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March 2, 2012
Dear faculty, staff and administration,
The Provost, the vice presidents and I write to you following the Board of Trustees meeting on Friday, February 24.
While we enjoyed lively and productive discussions on a variety of important topics, we spent significant time on the financial challenges that the University is currently experiencing. You may recall from our October 31, 2011 message to you that the fall 2011 enrollment (graduate and undergraduate) was below the prior year and, therefore, revenue fell short of the year-to-date projected budget amount.
Unfortunately, enrollment did not improve this spring. Although we had strong freshmen enrollment in the fall, overall enrollment was down 1% compared to last year. The spring 2012 enrollment is down 2%. In addition, the financial needs of our students have grown as the economy continues to languish, resulting in larger-than-budgeted institutional aid expenditures. We anticipate that net tuition revenue, that is tuition less institutional aid, will be about $7 million below budget through the end of the spring semester.
The return on endowment investments has also proved challenging so far this year. During the fall semester the stock market was down from the end of last fiscal year resulting in investment losses of over $1 million. Lately, the stock market has performed better which is helping to trim earlier losses.
Much as we ride the waves of strong enrollment growth and financial resources that enable us to invest in you and in programs and services for our students, we are confident that we will weather the storm of enrollment declines and associated economic difficulties. We have already initiated a number of cost savings measures to offset the revenue shortfall. With the cooperation of all budget managers, we implemented a “soft” hiring freeze in January and only essential positions are being filled. We trimmed the budget for non-salary expenses by $1 million. These actions and the budgeted $2.5 million expense contingency, in other words, a buffer, will help to offset the revenue shortfall.
Even though these initiatives are helpful, they are not enough to fully offset the revenue challenges. Therefore, we very much regret that we will not be able to provide merit increases this 2011-2012 fiscal year. This was a most painful decision for us to make.
Furthermore, last Thursday we met with the Deans, other University administrators and the chairperson of the Faculty Senate to ask all budget managers to limit spending for the rest of the semester, cutting back on controllable expenses, such as supplies, travel, catered meals, and departmental events. We count on you to be thoughtful and careful in the use of institutional funds.
Achieving break-even results will require that we all limit expenditures between now and June 30, 2012 and, if the stock market continues to improve, a small surplus for this fiscal year may be possible. It is essential that the University maintain at least break-even results to ensure compliance with debt covenants.
Many of you may recall that we have built up cash reserves from the surpluses generated over the past few years and you may question why we cannot use that money for merit increases for administration and staff or salary increases for faculty in the current year. There are a couple of reasons. First, salary increases represent annual recurring expenditures. To provide salary increases, we must be assured that we can fund those within the operating budget so as to realize at least break even results and avoid conflicts with our debt covenants. Given the challenges this year, we cannot ensure that salary increases can be funded and sustained.
Secondly, the University still has not built up reserves to a desired level. The University ended last fiscal year with approximately $33 million of unrestricted cash in the bank. Given personal and family budgets, that level of cash may sound massive, but it is not. Annual university expenses excluding financial aid are about $155 million, which translates into spending about $13 million per month on payroll and other costs necessary to keep the institution running. We must ensure that we continue to build up that cash reserve to provide security and stability for the future.
Cash in the bank, however, does afford us an opportunity to address strategic “one-time” funding needs. With guidance and approval from the Board we continue to look at facility enhancements that will aid recruitment and retention. Additionally, we are engaging in property acquisition to enhance our borders and address critical space needs. To that end, through the efforts of Dr. Michael Griffin, Vice President for Business Development and Operations, we acquired three properties in February - the Redeemer Lutheran Church at the corner of NE 2nd Avenue and NE 111th Street, a house on NE 115th Street, and a small building north of the Hopper Building on NE 2nd Avenue. We achieved these purchases for $119,500 less than the amounts authorized by the Board.
In the midst of a struggling economy, opportunities for cost savings can be identified. Interest rates have been hovering at historical lows so far this calendar year. Through the efforts of Bruce Edwards, Vice President for Business and Finance, and his team, we secured terms to refinance over $30 million of existing debt. This transaction will close in March and enable us to avoid an almost $900,000 interest payment due this year and realize a savings of about $200,000 annually on future interest payments. As part of the necessary due diligence related to the refinancing, the University’s credit was reviewed by Standard and Poor’s and Fitch rating agencies, both of which affirmed the University’s BBB debt rating and indicated a “stable” outlook.
As reported to you in an e-mail message from Dr. Kit Starratt, Vice President for Mission and Institutional Effectiveness, we are collaborating with the Art and Science Group (ASG), a consulting firm that specializes in conducting pricing and positioning studies. The goal of this initiative is to evaluate our current undergraduate tuition model and to define those aspects of our undergraduate experience that differentiate us from other colleges and universities of interest to our potential undergraduate students.
Such a study looks at potential students throughout the recruiting process, determining why they choose or choose not to enroll at an institution. The results of this empirically based study will enlighten us on a number of topics, including how Barry is perceived relative to peer institutions, what are the most important factors for students in making their decision, and if there are potential misperceptions about Barry in the marketplace. The results of such an analysis will guide us in a critical examination of our traditional undergraduate experience and help us develop a more empirically based strategic undergraduate recruitment process.
As you might expect from the challenges experienced this year, budgeting for FY 2013 has been difficult. Administration provided the Board with an update on budget planning. At this time, we are continuing to work towards a balanced budget for next year. More work is required to produce a balanced budget. This must be accomplished by the next Board meeting on June 1. We will provide you with an update as we make progress on that effort.
In my prayerful reflections this week related to the challenges we are currently facing, I was reminded of two quotes. The first is by Dr. Margaret Wheatley, renowned writer, speaker and consultant in the field of leadership and organizational theory. “There is no power greater than a community discovering what it cares about.” And the second is from the Prophet Jeremiah in his letter to the exiles in Babylon, as recounted in the Hebrew Scriptures. “For I know well the plans I have in mind for you, says the Lord, plans for your welfare not your woe, plans to give you a future full of hope. When you call me, when you pray to me, I will listen to you.”
Indeed, we are a community - a community that cares about our students and one another, a community bound by a powerful mission that for almost 72 years has met periodic challenges to its economic well-being and thrived. I remember when I was Dean of Students in the 1970s we used to talk about the college’s accumulated deficit! Now those were very lean years.
Moreover, we are a community sustained by a faith tradition that believes there is a holy power greater than we are, the Holy One, who cares for our welfare and with our cooperation will give us a future full of hope.
Linda Peterson, Bruce Edwards, Michael Griffin, Scott Smith, Kit Starratt and I commit to you our personal gifts and our professional experience and expertise as we tend daily to your welfare and that of our students, and the future vitality of our great university.
We welcome and are very grateful for your collaborative, energetic and professional engagement in the life of the university, your creative ideas and efforts to recruit and retain students.
The blessing of peace be yours. May our Holy and Provident God watch over us.
The Executive Committee of the Administration
Sister Linda Bevilacqua, OP, PhD
Dr. Linda Peterson
Bruce Edwards, MBA, CPA
Dr. Michael Griffin
Dr. Scott F. Smith
Dr. Kit Starratt