To:                   The St. Lawrence Community           
From:               President Daniel F. Sullivan
Date:               October 27, 2008
Subject:           Actions of the Board of Trustees This Weekend

As you might imagine, just about all of our discussions at the Board meeting this past weekend were affected by the current and possible future state of the economy:  what has actually happened so far, what are possible near-term and longer-term economic scenarios, and how might St. Lawrence be affected?  The discussions were framed by a memo I sent to the Board on Thursday, an earlier draft of which was discussed in Wednesday’s meeting of the Institutional Strategy and Assessment Committee (ISAC), co-chaired by Professor Alison Del Rossi and me and including administrators, faculty and students.  That memo outlined where the University’s finances are this year and likely will be next year, concluded that under any reasonable overall economic scenario we must do some budget-tightening, and proposed a number of principles we might use to evaluate alternative budget-tightening proposals.  I’m going to give you a brief review here and will provide more detail in my usual Post-Board Memo in a few weeks. 

Our Financial Situation
We have three major sources for our roughly $100 million of operating revenue:  income from our endowment; revenue from tuition, room and board net of the student scholarship aid we provide; and revenue from charitable gifts.  Endowment income contributes $13 million to the current operating budget, helping to fund a wide range of academic and other expenses, including student financial aid.  In order to make annual endowment spending more predictable and less affected by short run volatility in the financial markets, we spend each year 5.5% of the average of our endowment’s market value on the last day of the twelve quarters ending on March 31 of the previous fiscal year.  Just about all colleges and universities have similar spending formulas.  That means our endowment spending for 2008-09 was set at the end of March 2008 and is therefore unaffected by the decline in investment values in the last six months.  What we have budgeted for endowment spending this year we will spend this year.
On the other hand, we know already that endowment spending in the 2009-10 fiscal year will be negatively affected by the decline in our endowment’s market value over the last two quarters.  Next and future years’ endowment spending will also be negatively affected by the virtual certainty that recovery of the financial markets will likely take several years, at least if the recession of 2001-03 is a guide.  We will know next year’s endowment spending for sure after March 31, 2009. 

Payments of tuition, room and board by our students and their families are, of course, the largest source of revenue in the University’s operating budget, making up almost $67 million in net revenue in this year’s budget after we have provided $38.5 million in University financial aid to 80% of our students.  While paying tuition bills has surely been more difficult for many families this year than in the recent past, we have not seen erosion in revenue from students and their families relative to what we have expected.  It is likely that next year will be more difficult for students and families, so we will continue to work hard within our means to help them find ways to afford St. Lawrence, but experience from earlier recessions suggests that demand for St. Lawrence will continue to be high with strong revenue from tuition, room and board as a consequence.  

Gifts from alumni, parents and friends, which last year totaled $24 million for all purposes including endowment and facilities improvements, are another critical funding source.  By their wonderfully generous gifts they communicate their belief in the University in good times and bad, and for that we are deeply grateful.  We will continue to seek and encourage gifts with confidence, especially those for current operating purposes that impact the operating budget most directly.  In one of the years of the last recession we missed our goal for current operating gifts by about $250,000.  While we obviously can’t know yet what will happen this year and next, primarily because the generosity of the St. Lawrence community is perpetually awe-inspiring, we are analyzing budget scenarios that include declines of that magnitude or more going forward.

On the other side of the ledger we have budgeted very conservatively this year, as we always do, for major expenses such as food and utilities and to date, our expenses are not exceeding our budget predictions.  And we set budgets under conditions of tight budget discipline.  But we know now that we will have less revenue next year and beyond than we had hoped.  Failure to adopt a budget-tightening strategy that begins to accomplish some reductions this year and will reduce planned expenditures for 2009-10 is not an option, so the real question is how to proceed.  Thankfully, St. Lawrence faculty, staff and students, in ISAC and in other on-campus committees, are rising to the occasion in a wonderfully collaborative way to figure out with us how best to accomplish such a goal. 

Principles We Will Use to Evaluate Alternative Budget-Tightening Proposals
In our ISAC meeting last Wednesday we agreed on the following principles for evaluating alternative budget-tightening proposals, and the trustees agreed with them this weekend:

• We must be mindful of the likely impact on revenue when we consider cutting something—particularly net student revenue but also gift revenue.  Many things that might, in principle, be cut could produce equal and opposite decreases in revenue as students committed to whatever we have cut transfer elsewhere or don’t apply and enroll in the first place, and could affect alumni giving as well when alumni participated in those programs as students.

• We should not let the volatility in the financial markets and the panic it has produced in others affect our approach to budget-tightening.  We should be calm and strategic, and we should keep our focus tightly on our mission, delivering the very best liberal arts education we can to our students.  Behaving in a precipitous way with incomplete information could be very harmful in the short and long runs.

• Some colleges struggling with how to respond to the current economic crisis have concluded that they must “protect the endowment so that the students of the future can experience the same quality of education as the students of today.”  While not being unmindful of the future we will place much more emphasis on maintaining the quality of what we provide students today, which is in our view the best way to ensure that we will be able to provide an even better experience for St. Lawrence students in the future.

• We have just last May committed ourselves to faculty and administrative staff salary policies.  They say that meeting the commitments of those policies must be the first charge on our operating budget.  We must honor those commitments and be mindful of the special importance of faculty and staff benefits in difficult times—medical care and other safety nets especially.  We need faculty and staff loyalty and commitment more than ever in the next months and years.  They must feel secure about these matters. 

• In evaluating alternative capital projects for funding we will give even greater weight to energy conservation and other paybacks, and we will give special scrutiny to projects that add more square feet of space and therefore operating cost.  We will also assess whether delay of some projects is appropriate.  Because commodities prices, including the prices of many commodities involved in construction, are dropping in response to the world economic slowdown, such delays—in contrast to recent experience where construction delays resulted almost certainly in paying higher prices—might actually allow us to get projects done more cheaply when we do decide to proceed.

• Finally, in financial times like this, ensuring the cost-effectiveness of every expenditure is everyone’s responsibility.  Every faculty member, staff member and student can help us here.

ISAC will be taking the lead on managing our budget-tightening process using these principles.

Decision on the Griffiths Arts Project and Updates on Other Projects

Even before the economic volatility that is now a world economic crisis began in late summer, we had come to a difficult place with planning the Griffiths Phase 3a arts project.  Through a complicated combination of scope increase, price increase, and other factors, the project grew in cost beyond what we had budgeted and set aside.  We continue to work with the architect and the builder to try to have a project that both meets our needs and is within our budget, but we have decided to delay the start of that project until Spring 2009 at the earliest.

In addition, the Pub has proven more complicated than originally conceived, both from a program scope perspective and a code and license perspective.  However, we feel confident that we have this project within budget and so we should be able to begin construction shortly.

Finally, we are continuing with the Bewkes Renovation, Phase 1, already under way.  How we approach these and other projects going forward will depend on several factors, including especially getting comfortable with the economic environment and our strategy for responding to it, and learning how successful our fund raising efforts turn out to be.

I will communicate more about these and other issues from the Board meeting soon.  As always, your comments, questions, and ideas are most welcome.