Standard IX
Financial Resources
William S. Reed
René Stewart Poku
|
Standard IX |
|
Financial Resources |
|
| ||
|
William S. Reed |
| |
Financial Equilibrium
"Financial equilibrium," in Wellesley's terms, means: 1) the college has a balanced operating budget; 2) the value of the physical plant is maintained; 3) the long-term purchasing power of the endowment is maintained and enhanced; and 4) investments in human resources (faculty, staff, and students) is sufficient to attract, retain and sustain the very best talent.
Careful management is needed to ensure that all of these conditions are met. With the demand for more accountability for colleges and universities and the public's expectation of a more "product-oriented" approach to higher education, maintaining financial equilibrium requires proactive management including careful analysis of expenditures, diversification of revenue sources, increased efficiency in the delivery of services, and the implementation of "growth through substitution" throughout the College.
Wellesley College is well on its way to addressing these issues. In 1995/96, a multi-constituency task force was convened to examine the College's long-term ability to operate in financial equilibrium and to recommend changes in fiscal guidelines in light of the thorough analysis. The College uses a collaborative approach to budget planning in which trustees, administrators and faculty work together to develop budget recommendations based on college priorities. This collaborative effort resulted in the Task Force on Plans, Priorities, and Fiscal Policies (TFPPFP) Report which has established critical revenue and expense parameters to guide the College into the new millennium. The task force reviewed the college's cost structure and the 5 year projections and developed a new set of financial planning variables to guide the development of the budget. In April 1997, the task force recommended the following guidelines:
1. Size of the College: For budget purposes, plan on a student FTE count 2180. Over the last five years, actual annualized student enrollment has ranged from 2179-2245 FTEs.
2. Comprehensive Fee Growth: Increase the comprehensive fee by 2% above inflation for the next five years or until Wellesley's comprehensive fee is in the middle third of the COFHE College cohort.
3. Endowment Spending: To enable the College to plan on a predictable flow of endowment funds to support operations, simplify the practice of calculating the annual endowment spending rate. Increase endowment spending by 3% above inflation over the prior year. The contribution to E & G revenues from the endowment should not exceed 34%. The spending rate should be monitored annually with a goal of spending between 4.5%-6% of a 12-quarter trailing average. A special endowment supplement to offset the cost of bringing annual major maintenance expenses onto the operating budget will be voted each year with the expectation that, by 2002, the entire $5 million will be completely absorbed into the operating budget.
4. Gift Support: Gifts to support the operating budget and to grow the endowment are critical to the plan for financial equilibrium. Increase the emphasis on annual gifts to support the operating budget with a goal of having unrestricted gifts represent 5.5% of E & G revenues. New gifts to the endowment should be maintained at 2% of the average of the June 30 year-end market value of the endowment.
5. Financial Aid: Financial aid should continue to be a top priority of the College. The current policy of need-blind admissions and meeting the institutionally-determined financial need of all regularly admitted U.S. citizens and permanent residents should be maintained. Unrestricted operating budget funds used for financial aid should not exceed 15% of the financial aid budget.
6. Salary Objectives: The current salary objectives of 105% across all three faculty ranks of the relevant comparison group and 100% of the relevant labor markets for administrative staff should be maintained. The amount of funds to meet and maintain these objectives may be less than the 2% and 1% above inflation respectively than originally projected. Care should be taken not to exceed the salary benchmarks since compensation represents the largest single expense item in the budget.
7. Major Maintenance: Major maintenance projects should be incorporated into the budget up to $5 million per year. Over the next five year period, the College will gradually decrease its reliance on the special endowment supplement used to cover the major maintenance projects so that by the year 2002, $5 million will be incorporated annually without an endowment supplement. The $5 million will have to be monitored carefully to make sure that the physical plant is properly maintained.
8. Debt Financing for Capital Projects: In addition to the annual major maintenance projects, the task force recognized that there would be significant capital projects that may need to be considered. These projects should be carefully planned and sources of funding should be identified. When the probability of outside funding is low, the College should explore issuing tax-exempt revenue bonds. The practice of covering one-half of the debt service cost from the operating budget should be continued. The half that is paid directly from the endowment should be included in the calculation of the annual endowment spending rate.
9. Innovation Fund: The task force wanted to ensure that there were funds for fiscal flexibility and innovation in the operating budget. At a minimum, 0.5% ($500,000-$600,000) of the annual operating budget should be set aside each year to catalyze innovation. The College should also continue to seek outside funding in support of innovative programs.
The Budget Process
The system of budgeting funds for operating and capital purposes is continually being refined. The senior administrative staff recommends funding priorities to the president and Board of Trustees and works with the financial team at the College to monitor results in conformity with the budget. The Advisory Committee on Budgetary Affairs (BAC), a multi-constituency committee of faculty, staff, students and senior administrators, acts in an advisory capacity to the president in the planning for and preparation of the College budget. The BAC plays an active role in the review of budget priorities and in decisions in such key areas as self-help levels for financial aid, salary objectives and tuition and fees. Three Board committees, the Finance Committee, the Investment Committee, and the Buildings & Grounds Committee, focus on major resource allocation issues. Greater effort has been devoted to improving the financial information available to all participants in the budget process and to coordinate the annual decision-making schedule so that academic and administrative department heads, trustees, the BAC, Senior Staff, and the president can provide timely and meaningful input into the process.
Financial Overview
|
|
1988 |
1993 |
1998 |
|
Number of First Year Student Applications |
2,606 |
2,894 |
3,227 |
|
First Year Students Admitted as a % of Applicants |
47.9% |
42.4% |
43.4% |
|
First Year Students Enrolled as a % of Applicants |
23.6% |
20.1% |
18.5% |
|
First Year Students Enrolled as a % of Students Admitted |
49.0% |
46.0% |
42.7% |
|
Percent of Students Receiving Financial Aid Grant Assistance |
40.9% |
49.7% |
45.9% |
|
Average Financial Aid Grant as a % of Comprehensive Fee |
44.1% |
49.3% |
47.9% |
|
Student Aid Expense as a % of Educational & General Expense |
15.4% |
17.5% |
14.6% |
|
Educational & General Cost Per Student |
$20,525 |
$32,733 |
$47,182 |
|
Tuition Rate as % of E & G Expense |
55.6% |
51.0% |
45.0% |
|
Total Development Fund Raising |
$18,972,000 |
$22,898,000 |
$43,740,000 |
|
Total Alumnae Giving Including Bequests |
$13,053,000 |
$16,461,000 |
$34,145,000 |
|
Number of Alumnae Donors |
16,060 |
14,183 |
{14,353} |
|
Percent of Alumnae Contributing |
58.1% |
50.9% |
49.0% |
|
Total Unrestricted Gifts |
$3,807,521 |
$4,594,000 |
$6,580,801 |
|
Total Planned Gifts |
$945,221 |
$2,694,000 |
$7,435,313 |
|
Total Bequests |
$5,558,865 |
$3,338,000 |
$12,518,000 |
|
Unrestricted Gifts as a % of E & G Expenditures |
8.4% |
6.3% |
6.3% |
|
Endowment Market Value (June 30) |
$293,297,000 |
$485,115,000 |
$780,872,216 |
|
Endowment Per Student |
$132,774 |
$216,473 |
$351,112 |
|
Endowment Income as a % of E & G Expense |
28.4% |
29.5% |
37.7% |
Wellesley receives approximately 50% of its total revenue from tuition. In FY99, the projected tuition revenue is $51.066 million or 50% of E & G revenue. The comprehensive fee of $29,520 is at the low end of the tightly clustered range of the COFHE colleges.
Endowment
The market value of the endowment as of June 30, 1998 was $780.9 million, an increase of $89.8 million over June 30, 1997. The value of the College's endowment has risen rapidly in recent years due to a strong stock market, significant gifts to the endowment, and a shift in asset allocation towards more alternative investment assets. The net return of 15.2% produced over $107 million in realized and unrealized gains and losses and helped to increase the College's net assets by over $104 million. In 1997-98, the endowment provided over $39.1 million in budget support. This level of support from the endowment is very high in comparison to Wellesley's peer group of colleges and universities with similar size endowment and educational missions; yet this level of endowment support is what enables the College to offer such a rich and varied academic program. The College's long term average spending rate is targeted to be in the range of 4.5% to 6% of a 12-quarter trailing average. In 1997-98, endowment spending as a percentage of the one-year average was 5.1%; endowment spending as a percentage of the three-year average was 5.4%. In accordance with task force guidelines, the College is in the second year of implementing new spending disciplines and is counting all endowment spending in this rate - spending for operations as well as spending for major maintenance projects and debt service.
Fund raising
Wellesley's fund-raising achievements rest on the generosity and dedication of its alumnae and a tradition of close collaboration between the Resources staff and the Alumnae Association, the Board of Trustees (through the 30-member National Development and Outreach Council), and hundreds of class fund volunteers working each year throughout the country.
In its "Campaign for $150 Million," from 1989-92, Wellesley set a record for liberal arts colleges, raising $168 million and demonstrating that women were a major force in the nation's philanthropy. Over 85% of the total raised was contributed by Wellesley alumnae, with 81% of the alumnae (over 23,000) contributing during the course of the five-and-one-half year campaign. In the 1989-90 campaign year, Wellesley raised the highest average per capita dollar gift (i.e., total alumnae giving divided by alumnae solicited) among all liberal arts colleges and universities.
The years immediately following the Campaign were focused on good stewardship, cultivation of the donor/prospect population, selective capital solicitations by the President and Leadership Gifts staff, and building up alumnae participation which had fallen from a campaign high of 59% to 47% in FY95. By FY97, new College records were set for total giving from private sources ($36.3 million) and for the Annual Giving program ($7.4 million in unrestricted and current-use financial aid support). In FY98, another new historic high was established for total gifts: $43.7 million in cash receipts, an increase of 20% over the previous record year.
The Resources Office has more than met fund-raising targets set by the Board of Trustees' Task Force on Plans, Priorities and Fiscal Policies in 1996. The Task Force charged Resources with increasing endowment gifts by 2% of the year-end market value of the endowment and ensuring that unrestricted gifts constitute at least 5.5% of E & G revenues. In FY98, Resources raised $30.8 million in endowed funds and $6.6 million in unrestricted gifts from living donors. Both figures were substantially above the Task Force guidelines.
All fund raising is organized through the Office for Resources under the leadership of the Vice President for Resources and Public Affairs. A program staff of 43 professional and support staff organize and support efforts in Annual Giving, Leadership Gifts (targeting donors with the capacity for gifts of $100,000 and above), Planned Giving, Corporate and Foundation Relations, and Development Services and Stewardship (which processes more than 20,000 gift transactions annually). Direct mail appeals are handled by the Office for Communications and Publications; media and public relations are managed by the Office of Public Information and Government Relations.
Every class appoints an Annual Giving Representative who works closely with the AG staff to manage solicitations, with special focus on the five-year reunion cycle. Wellesley invites alumnae in the Milestone Reunion classes (10th, 25th, 40th, and 50th) to campus in the fall before their reunion for an "inside" look at college life. Volunteers in classes celebrating quinquennial reunions are deployed on two fronts: Each class appoints a "Special Gifts Committee" to target major prospects for unrestricted class gifts, and a select "Leadership Gifts Committee" to coordinate approaches to classmates capable of making six- or seven-figure capital commitments.
Wellesley has an all-inclusive gift crediting policy for reunion classes. While only unrestricted and current-use financial aid gifts are reported in Annual Giving totals each year, for the quinquennial reunion classes, gift totals include all gifts to the College for any purpose during the class's five-year cycle. Class and college records are also recorded each year for the Durant and Katharine Lee Bates gift societies. To encourage annual gifts of all sizes, the Resources Office will publish this fall the inaugural edition of an annual "Consecutive Giving Report" to recognize donors who have contributed to the College in each of the most recent five years.
Financial Aid
Financial aid continues to be a priority commitment for the College. The quality and diversity of the student body is highly dependent on the College maintaining its need-blind admissions policy and meeting the institutionally determined financial needs of all domestic students. For the fourth year in a row, the annual rate of growth in financial aid decreased. The financial aid expense budget was $15.2 million for 1997-98. A significant portion of our financial aid budget - almost 70% - is funded from restricted endowment, financial aid gifts and government and state grants. In 1997-98, total restricted revenues for financial aid increased to $13.4 million, including support from the financial aid endowment of $10.8 million. The average scholarship per student was over $13,500.
The College continues to monitor the slow-down in the rate of growth in the financial aid budget. Two important factors are contributing to this decrease: a net decline in the number of new first year students qualifying for grant aid and an overall decrease in the average grant per student due to the average family contribution going up higher than expected. With the newly competitive financial aid policies many of our peer institutions introduced during last springh's admissions cycle, we are in the process of reviewing our financial aid policies and expenditures to ensure that we are fully leveraging our financial aid dollars. Although the rate of growth in the financial aid expense budget has leveled off, financial aid continues to be a significant operating expense, representing 14.6% of total educational and general expenditures for FY98.
Debt
The College has approximately $65.1 million in outstanding debt with a AA+ bond rating. The annual cost of carrying this debt, at very favorable interest rates, is approximately $4.8 million, including principal and interest. Since Wellesley can significantly increase the size of its debt to fund high priority capital projects and programs without adversely affecting its credit rating, the Board of Trustees has decided to issue an additional $50 million of debt for five major projects by November, 1998. The $115.1 million in total debt outstanding will still be prudent in relation to the size of our endowment and the annual budget, particularly because our credit worthiness enables us to carry the cost of this debt at very favorable interest rates.
Appraisal and Projections: Long-term Financial Issues
All institutions of higher education, regardless of their financial condition, have to recognize their vulnerabilities, including Wellesley.
1. Public perception of single-sex colleges: Wellesley is one of the top liberal arts colleges in the country, but its applicant pool is highly restricted because it admits only women. Studies at Wellesley and elsewhere indicate that only a small proportion of the most qualified female college applicants would consider a single sex institution. Wellesley is a niche player in a very competitive market. Because of its reputation and the quality of the program, Wellesley has been able to attract very talented students. Each generation of new students brings new attitudes about the value of a liberal arts education and the value of learning in a single sex environment.
To make certain the College is aware of student opinion and public perception, a market survey by The Widmeyer Baker Group Inc. has been commissioned.
2. The growing gap between Wellesley's price and cost: In FY87 tuition covered 55% of the E & G cost and by FY98, tuition coverage declined to 47.4%. The cost to educate a Wellesley student is among the highest in the country. Being a high cost institution creates a vulnerability to more efficient institutions that may be able to deliver a quality education for less cost and less tuition. Wellesley's cost structure is high owing to the breath of the curriculum and student support services, generous staffing levels with a student/faculty ratio of 9.78/1, and a 2x2 teaching load, very competitive salaries and benefits, a large physical plant, state-of-the-art facilities, and a substantial investment in informational technology.
The College is carefully reviewing its expensive policies, staffing levels, and cost structure for the delivery of administrative services.
3. Lack of flexibility in the budget: Even though Wellesley's total revenue per student is high, there is very little flexibility in the budget for new academic programs or initiatives. Annual increases in revenues are absorbed by increases in salaries and benefits, maintenance of the physical plant and debt service, inflation, and technology. The five- year projections for the budget, using the current assumptions for revenue and expense growth show substantial deficits.
The operating budget now contains a small amount for innovation, approximately $500,000 per year. This is an important beginning in the process of freeing up funds for initiatives and in restructuring the allocation of resources.
4. Endowment dependency: Wellesley relies on its endowment more than its peer institutions. Over 35% of E & G revenue comes from the endowment. A sustained downturn in the stock market, similar to that in the late '70s and early '80s, would put significant financial pressure on the budget.
The College has addressed this issue in part by the recommendations of the Task Force on Plans, Priorities, and Fiscal Policies, which limited the annual increase in endowment support for operations to 3% above inflation over the prior year, and by incorporating a special supplement for major maintenance projects, debt service, and special supplements to programs into the total endowment spending rate. Even with these "non-operating" components included, Wellesley's one-year average spending rate was 5.3%.
5. Wellesley's institutional culture and governance structure: The College's highly participatory decision making process is both a strength and weakness. The governance structure is similar to many colleges with the faculty responsible for all aspects of the curriculum and chairing committees that oversee important issues. The shared governance structure prizes input and discussions with constituency groups on most major decisions. There is within the Wellesley culture a strong ethos for internal equity and for preserving the status quo. Making difficult decisions on cutting programs or expenses or starting on a new strategic initiative is a time-consuming process. Absent a crisis, the tendency is to make changes only on the margin.
Conclusion
Wellesley College finished the year in financial equilibrium by achieving a balanced budget, enhancing the purchasing power of its endowment, maintaining and upgrading the physical plant and meeting its salary objectives for faculty and administrative staff. The College is very aware that the fixed costs of providing an excellent liberal arts education continue to escalate and that, in order to be accessible and affordable to the majority of students and their families, the College must try to keep our costs down. Wellesley has taken the first important steps to reorganize its finances to ensure that financial flexibility is a part of the everyday operations of the College. The final report of the Task Force on Plans, Priorities and Fiscal Policies, endorsed by the Board of Trustees, established important financial parameters for revenue and expense assumptions for the next five years. In order to continue to provide a preeminent liberal arts education, Wellesley will continue to work at finding ways to make permanent structural changes within the operating budget while capitalizing on its financial and academic strengths.
|
|
Make Comments on Standard Nine |
|
|
NEASC's Commission on Institutions of Higher Education's Standards for Accreditation |
