President Hansen's update: Economic Climate at Bates
Dear Colleagues and Friends,
Following the January meeting of the Bates Board of Trustees and the February 2 meeting of the Bates Faculty, I write to share some of our most recent thinking about how best to steer the College through these uncharted economic waters. I want to reaffirm the principles and priorities articulated in my December letter, stressing again our confidence in the creativity of Bates people, the unflagging value of our mission, and the consistent strategies we will use to address both the challenges and the opportunities that lie ahead.
Our challenges continue to be at once obvious and deeply distressing. Like every other college and university or other organization whose operations are funded in part by its long-term investments, we have lost wealth. We are worried about how this loss will affect the only end that this wealth is intended to serve: educational opportunity for those upcoming generations of Bates students who will become our future leaders, citizens, and workers. Our students and their families are already stretching hard to afford a first-rate education. How might their ability to achieve their educational goals be compromised by what is happening now? Will many noble dreams and potential attainments be denied, will the promise of many young people who would have come to colleges like Bates be thwarted and unfulfilled?
Unlike many of our more well-endowed peers, we do not have a sizeable financial cushion to help us guard against such consequences. Like most of their endowments, ours has lost a significant portion of its value. Because the original value was smaller, we are not in a position to consider spending a little more from abundant reserves until the economic climate improves, as some of our peers may be able to do. At the same time, we have several crucial factors on our side, including time, prudent habits, and a different kind of cushion—our academic and educational resources, our people and the strong position they have put Bates in over the years.
Time, and timing, are important factors in weathering the economic downturn. At a breakfast meeting of the Garcelon Society last week, a panel of Bates faculty members from our Economics Department invited questions from the audience. The very first query raised a key concern: We hear from some experts that the situation is so urgent that we must act immediately or risk further disaster, while we hear from others that it will take many years, great patience, and much sacrifice to rectify this situation. Which is it, a friend of the College asked our faculty—do we need to take drastic measures right now, or do we need to implement some serious reform over the longer term? All three panelists agreed on a single answer–yes. While they may have different ideas about some of the options, our economists concur that we need to take action now, in the immediate term, and we need to continue doing hard things in the months and years to come as well.
Our faculty panelists’ response neatly encapsulates the College’s approach to the current crisis. Today, we are taking several immediate steps to adjust to the financial situation in which we find ourselves. At the same time, we are using this opportunity to prepare for the future, both through multi-year budget and financial projections and through institutional planning efforts that will help us collectively understand and reach our most important goals. Three principles guide us, now and in the long run:
Working hard together, we will seek out and take vigorous action to cut controllable costs and sustain revenues wherever possible.
We will build on our great strengths and stay focused on our top priorities.
Our actions and our priorities will be strategic and mission-centered. We will control costs not by cutting across the board, but by identifying things that we can stop doing and things we can do more efficiently, while at the same time we will invest in efforts that raise revenues and/or advance our core mission.
FY 10: Anticipated revenues and expenses
On the revenue side, endowment spending, which normally accounts for about 14 per cent of our budget, will be down by about $2 million from what we anticipated when we first began to build the budget for the next fiscal year. Our only other sources of revenue are student fees, which account for over 70 per cent of our revenues, and gifts and grants to the College.
We know that Bates is an expensive college, like all of its peers, and we understand that the financial health of many students and their families will suffer during this economic downturn. To make up for the entire shortfall in endowment revenue through student fees net of financial aid, we would need to increase the comprehensive fee next year by over 9 per cent. But we intend instead to work very hard, in the ways noted below, to keep any increase as low as possible without compromising the quality of the education that our students expect and deserve. We also anticipate an increased need for financial aid for continuing and new students. At present, we have included in next year’s budget a 14 per cent increase for aid, as well as increased contingency funds.
We continue to seek and find support from those generous alumni, parents, and friends of the College who contribute to the Bates Fund. It is too soon to predict, but while we are hopeful that we will not see serious declines in philanthropy, we know that the capacity to give may be diminished in these economic circumstances.
On the expense side, the entire College is focused now on taking measures to close the budget gap. Fortunately we are practiced in taking sensible measures to manage resources efficiently. Our academic success in a highly competitive league has long since outstripped our financial position. This is what we often speak of as the “over-performance” issue at Bates, the doing of more with less. Supporting educational excellence and maintaining Bates’ high standards with even less than the revenue anticipated a few months ago will not be easy, but it can be done by resource reallocation. Every department can be involved on the operations side, for example, through the “Cost-Savings Initiatives” (CSI) program piloted in Human Resources. The more we can save in operations, the more we can still spend on the things that matter most.
Personnel costs account for about 60 per cent of our budget, and we are continuing to analyze this category carefully. It is important to remember that while other colleges and universities have announced that they will now be scrutinizing (if not freezing) every new staff position, we have in fact been reducing our staff for the last several years. Through attrition, we have cut 19 positions since FY 2003, and in our multi-year plan we propose further reductions in staff levels. Three or four years ago we instituted the “waiver” system for staff positions, so that no vacancy is automatically filled; instead, we ask departments if they possibly can to wait a few months and during that time consider how they could do without a replacement hire. In cases where crucial needs would be unmet without immediate replacement, Senior Staff must agree to “waive” the waiting period. The fact that we have agreed to waive the waiting period in many areas ranging from security and dining to ILS and the Dean of Students’ office could be construed to suggest that this policy has no teeth, but in reality it points to the fact that we do not employ many “non-essential” people. At the very least the policy reminds us all that we must control growth in staffing and find efficiencies, again, so that we can still fund our priorities. In recent years we have also moved several staff positions from 12- to 10-month, academic year positions. We have at the same time restructured a number of areas and positions so that we have new people doing new jobs, but without net additions to staff.
On the faculty side, some peer institutions have already announced that they are freezing salaries for one or more years, cutting positions, or at least holding back on additions or leave replacements. But with our 10:1 student-faculty ratio (compared to 9:1 and even 8:1 at the most highly-ranked colleges) and fewer resources for faculty support (including salaries, sabbaticals, and research funds) than many top schools, we cannot cut very deeply without adversely affecting the quality of faculty and thus the student experience.
Looking at capital budgets, we will include ongoing work on the renovation of Hedge and Roger Bill in our plans for FY10. You have heard from others that construction projects will be cancelled or put on hold; some institutions have said they will halt all “non-essential construction work.” Here too immediate reductions are harder for us, for just as we have no non-essential positions, so too we have no non-essential projects in our plans. The “form givers” driving our Campus Facilities Master Plan—dining and campus center functions, beds for the 450 students living in housing that does not conform to current building codes, science facilities that even begin to approach the capacity of our peers, athletic facilities for both varsity sports (like basketball) and the fitness/wellness needs of all students in the 21st century –are all essential and, in most cases, overdue. In the near term we will continue to plan and raise funds for these facilities so that we have the best spaces to promote the learning experiences of our students, and part of our strategy may entail being ready to build what we need while costs are lower rather than waiting until they go up again.
Focusing on our strengths and priorities and thinking strategically
At the same time that we are intensifying existing cost-control processes and finding more ways to improve our efficiency right now, we are also considering the longer term. We have been doing multi-year budget planning for a number of years, and we are using that tool to look at multiple scenarios for changes in revenues and expenditures and to think about more extensive changes. Some of the longer term and larger scale possibilities we may consider include optimizing the use of our infrastructure, particularly in the summer months; increasing enrollments, along with the various kinds of additional support that would require; and even more aggressively lowering energy consumption, thereby decreasing costs as well as reducing our carbon consumption and greenhouse gas emissions.
Whether looking at the next year or the next ten years, however, our first priority is the same: sustaining the greatness of a Bates education. Our biggest resource—our special cushion, in times like this—is our academic reputation and the solid reality of the intellectual community that underpins it. We must maintain our leadership and even accelerate our trajectory of growth in educational quality if we are to prepare students for the future. To this end, it is even more important to develop innovative and creative programs through the planning process that our three strategic initiative teams are now conducting. With a shared vision, built by faculty, staff and students working together to innovate and advance, we will be able to implement key elements of this vision in the short- and middle-term through substitution and fund-raising. Looking out further, through the planning process and in all our thinking about the future, we will continue to ask what is changing in the environment and how we can respond to those changes in ways that make us stronger.
To protect and enhance the educational value and reputation of Bates, we also need to put the resources we can find through cost-cutting and raising revenues into our second and closely related priority, student access and affordability. As I said earlier, we are committed to doing all we possibly can to support our students as we always have, both by controlling costs and by continuing to offer financial aid that meets the demonstrated need of all who are offered admission. Bates’ grants support a talented and diverse group comprising about 40 per cent of our student body. We understand the importance of diversity—-socio-economic, racial, and ethnic—to the quality of our academic program, to our mission, to the learning environment for all students, and to our competitive position. Our competitive situation in this regard has improved significantly in the last couple of years but, as with faculty salaries, our peers have been aggressive as well, and we have continuing work to do.
In sum, the Trustees, faculty, and administrative officers of the College are committed to ensuring that in both the short term and the long term, through good times and bad times, Bates will continue to offer the finest liberal arts education possible. In the current situation, we will economize and we will be entrepreneurial. We will depend on the collective efforts of our entire community: talented faculty, dedicated staff, ambitious students and generous supporters working together.
Elaine Tuttle Hansen
Tags: Budget and Finance Advisory Committee Economic Climate at Bates Elaine Tuttle Hansen endowment spending President Hansen's update “Cost-Savings Initiatives” (CSI)
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