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I am writing to inform
you about the state of the budget at Smith, the economic
factors that we anticipate will affect it in the years ahead,
and our future plans. We ended the fiscal year, on June 30,
2002, with a modest surplus of $100,000. Our overall fund-raising
continued strong, with gifts of $49.3 million, close to the
figure of $52 million that is our all-time high. Furthermore,
our participation rate this past year of 50 percent was the
highest that we have ever achieved. The budget is in balance
for the current year. However, we are facing a number of
economic challenges that will have a significant impact on
the budget in 2003-2004 and in subsequent years. I will give
you a short overview of them here; there will be many opportunities
for questions and discussion in the months ahead.
It will come as no
surprise to you that Smith, like most colleges and universities,
is experiencing a decline in the value of its endowment.
We rely on investment income for a substantial revenue stream-about
30 percent of the campus budget. At the end of last quarter
(September 30, 2002), the endowment value had fallen to $775
million, down from a high of $927 million in March 2000.
Even were the markets to rebound immediately, the recent
decline will affect the budget over the next few years because
we calculate the draw from the endowment on the basis of
its average value over the 12 preceding quarters. Each quarter's
endowment value will affect our draw for three years.
In addition, troubles
in the economy have had an impact on the financial aid budget.
As you know, Smith meets the full need of its admitted students,
and students can apply for re-evaluation of their financial
aid packages if their families' economic circumstances change.
This year we have committed $750,000 to cover the cost of
such revisions for the entering class alone, an increase
of about five-fold over previous years. (We do not yet have
the final figures for revisions for other classes, but we
know that they too will significantly exceed sums allocated
in previous years.) We expect that this trend will continue
as long as the economy continues to be depressed.
Like many organizations,
we are also experiencing a sharp increase in health insurance
costs -- 23 percent this year, at an additional yearly cost
of $1.1 million. All indications are that this trend will
continue as well.
Finally, although overall
giving remains strong, unrestricted giving, on which we depend
for a portion of our operating budget, is expected to be
$1.1 million below budget this year. While we hope to reverse
this trend, it may be a symptom of circumstances we cannot
control.
We are fortunate that
Smith is in excellent fiscal health. Its endowment is large
for a school of its size, and its budget has been well managed.
However, the factors that I have described above, even when
coupled with a modest tuition increase, will produce a budget
next year that will be flat (unlike some colleges and universities
that are anticipating a deficit). We will not have less money,
but in contrast to previous years, we will not have more.
Thus any increased expense -- for salary increases, or new
programming, or inflation in the price of goods -- must be
financed with budget reductions in other areas. We are now
beginning the process of talking with campus groups to get
your advice about how best to meet the fiscal challenges
ahead. I will schedule brown-bag lunches in November and
December for the campus community to discuss the budget in
more detail and get your advice about trade-offs.
I want here to set
out several principles that will guide our budget strategy.
We will strive for transparency in describing the budget
and the choices in front of us. We will seek advice across
the campus and try to develop consensus about our direction,
depending heavily on groups like ACRA and CMP specifically
charged with budget responsibility. I will be asking all
of you to give me suggestions -- small and large -- about
changes that we can make that will conserve resources.
I believe strongly
that, despite the fiscal challenges in front of us, we must
not stop doing new things or pursuing new initiatives so
that we do not lose the momentum that we now have at Smith.
However, I also believe that we cannot ask students and their
families to bear the burden, in the form of large comprehensive
fee increases, of reluctance on our part to look carefully
at what we do and how we do it. Even in the preliminary analysis
that the Senior Staff has begun of the budget, we have identified
significant economies we can achieve, with little diminution
of program. We must be strategic in the choices we make,
changing things of lesser importance to preserve resources
for our priorities.
As a preliminary measure
to create some financial flexibility, I have decided to place
a temporary stay this year on some categories of expenditure-small
facilities projects, equipment, and discretionary funds.
Although some of these moneys have been allocated, I feel
it is prudent to delay expenditure now while we develop our
fiscal strategy and ask ourselves whether each expenditure
is fully merited.
Despite the difficulties
of our situation, I look forward to the discussions that
we will have over the next several months. My experience
in dealing with similar, indeed, even more serious budget
constraints at Berkeley has taught me that fiscal challenges
sharpen our sense of priorities. I believe that Smith will
ultimately be the stronger for the discussions ahead.
Sincerely yours,
Carol T. Christ
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