Initial Budgetary Actions for FY09 - FY11
President H. Kim Bottomly
December 10, 2008

I know that all of you are concerned about the impact of the current economic climate on your families and communities.  I want you to know how the economic situation is affecting Wellesley, and what we must do about it.

In early November, I informed you that our endowment included investments that have been affected by the recent volatility and noted that we would need to take steps to prepare for the coming impact on our operating budget.  Since that time, the senior staff and I have gathered information and applied it in a financial model that allows us to estimate the likely impact of the economic situation on Wellesley’s operating budget.  It is clear from these estimates that we must make immediate decisions about how to adjust to a smaller operating budget over the next few years.

As we have explained in recent meetings of various governance and administrative groups, the scope of our problem is large and multifaceted. Not only is a third of the college’s operating budget derived from the endowment, we expect substantially increased pressures on the budget from financial aid and the strong possibility of reduced giving as our alumnae, friends, and families also suffer from the downturn.  Our models predict an estimated 10% shortfall (or $20 million) in our FY11 operating budget (which covers the 2010-2011 academic year).  As difficult as this sounds, and it will be difficult, our projections are not based on the worst-case scenario, but on the most likely scenario, given what we know now.  Our situation could well be worse, depending on the direction of the economy.

Immediate Responses
To respond to these challenges, we must take immediate steps to address this looming shortfall.  As a first step, in order to strengthen our financial position, I am implementing three actions in this fiscal year (ending June 30, 2009):

• There will be a college-wide reduction in discretionary spending. Divisions across the college will be required to reduce their current budget proportionate to their overall share of discretionary funds. Cuts in this category will include the elimination or significant cut-backs in many areas, including overtime hours, food and entertainment costs, travel, use of casual wage, and others. 

• Vacant staff positions will be held open for at least six months. A position will only be filled after it has been carefully reviewed to ensure that it is essential and that it fits into longer term strategic thinking about staffing at the college.

• All departments and divisions will be required to use unexpended prior year income from endowed funds before drawing on current year operating budget funds for related and allowable expenses.

In addition to these steps, every effort must be made by all of us to realize additional savings when other opportunities arise.  For example, our careful management of current market conditions and energy conservation measures this year will save $700,000 in our utility costs.

We carefully reviewed the construction projects slated to begin over the next year and determined that they could move forward. The largest project, Alumnae Hall, is fully funded by restricted gifts – funds that are not available for any other purpose. Other projects, including the renovation of Whitin Observatory, and a number of major repair projects, are funded by the debt we took on from issuing bonds last winter. That funding is not available for other purposes and is time-limited.

Planning Ahead
We are beginning to plan next year’s budget (FY10), which will be voted on by the Board of Trustees at their April meeting.  In the weeks to come, there will be many discussions with governance and administrative bodies focusing on adjustment strategies for the FY10 and FY11 operating budgets. We must make decisions that are strategic in nature and ensure that we are able to maintain and broaden the reach of our admission and financial aid efforts and to preserve the intellectual community that is at the heart of our academic enterprise.

Our planning will involve difficult choices.  Key areas will require immediate action:

Programs, services, and activities
An essential part of our planning will be a review of all the programs, services and activities currently supported and their relation to the core mission of the college.  I anticipate that this review will result in a reduction in the numbers of programs and activities we support and the services we provide. 

Staffing Levels
The review will include a careful examination of all vacant and currently-occupied administrative and support positions to determine whether they are critical to support the new levels of programs, activities and services.  I anticipate that our workforce will be reduced. Given the amount of the deficit and the proportion of the budget dedicated to compensation, layoffs will be a necessary part of the reduction.

The academic deans and I will review all tenure-track vacancies and will conduct an additional review of previously approved searches. I anticipate that some of these searches will be suspended.  Searches, current and future, will go forward only if compelling curricular and enrollment needs justify them. As Dean Shennan noted in his report to Academic Council in November, the faculty leave replacement budget will be significantly reduced, with only the most essential replacements being allowed.

Compensation
Salaries and benefits comprise half of our operating budget and it is not possible to make the reductions required without implementing a salary freeze for all faculty and staff for next year (FY10).  In addition, there can be no merit pool for faculty or bonus pool for administrative staff. While this is unavoidable for next year, I do not believe that this is an effective or desirable long-term strategy, given our commitment to attracting and retaining the best faculty and staff.

As we develop the FY10 and FY11 budgets and begin to make some of the hard but necessary decisions, we will consult through our governance bodies and divisional structures, in our usual manner.  I expect that creative and innovative thinking will emerge from the community that will allow us to reduce our deficit in less painful ways.  Budget adjustments are inevitable but to the extent possible they will be strategic and will be made with an eye to our core institutional priorities.

As I have indicated in prior communications, even as we are making cuts, we will be advancing some initiatives.  Some projects will continue because they are key institutional priorities that require ongoing support. Others will proceed because they are already significantly underway and, in some cases, have restricted funding.  The work of the Academic Planning Committee and other planning efforts are particularly important at a time when we have to make these hard choices because they allow us to be clear about our priorities.

The next few years will be difficult ones.  They will be difficult everywhere, not just at Wellesley.  I appreciate the efforts that will be required by individuals across the college as we address this financial challenge.  We will work through these times together, and I am confident that we will emerge from them even stronger – not just as an institution, but as a community as well.