March 25, 2009
Late last month, several members of the Hamilton Board of Trustees, on campus for their quarterly meeting, gathered with students in Dwight Lounge for a Levitt Center-sponsored discussion of the economic crisis. Writing in the Spectator the following week, Daniel Steinman '12 quoted charter trustee and General Electric Vice Chairman John Rice '78: "think long term," he told the students, and "never live beyond your means."
That wisdom guided trustee thinking throughout the weekend as we considered admission, capital projects, fundraising projections, strategic planning initiatives and the 2009-10 budget. The care and concern for Hamilton evident in the trustees' deliberations are shared by our alumni, parents and friends, so I write to keep you informed about how the economy is affecting Hamilton and how we are responding to fiscal challenges.
The budget process for the College begins each fall. The president and senior staff, with guidance from trustees, are charged with preparing and presenting for full board consideration and approval a balanced budget that sets the comprehensive fee and takes into account institutional priorities and the endowment spending formula. This year, the senior staff started its budget deliberations earlier than in the past and benefited not only from the usual input of the Faculty Committee on Budget and Finance, but also from the work on a new Strategic Plan.
As part of this year's process the senior staff consulted regularly with the trustee Budget and Finance Committee and with the full board in December on a preliminary strategy. The plan included building financial flexibility by containing expenses, modifying operations and creating contingencies. In ensuring the long-term survival and stature of the College, the senior staff was guided by several core principles: safeguarding Hamilton's reputation for providing a rigorous, individualized education; protecting the academic program where students learn in a resource-intensive environment; attracting, enrolling and retaining the most talented and deserving students as measured by high school performance; and providing adequate financial aid so that Hamilton remains a school of opportunity.
There are six primary factors that drive the Hamilton budget. On the revenue side these include the comprehensive fee paid by students, the income derived from the endowment, and fundraising. Budget drivers on the expense side include student financial aid, employee wages and benefits, and operating expenses.
(about 64 percent of revenue in 2009-10)
The 2009-10 budget calls for 3 percent growth in the comprehensive fee, the lowest percentage increase at Hamilton in 42 years. It balances the revenue needed to protect the academic program with the fiscal constraints faced by many of our families. The total cost of attending Hamilton next year will be $39,370 for tuition, $5,520 for room, $4,580 for the full board plan and $390 for the required student activities fee (which is administered by the Student Assembly). A portion of the extra revenue will provide additional financial aid to maintain socioeconomic diversity at Hamilton. Also, since enrollment affects the revenue we derive from tuition and fees, we will slow our progress toward a planned enrollment of 1,775 students. Due to better-than-anticipated retention and more students than expected in the classes of 2009 and 2010, our current enrollment is 1,828. Several colleges are reporting that they will enroll more students next year to increase revenue. Because we are already larger than the size we planned, slowing the rate at which we return to that level will provide budget flexibility in the next few years.
(about 20 percent of revenue in 2009-10)
The income that Hamilton derives each year from its endowment is based on a formula that smoothes out fluctuations in the market to provide a predictable source of revenue for the College and to protect the endowment for the long term. That strategy seems especially prescient now. At year end, Hamilton's endowment was about $500 million, having lost approximately 29 percent of its value in 2008, which is broadly in line with what other colleges and universities have been reporting. This decline compares with a three-year rate of return of 10.2 percent (in comparison with 10.7 percent for peer colleges), a five-year rate of return of 13.5 percent (12.3 percent for peers), and a 10-year rate of return of 10.7 percent (8.5 percent for peers). Next year, Hamilton's endowment will provide $27 million in revenue to support scholarships, professorships, programs and operations. Even though the College's formula allows for additional revenue from the endowment, we will place those resources in a temporary endowment reserve as a contingency fund. Overall, Hamilton will spend $500,000 less from its endowment next year than it did this year. Our habit of careful stewardship will allow the College to continue drawing adequate revenues from the endowment. The longer the financial crisis persists, however, the more difficult it will be to maintain spending at current levels.
(about 5 percent of revenue in 2009-10)
There are two components to fundraising: the Annual Fund, which represents unrestricted gifts that support operations and are critical to each year's budget, and larger, restricted gifts that support capital projects, endowed funds and other priorities designated by the donor. Hamilton's Annual Fund, which has traditionally been among the most successful of any college in the country as measured by alumni participation and gifts per capita, provides about 5 percent of each year's operating budget. Alumni and parents continue to place Hamilton among their philanthropic priorities, but we must consider their financial constraints, so our 2009-10 Annual Fund goal will be the same as this year's goal of $6 million.
The final 10 percent of the College's revenue from 2009-10 comes from research grants, interest income, restricted gifts and auxiliary services such as summer use of the campus for conferences and sports camps.
(about 18 percent of expenses in 2009-10)
Hamilton is proud of its reputation as a school of opportunity. Many alumni would have been unable to attend Hamilton without financial assistance, a tradition still very much alive today. As part of this year's budget process, the College reaffirmed its pledge to meet the full demonstrated need of every student. As a result, the 2009-10 budget for financial aid (projected to be $24.6 million) will grow at a rate higher than that of the comprehensive fee. The College is also preparing once again for mid-year requests for additional aid due to demonstrated changes in family circumstances caused by the recession or other factors. We responded to approximately four dozen such cases in 2008-09, and we are not aware of any student who had to leave the College mid-year because of a change in financial circumstances. Indeed, we were already planning for a student body that would require additional financial aid and had therefore decided in 2007 to reallocate $1 million from merit aid to need-based aid. Providing adequate financial aid was then, and is now, a high priority for Hamilton. The College's long-term goal, identified in the Strategic Plan, is to admit all students without considering their ability to pay (i.e., becoming need-blind). Currently, financial need becomes a factor in the admission decision for a small percentage of each entering class.
Budget Driver 5: Wages and Benefits (about 40 percent of expenses in 2009-10)
It is important that we take appropriate steps to retain our talented employees. Wages and benefits will account for $54 million, or about 40 percent, of the 2009-10 budget. That includes a $500 raise for every full-time employee. This across-the-board approach enables us to help those earning least and likely to be most affected by the economic downturn. Increases for part-time employees will be prorated; the union representing physical plant workers will bargain for wages and benefits when the current contract expires at the end of this year; and the president and senior staff will forego salary increases in 2009-10.
(about 42 percent of expenses in 2009-10)
The major components of Hamilton's operating expenses include department and program budgets, debt service, utilities, plant renewal and costs associated with external grants. As part of the budget process, deans and vice presidents at the College identified reductions in their operating budgets totaling 4 percent. Cutbacks were determined carefully, and we are prepared for possible further reductions. Operating budgets across the College were reduced by $650,000. We realized an additional $360,000 in utilities costs by locking in rates, and we elected to hold flat the plant renewal budget at $3.5 million, which is about 50 percent of our goal. These savings were offset by an $800,000 loss in the interest we earn on operating cash and approximately $350,000 of additional debt service due to the conversion of variable rate bonds to fixed rates.
After reviewing next year's spending plan and considering varying points of view, the Board of Trustees adopted a budget for 2009-10 that accomplishes a number of important objectives.
In addition, the College has created financial flexibility by building three levels of contingency to prepare for possible business discontinuity. First, the College will maintain an operating contingency of slightly less than 1 percent of the budget, or about $1 million. Second, we anticipate a surplus from the current year's budget of about $2 million due primarily to a larger-than-budgeted enrollment. Third, we will defer the full authorized draw on the endowment to preserve as much endowment purchasing power for the future as we can. These contingencies will be used in the event of an enrollment shortfall, increased need for financial aid over the budgeted amount, or a decline in next year's Annual Fund. Although we believe these scenarios unlikely, we must plan for such possibilities.
The budget protects our highest priorities; progress toward achieving other goals is being slowed. The latter include:
Hamilton approaches the new economic reality from a position of strength. As noted in our Strategic Plan, "Enrollment is steady, the budget is balanced, new facilities have opened, and over the past decade Hamilton has excelled in the areas of admission selectivity, philanthropic support, and endowment growth and performance. The College has provided an increasing number of opportunities for students to collaborate with faculty members, and our students have won national fellowships and scholarships in unprecedented numbers." Momentum remains steady as measured by the interest of prospective students and year-to-date progress toward our Annual Fund goals. As I write this letter, indications are that the Class of 2013, which is now being admitted, will be as strong as any in our recent history. We are grateful to alumni, parents and friends for their loyal and enthusiastic support of Hamilton during this challenging time.
Nevertheless, the economy forces us to make choices, and the 2009-10 budget reflects priorities: protecting the academic and residential programs, and making certain there is financial aid available for every Hamilton student who demonstrates a need for it. Continuing to invest in these areas at the expense of other important initiatives could only have been achieved in a climate of collegiality and cooperation in the best interests of Hamilton and its students.
We do not know how the recession will evolve. The speed with which the economy rebounds will dictate further action. Meanwhile, I am confident that the fundamental operation of the College in 2009-10 will remain unchanged, and that we have taken the necessary steps to prepare for the long term and live within our means.
Joan Hinde Stewart