January 5, 2009
Dear Students, Faculty and Staff:
As we begin the new year, I write to provide an update on the financial challenge that Smith is facing, the process that we will follow to meet it, and the questions that we will need to consider in making decisions.
Because of the steep decline in the financial markets, Smith’s endowment, like the endowments of all colleges and universities, has suffered a substantial loss in value. This fiscal year, the cumulative loss by the end of November exceeded 18 percent; however, we will not know the complete picture until later in January. An overall decline of 25–30 percent appears possible; this loss would be consistent with losses anticipated by other college and university endowments.
The endowment provides roughly 30 percent of our operating budget of $200 million. Its decline in value likely necessitates a reduction in expenditure of about 6-8 percent, or at least $12 million. We expect to experience other negative financial trends — an increase in the financial neediness of our students, necessitating an increase in the financial aid budget; a decline in philanthropic giving; increases in operating or health insurance costs — that require us to reduce our expenditures by a greater amount. It will be wise to plan for a 10-15 percent reduction, or $20 to $30 million, in a sequence of steps that we would take as financial constraints require. We are fortunate that we have financial reserves that allow us to be thoughtful and deliberative in this process; to provide even further flexibility, we have put in place a 2 percent holdback on non-salary budgets in the current fiscal year, and we are reviewing all requests to fill open positions, granting only those that are most urgent. As a consequence of all of these steps, we do not anticipate any layoffs this fiscal year.
I have begun the discussion with the major planning committees — the Advisory Committee on Resource Allocation (ACRA), the Committee on Mission and Priorities (CMP), the Committee on Academic Priorities (CAP), and Senior Staff — about the choices before us. The planning committees will have a joint retreat later this month at which we will have detailed discussion of those choices and of a plan for decision making. Shortly after the retreat, I will be sharing with the community the options we believe we have in front of us. We will create opportunities for the community to discuss those options. I have decided to combine ACRA and CMP for the purposes of developing a plan; the two committees will meet together on an intensive schedule throughout the spring to accomplish this. I anticipate that ACRA and CMP will involve the broader campus community as they consider issues within their charge.
The questions that we face are challenging because they involve trade-offs among priorities for the college. Here are some of the most pressing:
I have been encouraged by how imaginatively and wisely faculty and staff have been reflecting on these difficult questions. The choices that we make now, and the wisdom of the strategy they represent, will have an effect on the college far beyond the current financial crisis. We need to rely on all of our collective intelligence to make the best decisions we can, keeping our focus on our strategic plan and its goals, even with the fiscal constraints we face.
I know that these uncertain times are difficult for everyone. I promise that I will communicate with you on a regular basis as more is understood about the college’s financial situation and as decisions are made. We will continue to hold forums for the community and to update the president’s office Web site as there is more news to communicate. I invite you to send your reflections and suggestions to email@example.com.
Thank you for your support and understanding. I am confident that through our collective efforts we will come through these challenging times with strength, resilience, and a renewed sense of mission.
Carol T. Christ