September 8, 2003
Because I know that many of you are concerned about the college's budget, I am writing to give you an update. In developing the 2003-04 budget, senior staff identified $3.1 million needed in operating budget cuts, totaling 2.4 percent of the budget in their areas, to bring the budget into balance. Although several unexpected revenue issues have emerged over the summer, a modest enrollment surplus should allow us to keep the budget in balance.
Despite the actions that we have taken, the budget picture remains challenging for the years ahead. Looking forward, the college's current financial plan projects an annual operating deficit of $3.8 million in 2004-05. This deficit would increase to $9.1 million in 2005-06, if we take no steps to reduce our expenses. This financial picture results from several factors: the decline in the value of the endowment because of the instability of financial markets (the return on the endowment for the quarter ending this past June was much stronger, but nonetheless failed to make up for previous losses); a decline in the amount raised through the Alumnae Fund, despite an exceptional record of 50 percent alumnae participation, leading us to revise our revenue expectations from that source; continued increases in employee health insurance costs; and a significant rate of increase in the financial aid budget.
In order to ensure the future fiscal health of the college, we need to moderate the rate of increase in financial aid spending. The Board of Trustees devoted its summer retreat to an analysis of the problem and an exploration of possible strategies to address it. We expect to have extensive discussion of financial aid policies this year with the Advisory Committee on Resource Allocation (ACRA) and the Committee on Mission and Priorities (CMP) as well as with the rest of the campus in order to develop a plan to stabilize the financial aid budget. However, that change alone will not fully address the financial challenges we face. We will also need to make further reductions in the operating budget and explore opportunities for revenue generation, over and above our customary fund-raising activities. I feel very strongly that we owe it to our students and their families to run the college as economically as we can, thereby moderating fee increases and devoting our resources to the areas that I feel are most essential -- the academic program and financial aid. In order to help us identify areas in which we could make the running of the college more efficient, we have begun a series of operational reviews, designed to identify work processes that we can simplify and areas of duplication we can eliminate. We anticipate that some reorganization will stem from these reviews.
We will be looking particularly at the area of student dining. At the end of the spring term, the Housing and Dining Task Force issued its report, which can be found on the web at www.smith.edu/rltaskforce. This year, we will decide how to implement its recommendations. In a very short time, I will be appointing two small groups, one to address the task force recommendations on theme housing and on the lottery system, the other to consider changes in dining. The group working on dining will need to develop a plan with careful consideration of cost. In response to student desire, we want to offer more options -- in menu, in hours, in places to eat (like the Campus Center), and in meal plans -- but we have to achieve that with attention to overall savings in the dining system. As you may remember from last year's budget discussions, we feel that we need to reduce the size of the faculty and staff. In order to help us achieve these reductions, we have offered a voluntary separation plan to staff in RADS, Physical Plant, Public Safety, and the Botanic Garden, and we have offered two early retirement options to faculty. The window for faculty to elect either plan available to them will be open until June 30, 2004. Thirty-one staff members elected the plan that they were offered. Through a combination of the positions vacated through the voluntary separation plan and positions that managers had left vacant for other reasons, we have reduced the number of staff positions on campus by 36.4 FTE for an annual savings of $1.7 million.
Unfortunately, as we reported last year, we will need to make further staffing reductions. We will be working over this year to identify those positions. At the same time, we have decided to bank most positions this year that become vacant through the course of people leaving the college. By not filling positions, we will be able to take advantage of vacancies to achieve the staff reductions we need and provide the greatest number of employment opportunities for those staff whose jobs will be eliminated. In the context of the reductions we must make, we want to minimize job loss.
As I did last year, I will be scheduling a series of open meetings to present the budget in detail and to respond to employees' questions and concerns.
Some people have asked me how we can build wonderful new facilities like the Art Museum and the Campus Center in the context of declining revenues and budget reductions. Planning for those facilities took place several years ago, when the economy was stronger. They are being financed principally by gifts that are specifically dedicated to those projects. Furthermore, even in the context of budget tightening, Smith must continue to do new things. Like any strong organization, the college continually works to maintain its excellence; this effort requires new initiatives and reallocation of resources.
We will face numerous challenges this year. I admire the pride that staff at Smith take in jobs very well done, and I realize that some may feel a sense of loss as we rethink how and what we do. However, I believe that the efficiencies we will realize will make the college stronger in the long run, better able to control rising costs for students and their families and better able to invest in the new academic opportunities that will continue to arise.
This May we will graduate our first class of engineers -- the first engineering class ever to graduate from a women's college. We are welcoming eight new tenure track faculty to campus. We have just opened our wonderful new Campus Center, and later this fall we will open a new fitness center, funded by a generous gift from the Olin Foundation. This year we will embark on a major review of the curriculum and of the shape of the faculty, a process that I believe will serve us well in developing a strong and focused strategic plan. I look forward to working with you in the coming year as we face its challenges and opportunities together.
Carol T. Christ