College Street

On College Finances

Early this fall, the ratings agency Moody’s Investors Service updated its outlook for higher education, revealing that cost cutting at colleges and universities—along with stable enrollment numbers, improved access to credit, and an uptick in endowment performance—has helped many institutions in dealing with one of the harshest and most challenging economic climates seen in nearly a century.

On the heels of the Moody report, Middlebury President Ronald D. Liebowitz wrote to the College community and echoed that sentiment, while cautioning that work still remained as the institution attempts to reach “a balance between what we do and what we can afford to do beyond this coming year.”

Liebowitz announced that for the 2009 fiscal year, the endowment lost 15.9 percent of its value, a decline of $190 million (and a drop of nearly $250 million from its all-time high of $986 million in 2008). And while the 15.9 percent loss would place the College within the top quintile among colleges and universities (Harvard reported a 27 percent loss, Brown 21, and Williams 18), the impact has been sobering.

“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,” Liebowitz wrote. (Middlebury’s endowment shrunk by one percent in FY’08.) “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.” Dollars raised through fund-raising also dropped off—nearly 20 percent—the president noted, even though a national record of Middlebury alumni (62 percent) contributed to the Annual Fund this year. “This decline is no surprise,” the president wrote, considering that “the turmoil in the markets has clearly affected our donors’ ability to make large gifts.”

Still, as reflected in the Moody’s report, Middlebury has made progress in meeting targeted budget reductions. Because of measures outlined in earlier issues of the magazine (these include reductions of program budgets by 5 to 10 percent, reduction of 90 staff positions through attrition, a salary freeze for those earning more than $50,000, and a reduction in salary for members of the president’s staff), Middlebury began this current fiscal year with a balanced budget, and, Liebowitz wrote, “If our assumptions about projected revenues and expenses for next year hold, next year’s budget will also be balanced.”

However, the endowment losses during the past two fiscal years will still be felt in FY’12 and beyond; the amount of money the College’s draws on the endowment to support the operating budget is based on a three-year average value of the endowment. “Although this formula is designed to smooth out the market’s volatility,” Liebowitz explained last year, “the impact of a steep endowment decline is significant.” Which is why Middlebury continues to seek out cost-cutting measures. This summer, the Staff Resources Committee conducted an institution-wide staffing analysis, with the objective of further reducing staff positions to sustainable levels without resorting to layoffs. Liebowitz wrote that he had confidence that, through normal attrition and by offering staff optional programs, such as early retirement or voluntary separation, the College would hit its target staffing goals. That, along with continued fiscal prudence, he wrote, would keep Middlebury on solid ground. Thinking back to a year ago, when anxiety and uncertainty were just beginning to grip both the nation and the community, that is a welcome thought, indeed.

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