Remember how everyone gave me a hard time for saying that Michael Wilner was the PR arm of the college? And how I predicted in the comment section that we would get an email from Gann in days?
Here's that email. For real journalism, and not hackery PR, see The Claremont Independent's soon to come out February issue.
January 30, 2009
Dear Members of the Claremont McKenna College Community,
I wrote to you on November 10, 2008, concerning how the continuing upheaval in the world’s financial markets and the weakened state of our economy overall would affect CMC. In that communication, which is attached, I indicated that CMC enters this period in a strong financial position. We also enter this period with a very strong student applicant pool both in quantity and quality, a superb faculty of teacher-scholars across all departments, an outstanding and dedicated administration and staff, and loyal and supportive alumni, parents and friends of the College. We also benefit from the leadership of an outstanding and committed Board of Trustees.
Notwithstanding all of these strengths, the economic crisis has placed significant pressure on CMC’s three primary revenue sources – tuition revenue (net of financial aid), endowment income, and gifts. Since my last communication, we have conducted a deeper analysis of the pressures on these revenues, and we now have a better understanding of the budgetary challenges that lie ahead. I thought that it would be useful, therefore, to provide you with an update on our continuing planning efforts.
First with respect to students, our primary objective is to secure our need-based financial aid program. The Office of Admission and Financial Aid has taken steps now to adjust its current and forecasted budget to secure our need-based aid program. For purposes of the budget forecast, we are also grateful for the new scholarship funds that we have raised in The Campaign for CMC. These new funds are significantly assisting us to meet the future estimated financial needs of CMC students and their families.
Second, with respect to gifts, we continue to raise funds in The Campaign for CMC. The pace at which we are able to raise new gifts has slowed considerably because of the economy. Nevertheless, we have raised $423 million, we still have four more years to go in the Campaign, and we remain positive about meeting the goal to raise $600 million in The Campaign. Our fundraising for current annual gifts has also been negatively impacted by the economy. Current, budgeted gifts received as of December 31, 2008, are 19% lower than the same types of gifts received as of December 31, 2007. Every dollar we do not receive reduces the revenues to support our current budget dollar for dollar. We will be working diligently with our staff and alumni volunteers to try to close the gap during the spring semester. Nationally, many colleges and universities have also seen a decline in their current gifts from a year ago. Going forward, we likely will reduce budgeted current gifts, and hence annual revenue, in our forecast by at least 10% or $600,000 per year.
Third, the single biggest impact from the current economic distress is on our endowment. We estimate that our endowment lost approximately 27% of its value between July 1, 2008, and December 31, 2008. This figure is unaudited and is based on the best information available from both our traditional and alternative investment managers as of the time of this communication. For purposes of our budget forecast, we are assuming that the endowment will decline a total of 30% this fiscal year, will stay flat for the 2009-10 fiscal year, and will increase at a moderate rate thereafter. The operating budget of the College receives approximately 30% of its annual support from the endowment. The formula to determine annual endowment support to the operating budget is designed to smooth out the effects of investment market volatility over time. Although this smoothing formula could lead to annual spending from the endowment that eclipses 7% in the near term, we are facing an $8 million decline in annual budgeted support by fiscal year 2013-14. Consequently, as I indicated in my November 10, 2008, communication, owing to the recent reductions in endowment value, and the significant uncertainty looking forward, we must take steps now to prepare for the expected reduction in operating budget support from the endowment that we will experience during the next several years. These steps include
§ We immediately worked during this past fall semester to reduce the College’s operating budget expenses by $1.5 million, some of which will be reflected as savings in this year’s operating budget and all of which will be reflected in next year’s budget.
§ Employee costs are 56% of our expenditures. Consequently, it is necessary to reduce these costs significantly in order to bring the budget back into balance. In pursuit of these necessary reductions, effective this past fall semester, every open position in the administration and staff is being re-evaluated to determine whether the position will be held open, terminated or filled. To date, eight positions have been surrendered. The Dean of the Faculty, Gregory Hess, also reviewed faculty searches and postponed five of the authorized 15 searches this year in order to reduce the size of the academic portion of the budget. Additional postponements may occur. We will continue our analysis and work in this area.
§ In order further to reduce employee costs, we will not provide salary increases to anyone for the next fiscal year. We are making this decision in an effort to retain as many positions as possible and maintain our fringe benefits. Salary increases for subsequent fiscal years may also be somewhat lower than was planned in our original budget forecasts.
§ We are currently evaluating all operations of the College to determine how we can achieve further cost savings, while maintaining the quality and effectiveness of the College’s accomplishment of its educational mission.
§ We will dedicate the Biszantz Family Tennis Center this Saturday, January 31. Work on the Kravis Center began during the semester break, and we continue the work to complete the East Campus Land Purchase. No other significant facilities projects will be started until economic stability returns, and we have brought our budget and forecast back into a state of financial equilibrium.
These approaches all reduce current or future expenditures. It will be difficult, however, to main the quality of CMC and return to financial equilibrium by only reducing spending. Accordingly, we are also evaluating ways to increase our revenues.
We will continue to work with the Board of Trustees ad hoc Financial Planning Committee in monitoring the current environment and in developing financial models and forecasts that will guide our future planning. I will also be consulting with the faculty-elected Administration Committee over the next few weeks to discuss with them budget reductions and policy adjustments under consideration while still safeguarding the core values and strategic objectives of CMC. Our Board of Trustees meets in March, and I will have more to communicate about our financial planning after the Board meeting.
We have started to take action now to address our challenging financial issues. Having had the time to look more closely at the size of our challenge, I am convinced that we can successfully work through these issues thoughtfully and carefully in our budgeting and forecasting.
Our sister institutions in American higher education are all confronting similar challenges. Every day I read new communications from presidents of institutions to their communities with similar messages about their financial stress. We are also sharing and communicating information about these issues across higher education to see what we can learn from one another.
While the challenges we face are exceptional, we will make every effort to address them while maintaining the level of excellence that defines CMC. The demand for a CMC education has never been higher, and we will continue to meet the justifiably high expectations of our students and parents. We will also pursue a path that respects and honors the value of all the contributions of those who work here. Our alumni who care deeply about their alma mater can be assured that CMC will move forward in a way that protects the past and moves the institution strategically forward.
In closing, I want to thank everyone in the CMC community for their splendid efforts and for your help in the months ahead.
Pamela B. Gann