Memo to the Saint Michael's Community

TO:           The Saint Michael's College Community                  

FROM:       Nancy Rowden Brock, VP, Finance and Treasurer                                      

DATE:        June 4, 2009

RE:           Saint Michael’s and the Current Economic Climate – Volume 4

In mid-May, we received a memo from Jerry Flanagan describing the admissions picture at that time.  He summarized the results of the admissions and enrollment process, acknowledging that at that time there was less than perfect clarity to the picture.  Now, with a bit more information and time to evaluate it, I’d like to pick up the narrative where Jerry left off and offer the following update.

The Financial Plan and the Budget

First, a reminder that the Financial Plan was developed last Fall based on major assumptions that drive our financial situation, including enrollment levels, financial aid, compensation and major expense categories.  The Budget is being developed now, and involves detailed planning at the department and line-item level.  Differences between the Financial Plan and the Budget are caused by changes due to the passage of time, and because the detailed planning is simply more precise.  Of course, any plan or budget can only reflect the best information and thinking at a point in time – changes may be needed as actual events unfold.

Enrollment and Financial Aid

  • First year students entering in Fall 2009 are expected to be 485 and transfers 40.  Our Financial Plan called for 560 and 24, respectively, so we have a net shortfall of about 60 students in these categories.  We know from experience that a few of these students will for one reason or another decide not to come to the College in September, and a few others will make an appeal to enroll in the Fall, so this number could move down or up throughout the summer.

  • When we developed the Financial Plan, we expected the difficult economy would cause higher-than-historical attrition of returning students.  Based on the strength of registration and room draw information, we now expect the number of returning students will be higher than we initially planned by about 25.

  • Therefore, we are developing the FY 2010 Budget based on total enrollment of 1905, 35 fewer students than in our Financial Plan.

  • Many (if not most) institutions sought to achieve their Fall enrollment goals by offering attractive financial aid awards.  Families carefully evaluated the awards, and we responded as generously, but prudently, as we could to their appeals.  I don’t mind admitting that having $27.8 million in offers of awards outstanding (against a target of accepted awards of about $5.8 million) is not for the faint of heart – one must trust in the law of averages that “normal” numbers of students with “typical” award levels will accept the packages and enroll.  It is an inexact science.  Not surprisingly in this economy, the total financial aid awards accepted came in somewhat higher than we targeted at approximately $6.1 million.

The Shortfall and How We Plan to Address It

Just as we now have a more accurate budget for revenue based on the enrollment and financial aid numbers discussed above, the exercise of developing the Budget is yielding a more accurate picture of our expense projections.  While detailed budgeting continues, and we will not post the department budgets until early July, the process now shows that expenses are expected to be lower than in the Financial Plan, partly offsetting the lower revenues.  We now anticipate a bottom line shortfall of approximately $600,000.

Our intention is to recommend to the Board of Trustees at their June 12 meeting a balanced budget.  To do this, we will recommend implementing the following actions (which we would expect to be in place for FY2010 only):

  • Employees whose salaries are greater than $100,000 will be asked to accept reductions in pay of up to 5% beginning in July.

  • Budget managers across the College will absorb a total of $200,000 in expense reductions.  This may translate into less travel, more frugal purchasing of supplies, or other savings that the department manager identifies.

  • All employees will see a 1% reduction (to 9% of pay) in the College’s contribution to the 401(k) retirement plan beginning after appropriate official notice is sent.

I in no way wish to minimize the impact these actions, if approved by the Trustees, will have on our entire community.  And we again acknowledge the sacrifice all employees have made in seeing no salary increase for the coming year.  The College has not been extravagant or wasteful and, perversely, this makes cutting costs more difficult.  But as I read articles about the magnitude of cost-cutting many other institutions are undertaking, and consider the personal impact it must have on their employees and students, I am thankful ours is a relatively modest challenge.  We can do this.

Cash and Investments

  • Our cash is at normal levels for this time of year and we expect to maintain a positive cash balance through the end of June.  We have not borrowed on our line of credit, nor do we expect to do so for the foreseeable future.

  • We have redeemed all but approximately $700,000 of the balance in the Commonfund Short-Term Fund.  We will continue to redeem cash from this account as the underlying assets mature, which will occur over the next 36 to 48 months.

  • The value of our endowment has increased somewhat with the recent market rebound.  At April 30, 2009 the value was estimated at $53.3 million, up from $50.3 million at the end of January.

As the economic downturn continues to unfold, more changes and challenges have confronted our society.  We understand that Saint Michael's is not exempt from such developments – in particular, continued economic pressures on families could lead to further deterioration in enrollment.  Our objective is to act responsibly and timely – not to ignore signs that indicate the need for action, nor to overreact thus harming our community and our future.  We appreciate your continued support in this endeavor.