The impact of the COVID-19 pandemic has been felt throughout the world—life as we know it changed dramatically during the past several weeks. So much outstanding work has occurred on campus in response to this crisis. Our facilities and residence life staff worked hard to quickly move nearly all of our students off-campus. The international study team brought home more than 200 students from study abroad programs throughout the world. And despite the formidable challenges, the Smith faculty, with tremendous support from key staff, especially in information technology, are now teaching remotely. Early reports are that students and faculty are adapting well and that the quality of teaching remains high. We could not be more proud of the can-do spirit of our community.
As we all know from the news, the COVID-19 crisis has had a dramatic impact on the global economy. The stock market has been quite volatile and trending downward, while unemployment has skyrocketed. This economic downturn will affect Smith in many ways.
Consider that the college’s budget is largely driven by three funding sources:
- The endowment: When the market goes down, so does our annual payout, which funds approximately 35% of our $240M annual budget. The college’s endowment has lost considerable value due to the pandemic. Our key benchmark is down 17% for the fiscal year through the end of March.
- Philanthropy: Prior to COVID-19, we were having a strong year, thanks to the generosity of our alumnae; however, philanthropic giving generally declines during economic downturn.
- Tuition, room and board: This will remain stable if we successfully recruit an incoming class and if our rising sophomores, juniors and seniors return to Smith in the fall. Further, it is too early to know whether our international students will be able to obtain visas in light of travel restrictions or whether financial aid needs will increase, given that some parents have lost their jobs. Many uncertainties remain; however, it is likely that this funding source, our largest, will decline.
Fortunately, Smith College is in a strong financial position, and we should take heart in this. There are three reasons for our financial strength. First, we have a large endowment compared with most colleges. Second, we have built up cash reserves to help address shortfalls during tough times like these. Finally, we will benefit from the financial sustainability work we have undertaken during the past four years.
The operating budget for the current fiscal year, ending on June 30, has already experienced an $8M to $10M hit from lost revenue and unanticipated expenses. This is primarily because we are refunding a sizable share of room and board fees to students who have returned home. We expect to receive some support from the federal government, maybe as much as $2M, and we have cash reserves to cover a portion of the gap this year. The question we must ask ourselves is, how do we prepare for an uncertain future, when there are so many unknowns?
Given the economic context, we have decided to take some actions now.
- We are implementing a faculty and staff hiring freeze. Any future hiring will be limited to a small number of essential positions. The Office of the Provost is in the middle of its hiring cycle and will work with departments to protect curricular priorities.
- We are restricting departmental spending to costs associated with academic and business continuity. The budget office will work with cabinet members and departments to provide further guidance.
- We are asking departments with restricted gifts and endowments to utilize those funds as much as possible. Again, the budget office will work with departments.
Going forward, we must hope for the best but plan for other possibilities. As we turn our attention to next year, it is probable that our revenues will decline, for all the reasons we have outlined, but again it is difficult at this point in time to know by exactly how much. For this reason we will model several different scenarios, considering such variables as duration of pandemic, market activity, other signals of economic health and student/family choices.
Efforts like this are only successful when there is transparency about the process and when groups representing all members of the community are engaged. For this reason, we will work within our existing governance structures; for example, the Advisory Committee on Resource Allocation (ACRA), the Committee on Mission and Priorities (CMP), Faculty Council and Staff Council. It is likely that we will form working groups as well.
Importantly, we promise to keep the Smith community informed of our work. The extreme uncertainty of these times is unprecedented. Who among us could ever have predicted the events of the past several months—a global pandemic, most of us sheltering in place, and remote learning at a residential college like Smith? But here we are, together in this shared new reality. We cannot predict the future, and we do not have all the answers for how best to move forward. For our part, we promise to lead the college during these unsettling times in good faith.
Vice President for Finance & Administration