Memo to the Saint Michael's Community

TO:     The Saint Michael's College Community                  

FROM:     Nancy Rowden Brock, VP, Finance and Treasurer

DATE:     November 10, 2008

RE:     Saint Michael’s and the Current Economic Climate – Volume 2

About a month ago I wrote to comment on the College’s finances.  Today I write to provide an update and to convey additional observations on how the financial situation is affecting us at Saint Michael’s.

Cash and Investments

  • We continue to project having sufficient cash through December.  We have not borrowed on our line of credit, nor do we expect to do so through the end of the calendar year.

  • Redemptions from the Commonfund Short-Term Fund have proceeded as anticipated.  We have redeemed 56% and anticipate being able to access 10% more of the cash by the end of December.

  • In recent months we have seen significant declines in the value of our endowment reflecting declines in virtually all markets and asset classes.  At June 30, 2007, the value of our endowment was $72.3 million; the value at October 31, 2008 was estimated at $54.7 million.

  • Our Investment Committee continues to monitor the portfolio and work with our asset managers to prudently manage our endowment as we move forward.

Response of Higher Education Institutions

We have seen announcements in response to the economic downturn from other Vermont institutions of higher education and from colleges and universities throughout the country.  Hiring freezes, limited salary increases, suspension of construction projects, and other cost control or budget-cutting measures have been instituted.  These actions appear to be a reflection of the significant decline in the value of endowments and the immediate impact this has on institutions that rely heavily on endowment funding for operating activities.  Some institutions also may be anticipating sharp declines in enrollment as families struggle with high and rising tuition costs and/or inability to access credit. 

While the decline in the value of our endowment is a concern, our reliance on it to support operations is limited to between $2 and $3 million annually, and we expect to continue this level of support into fiscal 2010.  At this point we have not seen signals to indicate the direction or magnitude of any change in enrollment.  In fact, there is a slight uptick in applications this year compared with the same time last year.  Finally, there have been no unusual requests for additional student aid this Fall and we are fortunate that our families continue to have access to loans through VSAC – one of very few such organizations that have been able to maintain their lending levels through the credit crunch.

When and How Will We Respond?

At the October Trustees meeting, we outlined the financial planning process we will follow over the next few months.  The first step in this process is underway – it is developing our recommendation for the 2009/10 Financial Plan for delivery to the Trustees at their December meeting.  This is a high-level plan (not a department-by-department line-item budget) that focuses on the key drivers of our activities and their financial implications.  The Cabinet is working to balance the competing goals of limiting any tuition increase, offering appropriate financial assistance to students in need, maintaining enrollment, and managing expenses.  Again, details are not being decided at this point, but we are considering all options as we develop this Plan.

While none of us can predict what will happen, nor make promises about the future, I again assure you that our financial situation is manageable and we are working to plan for and respond to additional information and market signals.  We will continue to communicate with you about our financial circumstances as the coming weeks and months unfold.  In the meantime, if you have questions, I would be pleased to hear from you.