January 29, 2004
Over the last three months, the senior staff and I have focused on developing a financial plan for the college that will restore equilibrium to the budget and support a strategic vision for Smith in the decade ahead. Throughout these discussions, I have maintained several core values: the preeminence of the academic program, a continuing investment in initiatives that not only sustain but advance Smith’s academic excellence, and a strong commitment to access and affordability.
Following is a summary of that plan, which we are presenting to the campus for discussion across the college in the course of the spring semester. Let me emphasize at the outset that this is a preliminary plan, not a finished product. It represents our best thinking after carefully weighing competing priorities both among ourselves and in consultation with the Advisory Committee on Resource Allocation (ACRA) and the Committee on Mission and Priorities (CMP).
The plan seeks to achieve two things: it restores financial equilibrium to the budget, and it provides for a number of critical investments in Smith’s future. These include competitive salary increases for faculty and staff, a financial aid budget that continues to meet the full demonstrated need of all enrolled students, and a bond issue that will finance capital improvements, including part of the cost of a new science and engineering building.
As you will recall, I have written twice before -- in March and in September of 2003 -- to provide information about budget matters and to alert you to the seriousness of the fiscal challenges we are facing. Although we have made several important adjustments to our planning assumptions since September, reflecting the improved financial markets and revised projections of the financial need of our students, we still project significant deficits emerging in the near future, of about $3 million in 2004-05 and rising to about $7 million in 2006-07. In the absence of appropriate action, the deficits would continue to increase by more than 10 percent thereafter.
The projected operating deficits stem largely from pressures on the college’s three primary revenue sources -- net comprehensive fee income, endowment income, and current unrestricted gifts. Significant increases in the proportion of students receiving grant aid coupled with larger than expected average grants have decreased our net revenue from comprehensive fees. While the recent strengthening in the financial markets has softened the downturn in endowment income, income from that source will still fail to keep up with the projected growth in expenditures. Under these changed circumstances, the college cannot sustain its current level of expenditure, much less identify funds for new needs.
I am committed to restoring financial equilibrium to the college’s budget. Such equilibrium means more than balancing the budget. It involves ensuring that spending and revenues will not grow at disparate rates over the next several years, creating future deficits. It also means investing adequately in the physical plant to avoid the greater cost of deferred maintenance. Finally, it requires that the college maintain a competitive level of compensation for faculty and staff and continue to invest in initiatives that will strengthen the institution.
The financial plan that we are presenting for discussion achieves the following:
The financial plan achieves the objectives described above by the following reductions in expenditure:
The plan is meant as the starting point for campus discussion. ACRA and CMP, the two committees charged with responsibility for advising me, respectively, about resource allocation and about the college’s mission and priorities, have already begun intensive discussion of the detailed plan. Members of the senior staff and I will be meeting with various constituencies over the course of the spring semester to hear their responses to elements of the plan. When I have gathered advice from all of these quarters, I will make a recommendation to the Board of Trustees in May, which will vote upon it at that time.
We know that these changes and reductions will be difficult not only for the individuals involved but also for the community as a whole. For the future health of the college, however, we must develop and implement a financial plan that restores fiscal stability to the budget, sustains funding for the most important priorities of the college, and invests in the resources to respond to current and new needs. We must not only balance the budget; we must make strategic investments that will keep Smith strong in the future.
Carol T. Christ