address, it is more about ensuring that we are able to attract and retain the finest faculty and staff into the future to guarantee the excellence of our students' educational experience, and we will take this issue most seriously. In addition to the SRC-led work that is reviewing our staff's wage and salary program, a committee that I had appointed in March to review faculty compensation and offer recommendations on how to improve our compensation goals and processes has just completed and submitted its report. I look forward to engaging in discussion on how we can compensate our faculty and staff as best we can, all in the spirit of strengthening the institution and the education we provide our students.
We will be very busy with our institutional self-study, which serves as the pre-cursor to our mandated decennial reaccreditation by the New England Association of Schools and Colleges, known more simply as NEASC. More than 75 faculty and staff colleagues have been hard at work nearly a year, and will work through next fall, gathering and sifting through information on eleven specific areas for which we need to assess our effectiveness as an institution, and then be reviewed by an external review team that will visit campus next fall. Dean Susan Campbell and Associate Dean Lisa Gates are leading this effort, and though this process will be time-consuming for many, it will be most valuable for us as it forces us to step back, take stock of how well we are doing in a number of areas related to the educational programs we offer, and then receive critical feedback from the visiting team and our reaccrediting agency.
There are some other things on the agenda for this year as well.
We will begin to address the backlog of external reviews of our academic departments. Each year, three or four departments undergo a review following a departmental self-study, after which we receive a detailed report written by the review team-usually three or four distinguished faculty members from different peer institutions. Like the larger institutional reaccreditation review, these departmental reviews provide excellent advice on how to strengthen our academic programs. Due to our preoccupation the past two years with financial matters, we need to get back to those reviews and determine which recommendations we will accept and address. Some involve staffing issues, others propose curricular changes within a major, and others still advise on improving a department's facilities and equipment.
We will also address recommendations coming out of the College's ACE/Sloan grant that supports work-life balance for faculty and staff. We could not have won a grant that addresses this particular issue at any better time. Faculty and staff development programs will be crucial items for us to engage amid all else we are doing and the changes in staffing levels across campus. Following our discussions at Bread Loaf on the curriculum of the future, and some meetings planned for this academic year on the same topic, I hope we can develop the kinds of development programs the faculty believes would be most effective to ensure it evolves successfully along with their fields and disciplines. Similarly, it will be crucial for us to develop and offer effective staff development programs as we encourage staff to fill positions across the College that open up but require different skill sets and levels of expertise.
We will continue to fundraise to meet the goals of the Middlebury Initiative, a $500 million campaign designed to ensure current and future generation of students the finest liberal arts education we can offer, built upon meaningful collaborative learning opportunities with faculty, an athletic and co-curricular program of excellence, and an environment that encourages both diversity and diversity of thought, and challenges students to take intellectual risks and learn beyond their comfort zones.
And, last in this list of "to do" items for the year, we will move forward with carefully chosen initiatives and strategic projects that are in the College's long-term interest. In this economic climate, coming out of the worst recession since the 1930s, it is easy to think that just about everything must cease ... that if you do anything new, it is in violation of the discipline we seek and claim is needed in order for the College to live within its means. This is not, and cannot, be the case. That is why, in my February 12 address, I said it was okay for us to have refreshments at events and no longer feel guilty about it. Those refreshments were metaphorical, but the reference was intended to extend beyond cookies and coffee. I should spell this out more explicitly.
While we must continue to scrutinize how we expend our resources, and retain the discipline we have shown the past year, there will be times when we need to do things that appear contradictory with the goal of exercising restraint—as was the case with faculty recruiting last year. I was asked by several faculty and staff colleagues why we chose not to freeze our faculty searches last year, but instead conducted all eleven that had been planned. The answer is quite simple. To have delayed or canceled the searches would have compromised our commitment to classes of a certain size for our students, reduced the level of engagement between students and faculty that is the foundation of a Middlebury education, and missed out on one of the best markets for faculty talent in decades, as so many other colleges and universities decided to cancel their searches and freeze faculty positions. In essence, because the quality of our faculty is so central to our current and future mission and success, we decided to take the long view and conduct those searches despite the uncertain financial times.
When one has been through what our institution and virtually all of higher education has been through, it is difficult to get beyond what has changed ... what has been lost ... and notice the remarkable progress the College has made. Though there is much to be done this year to align expectations, workloads, and mission, I ask that you step back from all the stress, the added work you have taken on, and whatever ill feelings you might harbor over what we—or what I—could have done differently, to recognize what has been a remarkable team effort. Our community held together and weathered what I and many believe will be the worst of this particular storm, and for that, I, and the board of trustees, are most grateful. It is also something very much worth recognizing.
As always, I look forward to working with all of you as we re-engage our mission with a renewed sense of accomplishment. I hope each and every one of you will join me with the same spirit you have exhibited during these tough times—a spirit that is the very fabric of our institution—and help take this College to a level of excellence and pride it has yet to experience.