Reconciling High Aspirations with Financial Realities
Last fall, as the global market downturn dramatically lowered college and university endowment income, President Carol Christ convened a faculty–staff–student committee to advise her on making significant, permanent reductions to the college's operating budget. The plan, endorsed by the board of trustees at its May meeting, provides for the possibility of reducing the budget by $30 million, if necessary, by June 2011. The measures include freezing salaries for 2009–10; implementing a range of energy conservation projects to reduce utilities costs; converting many printed communications to online formats and distribution; restructuring health services and the chapel; reducing the college's use of space by 5 percent; increasing the student–to–faculty ratio from 9–to–1 to 10–to–1; and seeking ways to consolidate operations and increase cooperation among the Five Colleges.
In this time of economic challenge, President Christ reflected on Smith's strategic choices.
Because of the steep decline in the financial markets, Smith's endowment, like the endowments of all colleges and universities, suffered a substantial loss in value. The cumulative loss this fiscal year was nearly 23 percent through March, which is consistent with losses experienced by many of our peer institutions. Because the endowment provides roughly 30 percent of our operating budget, and because the economy is likely to generate additional negative financial trends (for example, 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 and health insurance costs) we have had to plan to operate in a significantly different financial environment.
Because the changes to the world economy are widely seen as fundamental–versus temporary–shifts, our spending reductions must be fundamental as well. Even in the best–case scenario, which few are predicting, it will take many years for endowments to return to 2007–08 levels. In that context, Smith, like many institutions, is wary of treating the endowment like a rainy day fund. Next year, the college plans to increase significantly its rate of spending from endowment over the current year, from 4.7 percent of market value to 6 percent, and it is possible our board might consider a short–term draw to provide transition funding for the two years in which we are implementing the reductions.
It is vitally important to maintain funding for financial aid during the recession and to continue to meet the full demonstrated need of every admitted student. The reduction plan protects Smith's commitments to financial aid and the excellence and diversity of the student body. In fact, the financial aid budget for next year anticipates a larger increase in average grant among returning students than our three–year averages would suggest, to recognize the potential impact of the economic downturn on students and their families.
Our task, as a community, has been to reconcile our high aspirations with the financial realities we face. Throughout the planning process, I have been encouraged by how imaginatively and wisely faculty, staff and students have reflected on what is integral to the Smith experience and what, in a changing higher education landscape, must be re–examined and re–envisioned. Our strategic plan, The Smith Design for Learning, signals the institutional priorities in which we should invest even as we reduce commitments to other areas. And we are fortunate to be part of a longstanding consortium of institutions with experience in finding opportunities for collaboration.
Insofar as any of us can try to predict the future, I am confident that we are setting a path for Smith that will position us competitively in the near–term and well beyond. For one thing, many of our peer institutions have not yet begun to tackle the long–term financial decisions needed to deal with the potential problems ahead; our having done so enables us to focus on the significant strategic development of the college. We have the foundation in place for a transformative fundraising campaign, a significant shaping of the faculty and the curriculum, and the engagement of an extraordinary alumnae body whose achievements around the world continue to underscore the vital importance of women’s education. The Smith community has a remarkable history of resilience and innovation. That spirit is alive and well today.