March 10, 2003
I am writing to update you about the budget and to encourage you to attend the budget forum that we have scheduled on Wednesday, March 12, from 1-2 p.m. in Wright Hall Auditorium. Managers and supervisors should make arrangements so that all interested members of the community may attend this important discussion.
As you know, Smith College faces budgetary constraints that will cause deficits over the next three years unless we take prudent action now. These deficits -- the direct result of the decline in the value of our endowment and increases to the financial aid budget and to health insurance costs -- are projected to be $3 million in 2003-04, $3 million in 2004-05, and $5 million in 2005-06, a total for the three years of slightly over $11 million.
Over the past year or so, Smith, like the majority of colleges and universities in the United States, has experienced a decline in the value of its endowment because of the erratic behavior of the financial markets. A recent survey shows that for the period from June 30, 2001, to June 30, 2002, the average college or university endowment posted a return of -6%. Smith's return for the same period was -3.7%. At the end of the last quarter, December 31, 2002, the endowment value had fallen to $789 million, down from a high of $927 million in March 2000.
In addition, troubles in the economy have had a substantial impact on the financial aid budget. Smith's policy of meeting full financial need allows enrolled students to apply for re-evaluation of their financial aid packages if their families' economic circumstances change. This year the college committed $750,000 to cover the cost of such revisions for the entering class alone, a five-fold increase over previous years. We expect this trend to continue. We are projecting a 16.9% increase in the financial aid budget next year. Sharp increases in health insurance costs and, despite strong overall giving, a decrease in the unrestricted gifts that are a critical component of the operating budget, complete an increasingly difficult financial picture.
The Board of Trustees, members of the senior staff, and various planning groups, including the Advisory Committee on Resource Allocation, have reviewed the budget and considered various strategies to identify budget savings that will not have a serious negative impact on the college's momentum, programs, staffing, or facilities.
At its February meeting, the Board of Trustees approved a group of actions for the 2003-04 budget cycle -- including reductions in spending, limiting increases in compensation, and an increase in the comprehensive fee. We are now developing a plan to address the deficits in the 2004 and 2005 budget cycles. Actions taken for 2003-04 include:
The Board agreed that a salary increase as low as 1% can only be a one-year strategy, providing time for planning the program reductions needed to bring the budget into long-term balance and to fund more competitive compensation increases in future years.
The Committee on Faculty Compensation and Development will advise the deans on the distribution of the faculty increase. We have decided not to award the staff increase on the basis of individual salaries but to award a flat dollar amount of $475 to each full-time employee, with a pro-rated dollar amount for part-time employees. This policy will give larger percentage increases to those employees who earn less and will help to cover the cost increase of employees' health insurance premiums. Senior administrators have decided to forego salary increases this year.
We are also planning a number of actions with regard to personnel. Beginning immediately, we will carefully review all vacancies for possible elimination. We will require that searches for vacant positions start with a period in which the job is open to on-campus applicants only. At a time when we need to consider staff reductions, we want to do everything we can to encourage internal mobility. In addition, we will be developing voluntary early separation plans for selected areas of the campus. We will not be offering a general voluntary separation plan.
Some faculty and staff have asked about capital expenses. Several major building projects -- The Brown Fine Arts Center, the Campus Center, renovations of the Lyman Conservatory and Lilly Hall -- are either complete or nearing completion. We will begin construction this summer of a new fitness center, fully funded by a gift to the college for that specific purpose. No additional projects will be undertaken until the money is in hand to support them.
At Wednesday's meeting, I plan both to explain current developments with the budget and to respond to your questions and suggestions. Despite the fiscal challenges that we face, the overall strength of the college remains. Our faculty, staff, and students are outstanding. I have learned much from your advice over the past few months and look forward to meeting our current challenges together.