12/22/08: An update from the president on College finances

To the Middlebury College Community,

As we approach the end of the year, I write to follow up on my previous communications related to College finances. I encourage you to read the earlier memos I have sent, now posted on the College’s Financial Challenges Web site. I also encourage you to review a video of the presentation on College finances we presented to staff in Dana Auditorium last month, also available at the site listed above. As always, if you have any questions please contact me at this e-mail address: officeofthepresident@middlebury.edu.

The Board of Trustees

In early December, the College’s Board of Trustees was on campus for its annual meeting. We spent almost the entire time together discussing the College’s financial position, how we are communicating with our on-campus and external constituencies, and the progress we have made in reducing our projected budget deficit.

The short summary of the Board meeting is that the trustees feel well informed about what we have done and are doing, they support the comprehensive and transparent approach we have taken and will continue to take, and they remain fully engaged as we continue to navigate through this difficult economic environment. What follows are some details of our report to the Board, and the discussion we had of our plans going forward.

As I have noted in my on-campus presentations, we anticipate a budget shortfall of approximately $9 million-$10 million for fiscal year 2010, largely due to a significant shortfall in revenue. This shortfall is due to a precipitous decline in the value of our endowment and to a lower-than-expected level of philanthropic support as a result of the global economic downturn. Our long-term financial model assumes a 9 percent annual return on the endowment, but instead of growing, our endowment shrank by 19 percent between July 1 and November 30. Because the value of the private equity portion of our endowment lags by three months and also appears to be negative, we are projecting at least a 25 percent decline by the end of our fiscal year, June 30, 2009.

The amount of money we draw from the endowment to support the operating  budget is based on a “preceding twelve quarter” or “three-year” average value of the endowment. Although this formula is designed to smooth out the market’s volatility, the impact of this year’s steep endowment decline is significant. It is even more significant as we look out beyond next year, because this year’s performance will be the second time in two years that our endowment return has been negative (last year our return was -0.9 percent). The impact to our operating budget will therefore be felt for longer than three years, and, because deficits compound each year, it is crucial that we make reductions sooner rather than later.

The Budget-Cutting Process

The planning process we have used and will continue to use to determine reductions in spending is one of openness and inclusiveness. For the past two months, Patrick Norton, our chief financial officer, and I have met with students, faculty, and staff in open meetings to explain the College’s finances and how our particular situation relates to the larger economic picture. We have encouraged members of the community to submit recommendations on how to reduce the College budget, and we appreciate the efforts that many have made to offer their ideas.

The Budget Oversight Committee (BOC), which is comprised of students, faculty, and staff (see the list of BOC members), reviews all the recommendations submitted by members of the community. The Committee discusses and then forwards to me those recommendations it believes the College should implement, along with others that come out of their own deliberations. If I disagree with a recommendation from the BOC, I will meet with the Committee and explain my position.

Due to the nature of their work, BOC members have exercised confidentiality in not discussing items under review so as not to create undue angst within the community. A list of all the recommendations that I have accepted will become public and be posted on the Web once a member of the BOC or president’s staff has met with those individuals who are most affected by the recommendations that have been accepted. In addition to BOC deliberations, the College’s vice presidents are working closely with managers within their divisions to reduce non-salary budgets by at least 5 percent for the current fiscal year (2009), and will most likely be looking to reduce next year’s budget (fiscal year 2010) as well.


The hiring freeze on staff positions is still in place and the Staff Resources Committee (SRC) continues to review proposals for staffing replacements and ways for the College to attain its staff attrition goals over the next three years. Acting Provost Tim Spears, who chairs the SRC, will circulate information after break explaining the process by which SRC considers requests for replacement positions; how we are approaching our attrition goals; how we will reassess the workload of departments in which staff positions are not filled as a result of retirements, resignations, or program changes; how the redeployment of staff relates to our attrition goals; and the circumstances under which we would need to enact the College’s Reduction in Force (RIF) policy (read our RIF policy).

I have agreed with the Educational Affairs Committee (EAC) to keep the faculty “full-time equivalent” (FTE) count level for next year. I also agreed with the EAC that a decision on whether to approve additional tenure-track positions as recommended in the Strategic Plan should be made in March, when we have better information about the economy and the financial resources available to us. As with other recommendations from the Strategic Plan, the pace at which we will add the planned new faculty positions may very well be slowed, along with the curricular reforms they are intended to allow.

Closing Thoughts

Nobody knows when we will see the bottom of the current financial downturn or the beginning of a recovery. Given this uncertainty, I believe we are striking the right balance between acting swiftly to reduce expenses while, at the same time, leaving the least desired options we have before us—suspending our need-blind admissions policy for domestic students and enacting our RIF policy in anticipation of layoffs—for future consideration when we know more about how the markets and economy will perform.

As we move forward, I want to reiterate that the principles that will guide our budgetary decisions are consistent with those from our Strategic Plan and the core values of our educational mission: ensuring access to Middlebury for the most qualified students through our financial aid program; continuing our commitment to intensive student-faculty collaboration and small classes; and supporting the vital co-curricular program that complements and enriches the College’s excellent academic offerings. And as I have stated before, we face this global financial crisis from a position of strength and with great confidence. By participating in the process, either by identifying opportunities for savings at the College, or finding ways to reduce current spending in our particular areas, each of us can help the College weather these times and retain our position as a leader and innovator among the country’s very best liberal arts colleges.

I will provide further updates early in the new year. In the meantime, I wish you all a happy and healthy holiday break, and thank you for all that you do for the College.


Ronald D. Liebowitz
President,  Middlebury College

Office of the President

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Middlebury College
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