Financial Challenge FAQs 2008-2010 (Archive)

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.

Will renovation of campus facilities continue?

Yes, but only if projects are fully funded by donations, including funds contributed to the endowment to support the facility’s operating expenses, or through funds in the College’s renewal and replacement reserve. The reserve is funded annually by allocations of almost $9 million each year from our operating budget specifically to keep our physical infrastructure modern and to prevent costly deferred maintenance of our facilities.

Will there be changes to our employee benefit plans, namely the health and retirement plans?

No, that is not being considered at this time. Other than normal increases in co-payments, deductibles, co-insurance, and employee contributions, we do not expect any significant changes.

Does the College plan to outsource operations as part of its financial planning?

At the current time the College has no plans to outsource College operations.

Will the College add more students to balance the budget?

We are already at full capacity and so we cannot add students without jeopardizing some of the best things about the Middlebury educational experience. Additionally, adding students would require additional housing in town which would increase pressure on the town’s rental housing market and town-gown relations. It would also have implications for the first-year seminar program and faculty staffing in general, and so we would only increase enrollment beyond present levels as one of our last resorts.

As the economy rebounds, will the College abandon its cost reduction efforts?

No. College expenditures have increased considerably over the last decade; much of this was planned, some of it was not. It makes good sense, then, to conduct a comprehensive review of our expenditures so we can reduce expenses and focus our resources on the priorities outlined in the College’s strategic plan: financial aid, faculty support, and strengthening our co-curricular programming.

How much do the summer programs affect College finances?

The summer programs pay for themselves and add to the College’s bottom line. These programs enhance our academic standing and provide great opportunities for our undergraduates and alumni. During the coming year we will review cost structures of all our programs, including the summer programs, as part of the College’s budget review and financial planning.

How do our Schools Abroad affect College finances?

Our Schools Abroad, like our summer programs, pay for themselves and, except on rare occasions (when the dollar is extremely weak), contribute positively to the College’s bottom line. New schools, such as our School in China and School in Egypt, are planned and operated so that revenues cover all costs. Still, during the coming year, we will review cost structures of all our programs, including the schools abroad programs, as part of the College’s budget review and financial planning.

How will the opening of our second Language School site at Mills College affect College finances?

We expect no negative impact on College finances as a result of the second Language School site at Mills College. The additional 310 students who we anticipate will enroll at Mills will cover all the costs of operations, and, if we increase the enrollment at the Mills site over time, the site is expected to add to the College’s bottom line.

How has the introduction of the Middlebury-Monterey Language Academy (MMLA) affected College finances?

The MMLA program, with more than 600 students enrolled in this past summer’s first session, had a start-up cost of approximately $375,000 greater than revenues. A donor contributed $2 million to the College to cover any deficits during the program’s first few years so it would have no impact on the College’s operating budget. The program was projected to incur two or three years of deficits before being able to cover all its costs, plus generate extra revenue for the College. With the great success of the program in its first year, and the consolidating of operations from two campuses to one, we anticipate the program will cover all costs this coming summer and not require a subsidy from the donor’s gift.

What is the financial impact of the proposed integration with the Monterey Institute of International Studies (MIIS)?

Thus far, the College’s affiliation with MIIS has not had any negative effect on our financial position, and over the long term our integration with MIIS should make us stronger. MIIS has made great progress on its own financial front; it has a record number of students this fall, and is now operating fully in the black. The Annual Fund at MIIS has increased tenfold since the start of our affiliation, and Monterey is also a contributing factor in our own record fundraising over the past three years. Several donors have given significantly because, they claimed, they believe in the mission we have established through our partnership with MIIS. These donors have donated $12.1 million of restricted support to Monterey, but have also pledged $18 million to the College for other purposes—financial aid, professorships, and general operations.

How can we afford to pursue projects like the in-town bridge, Town Hall Theatre, Old Stone Mill, and 51 Main?

A healthy town contributes to the College’s future success and vice-versa, and so the projects we’ve pursued downtown are aimed at strengthening town-gown relations, expanding our students’ social and creative outlets, and, most important of all, ensuring the College’s long-term safety and stability.

The most important of these projects, a second in-town bridge, will prevent our being cut off from the fire department and other emergency assistance should the Battell Bridge fail. The Battell Bridge, which is more than 110 years old and in need of repairs, is currently the only vehicular way in and out of town. The major train derailment last October, and the danger it presented to the town and College, is a good example of why we need a second route across the Otter Creek.

Our recent gift to the Town Hall Theater was made for two reasons: first, to help vitalize the town through the kind of meaningful civic engagement the Theater’s ambitious arts program will inspire; and second, to give our students, faculty, and staff access to another performance venue and a wider range of artists with whom to create and perform. Although we have several such venues on campus, interest in the arts has grown steadily in recent years so that our facilities are not sufficient to meet the College’s needs. Fortunately, the Town Hall Theater gives our students and faculty access to another, good-sized performance space.

Finally, we developed programs at 51 Main and Old Stone Mill to enhance social options for students and generate opportunities for creative work that are not available on campus. Both of these initiatives were made possible through the generosity of donors, and all the costs associated with them will be covered by restricted gifts. Although these projects are consistent with our larger educational goals, we would not have pursued them without external funding.

What can I do to help the College reduce expenditures?

As the president noted in his recent letter to the community, the administration will be engaging representative campus groups to discuss how the community as a whole can help the College identify ways to reduce expenditures. Through these discussions, we expect to develop ways for students, faculty, and staff to suggest cost-saving measures. We can all help by considering how we can reduce our own use and spending of College resources.

Will this downturn have an impact on the College’s commitment to carbon neutrality?

No. The College still expects to be carbon neutral by 2016. The upcoming campus discussion on reducing spending might help us achieve this goal more quickly if the ultimate reductions are made in areas that typically contribute to the institution’s carbon footprint.

Office of the President

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Middlebury College
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