Budget and Finance Advisory Committee
Everyone at Bates is concerned about how the recession will affect the College in the coming years. Colleges and universities across the country, like many other organizations and businesses, are announcing salary and hiring freezes and layoffs, suspending or canceling construction projects, and reducing operating budgets. The Budget and Finance Advisory Committee has compiled the following list of Frequently Asked Questions to give the community some insight to the current financial situation at Bates. We emphasize that all of the information contained herein represents only current plans, given current information and assumptions about the future. Naturally, this information is subject to modification in response to future developments. BFAC will strive to provide updates to the community as new information becomes available.
Budget planning for Academic Year (AY) ’09-’10 has been going on since last summer. Since the financial crisis struck last fall, plans have been continually updated as the situation developed. The Trustees will finalize the budget for AY ‘09 –’10 in May.
To place matters in perspective, the College operating budget comes from four main sources:
1. Student fees: ~ 72%
2. Endowment spending: ~ 14%
3. Bates Fund & other fundraising: ~ 5%
4. Miscellaneous Revenues: ~9%
The main categories of College expenditures are:
1. Salaries, wages and benefits ~61%
2. Instruction, Academic Support, Student Services ~13%
3. Plant and Plant Reserves ~10%
4. Administration ~5%
BFAC will be holding a series of open meetings in the coming weeks. Members of the community are invited to bring any additional questions about the College financial situation or budget to these meetings.
1. How has the stock market decline affected the endowment? How does this decline affect the College budget?
For the first six months of our fiscal year (beginning July 1), the College endowment has lost approximately 31 percent of its market value. Each year, the College spends a calculated amount of the endowment based upon an average on the market value over the previous 13 quarters. This historical averaging serves to smooth large decreases or increases in the endowment over a number of years. This means that it will take a couple years before the full effects of the stock market decline are felt on the amount we spend.
Because of our relatively small endowment, Bates endowment spending comprises only about 14 percent of the annual budget. For AY ’09-’10, the reduction in the endowment will reduce the budget by about $2 million below the original plan, or slightly more than two percent of our budget.
2. Will there be a salary freeze for faculty and staff for AY ’09-‘10?
Employee salaries and benefits account for around 61 percent of the total annual budget. At the current time, we believe that while faculty and staff salary increases will be lower than originally planned, they will be positive. The Administration and Trustees are still determining exact percentages. While salary increases are normally set to respond to markets and cost of living, inflation is running at historically low levels, raising the purchasing power of earnings. For 2008, inflation was only 1.8%. Some economists expect inflation for 2009 to be similar.
Also, there are currently no plans to discontinue the staff market studies currently in process this year, nor those planned for next year.
3. Will there be layoffs?
At the present time, the College believes that the budget shortfall may be met without the need for layoffs. Where reductions are possible, it is anticipated that these may be met through attrition.
4. Will there be a hiring freeze for faculty or staff?
Many other colleges saw substantial growth in faculty and staff during the recent economic expansion. The sudden turn in events has required them to either freeze or reduce staffing levels in response. During these same years, the size of the Bates faculty grew modestly to allow us to achieve a 10:1 student faculty ratio and workloads were reduced. Since AY02-03, the number of staff has been reduced by 19 positions through reorganizations and attrition. Due in part to this prudence, at the present time there are no plans to have faculty or staff hiring freezes although we will continue our three-month wait policy as well as requiring a justification and Presidential approval for rehiring into a vacant position
5. Are any changes planned for employee benefits in response to the economic situation?
The College expends about $14 million for employee benefits (like retirement and healthcare). This represents additional compensation of about 34% of faculty and staff salaries. This percentage, in general, compares favorably to the benefit contributions at our peers but has increased dramatically in recent years due primarily to healthcare costs. Nevertheless, last fall President Hansen announced that the College would cover 100% of the increase in health care premiums for families. Payroll deductions for spouse, children and family health insurance were unchanged or even lower for 2009 compared to 2008. Consequently, no part of any employee salary increase will be absorbed by the need to pay increased health care costs.
All benefits are constantly reviewed in terms of utilization, cost, and cost effectiveness. At the current time, no reductions in employee benefits are anticipated in response to the current economic situation. A benefits committee (led by Mary Main and Ken Emerson) is, however, currently being formed to review our mix of benefits with an eye towards stabilizing the growth in this area.
6. How will the facilities master-planning process be affected?
Current plans still include the completion of the near-term renovation construction projects, namely Hedge and Roger Williams. The Board and the administration are still reviewing funding options and are hoping to proceed on the current schedule. Construction costs and interest rates are low in the current economic environment, which may give the College the opportunity to complete these projects at reasonable cost.
At the present time, there continue to be additional borrowings planned to help fund the Master Plan Phase II projects, although the timing may be delayed somewhat due to the current financial situation.
There are also no plans to curtail the institutional planning process. Developing these initiatives is important to the future of Bates, and it is even more important to be strategic in the current environment.
7. The financial situation of many students’ families may have been hurt by the recession. Is there any effect projected for current enrollments, applications, and financial aid needs?
There was no unusual attrition between the Fall and Winter semesters. A small number of families of current students have informed the College that they will require greater financial aid in future years due to changes in financial circumstances. Any demonstrated changes in the financial need of our students will be met as the College policy of fully meeting every student’s demonstrated financial need remains unchanged and remains a high priority for resource allocation. Access and affordability continues to be a priority of the College and as such current budgets include increased in financial aid at a rate greater than the comprehensive fee. This is an area, though, where there is uncertainty surrounding the needs of our students and their families. A significant increase in the College contingency has been reflected in our current budgets to address that issue.
In the admissions arena, things are looking positive. Early decision applications for the Class of 2013 were about the same as last year and about half of the Class of 2013 will be coming from the early decision round of admissions. Regular admissions applications are still being counted, but preliminary estimates suggest that applications are down approximately seven percent from our all time high last year. While we will not know the number of students actually matriculating until May, the number of applications is a good sign of strong enrollments for the Class of 2013.
8. How will academic programs be affected?
The College has asked academic departments to hold flat or decrease their budgets for the coming year. All departments are taking this call very seriously and have been frugal in their requests. Students should not expect to see any changes in the programs we offer due to these measures
9. How is the economic downturn affecting giving to the College?
Donations to the Bates Fund go to the current year operating budget. The Bates Fund makes up about five percent of the annual operating budget. At present, donations to the Bates Fund are running about the same as last year which is great news in this environment. Currently, the Advancement Office is focusing on gifts to the Bates Fund in particular due to the immediate impact they have on the operations of the College.
Donors have been affected by the financial environment and we have seen a reduction in some of the larger gifts and pledge payments expected for endowment or capital projects. They are giving to the Bates Fund, though, and they continue to be committed to the College and their pledges.
College Advancement is one area where the College anticipates hiring additional staff. Fund-raising is an important task for the coming years, and good fundraisers can easily pay for themselves, and thus incrementally help the College as a whole by bringing in additional donations.
10. What can we do as a campus to help the financial situation?
Every dollar saved is a dollar the College doesn’t have to raise through student fees and donations. In the current environment, all cost savings help the College avoid the need for more draconian measures like layoffs, salary and hiring freezes or program reductions. A Cost-Saving Initiative (CSI) will be announced shortly, in which all of the units of the College will be asked for cost-saving ideas. Some ongoing initiatives are:
An Energy Task Force is being formed under the leadership of Doug Ginevan to look at ways to reduce energy consumption. Energy costs are about five percent of College expenditures. Turning off lights and computers, turning down the heat or air conditioning and keeping windows closed really does reduce these costs.
Other cost-saving, waste-reducing, and more efficient ways of doing things are being explored. For example, we waste enormous amounts of paper. Distributing and using documents in electronic form rather than hard copy, being more prudent in printing and copying can help to control these costs.