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09/16/09: An update on finances from the president

To the College Community:


I write to update you on Middlebury’s financial condition and to summarize the progress we have made in dealing with what economists are calling the longest recession since the 1920s. Although this historical perspective is hardly comforting, I believe we have good reason to feel encouraged by the progress we have made towards reaching a balance between what we do and what we can afford to do beyond this coming year. More on this below.


The past year has been one of great change and anxiety for many colleges and universities, and though the markets have recently shown signs of recovery, which is good news indeed, it may take some time before the economy is stable enough for anyone to say with certainty that this recession is over. I believe that as a community we have responded with promptness and care to the economic downturn, and I would like to thank everyone on campus for their hard work during these challenging times.


Despite the reduced size of our staff, day-to-day operations have remained excellent, with some to-be-expected bumps in the road, which come as a result of trying to maintain the status quo, but with a smaller staff. We need to continue to work on identifying items to go on the “not to do list,” recognizing that with a smaller staff we cannot continue to do everything just as it has been done in the past. Many on campus have felt the cuts we have made the past year, yet I believe we continue to provide the best liberal arts education to be found in the country; we will keep that as our goal as we continue to find ways to ensure the long-term financial health of the College.


As I have reported in previous communications and at our open meetings, one of the realities with which we must learn to live and plan is an endowment whose performance this past fiscal year was -15.9 percent. Although this return will most likely be within the top quintile among college and university endowments, our endowment lost $190 million over the course of the fiscal year, a figure that includes the losses incurred from performance plus spending from the endowment in support of the operating budget. From its all-time high, our endowment has lost nearly $250 million, leaving us with 2005 levels of wealth with which to pay for our 2009-2010 cost structure.


The impact of the endowment’s $190 million decline in value this past year deepens when you consider that until very recently we had planned our future spending and program enhancements (e.g., salary increases, improvements in our financial aid program, new positions, enhancing existing programs) with the expectation that the endowment would grow by 9 percent each year rather than shrink as it did the past two years. Because we depend on the endowment for much of our operating budget (23 percent), the gap between what we have at our disposal on the one hand, and what we expected to have based on our planning model, on the other, solely as the result of the decline in the value of the endowment, is approximately $12 million per year, which has great consequences for what we can and cannot do in the coming years.


Fundraising, another major source of revenue, has also lagged behind projections. Although our Annual Fund yielded gifts from a remarkable 62 percent of our alumni—a record for the College and among the highest alumni participation in the country—our overall “total cash in” was down 20 percent from last year’s total. In hindsight, this decline is no surprise: the turmoil in the markets has clearly affected our donors’ ability to make large gifts, yet the impact still needs to be addressed, and we do not anticipate a major turn around in this important fundraising area this year.


At the same time, we have made very good progress meeting our targeted budget reductions, and have done so in ways that minimize the impact on our academic program. In addition to 5 and 10 percent reductions made to program budgets outside our academic departments, we have frozen salaries for two years for all those earning more than $50,000, and in some cases—for members of the president’s staff—lowered salaries; we reduced dining costs by moving from three main dining halls to two; we cut annual funding for lectures; we eliminated a number of events; and, most importantly, we reduced the size of our staff by approximately 90 positions. We have also cut back on program budgets funded by endowment earnings, a necessity in the current economy. Finally, we have implemented several cost-saving measures recommended by the Budget Oversight Committee, which I have described in earlier memos, and are summarized at the web address listed above. As a result, we are starting the year with a balanced budget, and, if our assumptions about projected revenues and expenses for next year hold, next year’s budget will also be balanced. Although we are projecting a deficit for FY12 and beyond, largely because of the significantly lower-than-expected endowment growth in FY08 and FY09, I am confident that with continued fiscal prudence, and by following through on our staff attrition targets, we will balance our budgets in those out years, too.


The recent staffing analysis conducted by the Staff Resources Committee (SRC) will be critical to our success in the coming months. I hope that through normal attrition of positions, and by offering employees optional programs, such as an early retirement program or voluntary separation program, we will attain those targets. A main objective continues to be reducing our staff to sustainable levels without resorting to layoffs, and the SRC plan should help us to accomplish that goal. Details about an early retirement and voluntary separation program will be shared in the coming weeks by Human Resources and the SRC.


I will continue to update the community on relevant economic news throughout the semester. We are planning to hold a number of open meetings as we did last year, and we will publicize the times, dates, and locations for those meetings soon. In the meantime, I wish you all a good start to the new academic year, and thank you again for your patience, understanding, and dedicated efforts to make this College the remarkable place it is.





Office of the President

Old Chapel
9 Old Chapel Road
Middlebury College
Middlebury, VT 05753