Download Campaign Case StatementPresident Helm's Message on the Economy
December 10, 2008
Dear Fellow Members of the Muhlenberg Family,
In mid-October I wrote my first economic statement to the campus community informing everyone about Muhlenberg's strong financial position amid the nation's economic turmoil. Because the economy has continued to deteriorate since that time, I want to provide an update on how Muhlenberg has coped and continues to cope with the current crisis.
I know that, like me, you have watched the alarming devastation of our nation's economy with deep concern. Millions of our fellow citizens have lost their jobs, millions of families' homes are at risk and some of our nation's largest corporations are threatened with bankruptcy. It is not surprising that our country's colleges and universities are also affected by these difficulties; that those of us who work in higher education are keeping a close eye on our institutions' financial well-being; and that we are thinking hard about how we may need to respond to unfolding events.
The Context
Recently I spent several days in Washington D.C. conferring with presidents of many other colleges and universities about the crisis. Institutions with large endowments, whose budgets are heavily dependent on investment income, have been hit first and hardest. A recent article in The Chronicle of Higher Education reports that Brown and Cornell have announced hiring freezes; Dartmouth is planning a 10% budget cut that may require layoffs; Harvard is freezing staff searches and rethinking faculty searches; and Beloit, Boston University, Stanford, Tufts, Vassar, Williams and a host of other institutions have announced faculty and staff hiring freezes. Many colleges and universities are delaying capital projects and some are considering pay cuts.
Institutions that rely heavily on student charges are, understandably, more worried about enrollment trends. The demographic decline, now in its first year, exacerbates those anxieties, as do reports that some Ivies and other highly selective schools will expand enrollments to compensate for endowment losses. Yet most of the presidents with whom I spoke believe that it is too soon to know what the impact on enrollments will be in the coming year.
Muhlenberg is fortunate that it has been conservatively managed. We owe a great deal of thanks to the Board of Trustees for maintaining our institutional commitment to fiscal prudence, and to all those colleagues who work so hard to manage our budgets carefully, sustain our revenues and bolster the College's reputation and momentum. Our strategic plan is based on a realistic budget model that we analyze annually and recalibrate when necessary. Our budget includes enrollment cushions, financial reserves for physical plant emergencies and an ample contingency line for unexpected costs like last year's interest rate spikes. At present we are on track to end the year with another balanced budget.
The Variables
There are, however, many challenges, known and unknown, for which we must prepare. Here are the knowns:
• Our endowment has lost 22% of its value since last year's peak. While the effect of this will not be immediate because of our five-year averaging policy, it will be real nonetheless and we need to prepare for a reduction in endowment revenues.
• The cost of health benefits will increase by 20%. This was originally projected as a 30% increase, but has been reduced by increasing co-pays and deductibles and consolidating programs.
• Utility rates are still scheduled to be uncapped in 2010. Current estimates project a 100% increase in our electricity bill – which means over $1,000,000 in additional energy costs per year.
And there are the unknowns:
• Applications and Enrollments. So far our numbers are excellent, but as families discuss their finances during the holiday season and review "early reads" on financial aid packages we will get a better sense of how great a challenge enrollment will be for Muhlenberg this year. Fortunately, our strong academic programs, our appealing campus culture, our diverse co-curricular offerings, our recent investments in facilities (science building, Seegers phase 1, residence halls) and in new programs (neuroscience, film studies, public health, finance) have made us increasingly attractive to high-achieving young men and women.
• Financial Aid. We know that many more families of prospective students are interested in financial aid and that many more applicants' families are asking for "early reads" of their financial aid eligibility. We also know that a number of our current students' families are experiencing strained financial circumstances due to unemployment, loss of home equity or other setbacks. And we know that the number of financial institutions offering student loans continues to shrink. We know we need to prepare for increased demands on the financial aid budget in the coming year, but we don't know how great those demands will be.
• Interest Rates. Our Variable Rate Demand Notes (VRDNs) change their interest rates weekly. In recent weeks, rates have been set below what we projected in the budget model. We cannot assume that such favorable rates will continue, and must be prepared for sharp increases if they occur. Furthermore, the strategic plan calls for us to issue new bonds in March to fund the construction of urgently needed renovations to our kitchen, servery and dining facilities in Seegers Union. It is impossible to know at this time whether such a bond issue will be feasible or what the debt service would be.
• Fundraising Results. While our comprehensive campaign, The Talents Entrusted to Our Care, continues to fare reasonably well, fundraising efforts are in for tough sledding. Although it is relatively early in the fiscal year, The Muhlenberg Fund is running behind where it was a year ago as of this date. Our development staff, our volunteers, our alumni and our parents must continue, with renewed energy, their efforts to achieve the ambitious goals on which our financial aid budget is based – both in their annual gifts and in gifts to endowment and capital projects.
Muhlenberg's Priorities
Muhlenberg's highest priorities are our students, faculty and staff, and the quality of the Muhlenberg experience.
• We must provide current students with the financial aid they require to complete their degrees and we must offer sufficient financial aid to prospective students to ensure that we enroll the most talented and hardworking applicants we can attract. It is virtually certain that we will need to spend significantly more on financial aid than we have budgeted in the past.
• We must do our best to preserve the jobs, salaries and benefits of our current employees.
• We must target facilities investments carefully on projects that are urgent and mission-critical.
• We must balance our budget.
Muhlenberg's Strategy
To prepare for the anticipated cost increases in financial aid, health benefits, energy and interest rates, we must do our best to conserve cash and create additional budget capacity. Here are some of the measures that we are considering:
• continuing to invest in energy-saving measures that promise a quick payback.
• breaking ground on the Hillel Expansion, Sociology/ Anthropology facility and Rehearsal House projects only when adequate outside commitments are secured. Active fundraising is in progress for all these projects, but the timeline for confirming the necessary pledges may be delayed by the economic climate.
• deferring a decision on the Seegers phase 2 expansion until the board meeting in late January, at which time we should have better information on our ability to issue bonds and manage additional debt service.
• asking every member of the senior staff to review the budgets under their supervision with the goal of identifying at least 2.5% in budget reductions for the current year. We would review these proposed reductions together before they are implemented to make sure that they do not compromise the quality of the educational experience or our campus values. Such belt-tightening measures would, I hope, be temporary, but it is far from clear that there will be any increase in operating budgets next year. Again, our top priorities must be meeting students' financial needs and retaining our employees.
• reviewing all administrative and faculty searches very carefully. While we hope to avoid an outright hiring freeze, we may have to make choices that amount to a heavy frost.
These measures may require short-term sacrifice, but I know we will all bear these burdens together with the cheerful optimism that typically characterizes our community and that Muhlenberg's institutional strength certainly warrants. I will, of course, do my best to keep the Muhlenberg family apprised of how things are going.
In closing, let me express my profound gratitude for the many acts of kindness, generosity and loyalty that I have witnessed during these past difficult months: the trustees who have increased or pre-paid pledges that help us provide financial aid; the parents, alumni and friends who have stepped forward with amazing gifts to the Campaign; the members of the faculty and staff who have made extraordinarily generous commitments to our capital projects and to endowment funds to help us address our priorities; the unbelievably long hours so many work to ensure that our campus remains beautiful and that our students get an outstanding education both inside the classroom and throughout the campus. We are fortunate that so many are so deeply committed to our mission. Working together, we will emerge from this time of trial with our spirit and our College stronger than ever.
Sincerely,
Peyton R. Helm
President