President Jones issues update on Trinity finances
As a veteran president, now for the past thirteen years, with nearly five at Trinity, I know that there are two fundamental characteristics called for in moments like those we face today: candor and hope.
As you will read in the following abridged version of a letter I conveyed to the College community on January 29th, my continuing commitment is to tell the Trinity family the facts as I know them, describe the processes and timetables by which we will assess and choose courses of action, and define clearly the principles that will guide our decisions and actions.
I need not repeat here the vexing conditions of the economy and its current and prospective impacts on Trinity. Indeed, you will get some flavor of our challenges by reading the text that follows.
Recently, I accepted a voluntary appointment as member of the board of COFHE (the Consortium on Financing Higher Education). Joining the leaders of such member institutions as Harvard, MIT, Stanford, Williams, and others provides Trinity and me with a timely perspective on the mounting financial issues facing America’s colleges and universities. As one small reassurance, I note that Trinity is hardly alone in responding to the roiling economic waters of the past year.
Where I gain hope, however, is in the knowledge that the Trustees and I are very clear about the values that define our choices. We will do all within our power to protect our present students and their families. We are committed to academic excellence as a core virtue. And we must and will live within our financial means.
In evaluating our options and opportunities, we must defeat expediency and the prevailing gloom of the short term. We will need to think and act strategically and deliberately with our eyes fixed on long- term goals. I am confident that our work will lead to a stronger, more resilient Trinity. I am further confident that Trinity will continue to be a national leader in the liberal arts.
In the period ahead, I will use Trinity’s Web site as a cost-effective medium to communicate progress reports. As I continue to share news with all members of the College family, I will be forthright and factual. I have encouraged the on-campus community to share their concerns and their advice as we all grapple with the current economic challenges. In the same spirit, I welcome thoughts from our alumni and parent readers.
I remain grateful to all who share my affection and appreciation for Trinity. My special appreciation goes to those of you who so generously share your philanthropy and your service to the College and its ideals. Whether you contribute your treasure, or open employment opportunities for students and recent graduates, or advocate for Trinity in your communities, you strengthen the College and its purpose. In the end, that is the highest commitment we can ask of each other.
James F. Jones, Jr.
President and Trinity College
Professor in the Humanities
To Members of the Trinity Community:
This is the second in what I expect will be a series of periodic communications regarding the financial realities before the College as the result of the economic stresses so widespread today. I am writing this after the conclusion of the January 23 meeting of the Board of Trustees, at which they were briefed on the present financial information in hand by Paul Mutone, vice president for finance and operations and treasurer, and me. The ensuing discussion focused on projections and plans for the present (Fiscal Year 2009) budget, as well as the process being followed to prepare for approval of the FY 2010 budget. Equally important, preliminary attention was given to early projections for budgets in 2011 and beyond.
The concerns we are facing will not come as a surprise to most members of the Trinity community, and they are the same concerns with which colleges and universities across the country are grappling at this very moment. Because of the current situation in the national and indeed global economy, we must re-think and re-cast our financial planning to account for a lower-than-expected return on the endowment, loss of income from short-term investment of tuition income, the possibility that tuition revenue may decline if families send their children to less-expensive schools, and potentially decreased giving by alumni, parents, and others, especially for capital purposes.
As I write this today, I am fully aware of the concerns many of you have about the financial health of the College, now and in the immediate future; I am equally aware that many may worry about how Trinity’s situation might affect individual members of the community, especially our students. While there are still many unanswerable questions for the time being, I can promise you that I will communicate now and in the future in a straightforward manner, sharing facts when they are known, describing processes to be followed, and projecting time-frames for decision-making whenever I can be totally certain of the realities before us. And as always, Paul Mutone, Secretary of the College Scott Reynolds, and I will be available virtually every waking moment to answer your questions and receive your advice.
Let me start first with the relevant facts, as we know them at present. As of December 31, 2008, the College’s endowment was $307 million, a loss of approximately $130 million from its highest value. While it is small solace indeed, the percentage loss, approximately 30 percent, is slightly better than the various national market indexes quoted in the media. Small solace as well since, from my perspective as a new member of the board of the Consortium on Financing Higher Education (COFHE), I see firsthand the effect the downturn has had on our sister schools, and colleges and universities across the nation. Those comparative facts notwithstanding, our endowment’s lost value will have serious financial ramifications in FY 2010 and beyond. I will detail that momentarily.
On the positive side so far, the Trinity Fund, bucking national trends among colleges and universities, is running about 14 percent ahead of last year at a comparable time in gifts and pledges, as of the mid-point of the fiscal year. It is impossible to project a similar outcome for the balance of the school year; being conservative, we are currently projecting that we could miss our goal. Still, we are encouraged by the financial support of our alumni, parents, and friends and hopeful that by June 30, our goals will be met.
We are currently compiling spring-term student enrollment data now that the add/drop period has concluded. In the next few days, we will have explicit knowledge of the final enrollment figure for this fiscal year. Since tuition income accounts for roughly 70 percent of the College’s revenue, this information is critical as we deal with the present (FY 2009) budget to date. We are already aware of some increases in requests for new financial aid and a small increase in plans to transfer elsewhere, and we will monitor these two areas carefully now and in future semesters.
Right now, there could be the possibility of a budget deficit approaching $2 million for the present fiscal year. Our plan is to eliminate that deficit by forgoing this year’s budget transfer to the reserves (which we have been trying to build to $10 million), by lowering the transfer to the deferred maintenance reserve, by reducing (as we have already done) all operating budgets by five percent, and by deferring the annual internal debt payment. These actions, endorsed by the Board of Trustees, will allow us to produce a modest surplus by the end of the current fiscal year and the initial funding of an enrollment reserve available to address unpredicted financial aid requests or unexpected enrollment declines.
Regarding this new reserve, which we anticipate will be required for a minimum of three years, it is simply impossible at present to assess what might be the size of the problem. The five-percent cut in operating budgets will reduce spending by $955,000. It is our expectation that one-half of this amount will serve as the initial contribution to this reserve. An additional contribution to the enrollment reserve will occur by way of an appropriation of $1 million from the fiscal 2010 operating budget. Given our strong commitment to helping already enrolled students and families who are, or may be, affected adversely by the present economics, will the size of this reserve be sufficient? We just do not know, and have no way of knowing, at this time.
Absent any more destabilizing economic news, we believe that we have a well-conceived, short-term plan for the present budget, just as we believe that we must continue to find special means to support students coping with extraordinary financial stresses.
Our most serious financial challenges lie in budget planning for fiscal years 2011, 2012, and beyond. Indeed, based on the current market value of Trinity’s endowment, we project that endowment income for the FY 2012 budget (the fiscal year that begins on July 1, 2011) could be as much as $5 million less than we have available this year. That is an inescapable fact and will certainly require making some strategic choices about how to best utilize our resources to protect the core essences of Trinity’s academic excellence. Allow me then to provide some perspective on preparation of the FY 2010 budget and some working assumptions for future budgets.
In discussing the topic of future budgets with the Trustees, I outlined three overarching goals:
With each of those as strategic and philosophical anchors, we will proceed apace with developing the FY 2010 budget proposal for approval by the Board of Trustees at its meetings on February 27 and 28, on campus. I have asked Paul Mutone to engage the Planning and Budget Council, the faculty’s Financial Affairs Committee, the Exempt Staff Council, the IMPACT group, and the Benefits Committee in conversations and recommendations to me, for my review and consideration before Trustee deliberations and decisions in late February. This will be the short-term process contributing to development and affirmation of the FY 2010 budget.
Because subsequent budgets project the additional endowment income shortfalls to which I referred earlier, the campus committees and the senior line officers must realistically link FY 2010 budget recommendations to new or related recommendations for subsequent budgets. While this aspect of budget planning cannot and should not be completed by late February, it is critically important that the process of considering budget priorities and choices for FY 2011 and beyond be developed, in detail, prior to the close of the present academic term. To delay further would undermine our fiduciary and strategic responsibilities to Trinity. While I wish naïvely that I could decouple budget challenges from strategic decisions, that is not the essence of leadership in these unparalleled times.
In his famous “house divided” speech on June 16, 1858, Abraham Lincoln said “If we could first know where we are, and whither we are tending, we then could better judge what to do and how to do it.” I think most of us in the Trinity community now know where we are at this moment in our long history. This time of financial turmoil might just be the very catalyst for our College to ponder anew “whither we are tending” and how best to reach our common ambitions for this venerable place. I remain hopeful and optimistic for the College’s future and its excellence.