The Budget May Be Priority Number One

Binders packed with graphs and statistics about St. Lawrence’s finances fill the bookcases in Kathryn Mullaney’s office. One graph that jumps out illustrates a success story. It shows a steep upward curve for the growth in the university endowment’s market value, which rose from $50 million in 1984-85 to a $269 million peak in 2006-07, and then a small drop to $245 million last year.

The endowment is one of the university’s main sources of revenue and Mullaney, the vice president for finance, credits President Dan Sullivan for playing a leading role in expanding it and for turning “the heat up on fundraising” in general. “He improved what we are providing. It isn’t just marketing. It’s improving what you have,” said Mullaney. She said he helped increase the endowment market value by over $20 million every year for eleven years and set fundraising records for the last three.

But now this momentum has been slowed by the nation’s long, punishing economic crisis, and although university officials say that St. Lawrence is better prepared than many other selective liberal arts colleges to weather the downturn, William Fox, who succeeds Sullivan in July, will be forced to adjust and improvise.

As of February 28, the endowment’s market value had plunged to $169 million.
The university’s financial health rests primarily on the endowment and two other main sources of revenue--student tuition and fees, and gifts from individuals and foundations.

Here is a closer look at the status of these sources:
Earlier this year, the endowment had lost 25 percent of its value since June 30, 2008. It is managed on a quarterly basis to cushion big drops and increases. In the current quarter, the university is using interest from the 2006-07 endowment, twelve quarters earlier. Thus, the effects of the low 2008-09 market value will not be felt until 2011-12, when the university’s operating budget is scheduled to drop. For instance, the operating budget currently is $13 million. In 2009-10 it will drop to $12.8 million, to $11.5 million in 2010-11, and to $9.9 million in 2011-12.

However, Sullivan said in a speech to the St. Lawrence community two months ago that revenue from tuition and the student activity fee is doing well. This year saw the largest percentage of returning students, almost 98 percent, since 1990, and 40 more students than the administration predicted are returning for the spring semester.

As for gifts from individuals and foundations, Sullivan and Mullaney said they expect a slowdown. “Because of the economic stresses our donors are feeling, we are anticipating that gifts in support of current operations will decline for the next year as they have this year,” said Sullivan in his speech.

The loss of endowment funds is, along with a lack of gifts, a $3 to 4 million revenue loss for the university. As one countermeasure, tuition will go up 4.9 percent to $39,520 and room and board by 5.3 percent to $10,160, but St. Lawrence funded grants and scholarships will also increase by 8.2 percent.

Support for faculty will be minimally affected under the current university cutbacks, officials said. Faculty sabbatical and leave replacement will be managed more tightly and there will be a 10% reduction in travel budgets for all divisions. Staff, primarily those without student-based positions, will be offered voluntary reductions in annual appointment length, and there will be a minimum delay of 90 days in the filling of all administrative positions.

The university is also “trying to reduce costs that don’t impact the things that are important to us,” said Mullaney. For instance, next year the university will not print its usual 3,000 telephone directories, relying instead on an electronic version. Sustainability measures, including improving energy conservation and recognizing lower energy rates, will reduce expenses as well. “Every bit makes a difference,” said Mullaney.

More students living on-campus will increase revenue from room and board, and Sullivan said in his speech that the university is “opening up some high quality faculty and staff housing to students, acquiring additional residential spaces near campus, and freeing up other high quality rooms.”
The university’s financial picture includes $100 million of debt which was accumulated when the university borrowed money to renovate older buildings and construct new ones like the new science center, student center, and student townhouses. The action enhanced the university’s academic offerings and its ability to attract applicants.

“We are continuously seeking ways to restructure our debt to minimize the interest costs,” said Don Rose, chair of the Board of Trustees.
“It is important to understand why an institution like St. Lawrence takes on debt as part of its financial plan,” he said in an emailed reply to questions. “All of the debt that we have accumulated was for the purpose of constructing new buildings [or renovating older ones]. The value of these investments in buildings does not decrease; therefore, taking on debt for this purpose does not decrease the net assets of the university.”

Rose said it is more advantageous to take on debt rather than use endowment money. Over the long term, he said, an endowment generates returns of about 8 percent a year, but as a non-profit institution, the university is able to borrow money at an interest rate between 1 percent and 4 percent.  “If we were to take the funds from our endowment, we would have less to meet our educational mission, by $5 million or more annually.”
While to date St. Lawrence has faced minimal hardships from the sour economy, other colleges and universities are struggling. A New York Times article reported that the drop in college endowments is the worst it has been since the 1970s. Some schools, like Syracuse, have laid off employees while others have delayed construction and dipped into their cash reserve.

Sullivan acknowledged that more challenges are ahead. “While next year’s budget is the one we must solve now, we must also be mindful of the potential impact of a long recession that may become worse before it becomes better,” he said in his speech.

But, Rose said, “Based on the work President Sullivan, his staff, and campus committees have done over the last few years, we believe we have a five-year budget that allows us to deliver on our mission without sacrificing the most important elements of what our students need and expect.”
He added, however, that “if the economic climate deteriorates significantly beyond where it is now, then the challenge for Bill Fox will be paramount.”

“Fox will have big shoes to fill,” said Mullaney. But she is confident that “he will have a positive impact on SLU.”