January 22, 2009
To Members of the Bowdoin Community:
At the end of last semester I formed a committee to consider options for the future regarding Bowdoin's finances in the context of today's harsh economic climate. As I have previously indicated, the College is in good financial condition and is fortunate to have a wealth of resources available, including a gifted and talented faculty, staff, and student body. Our trustees and alumni group are committed to Bowdoin, and our parents and friends of the College are also committed to our future. Bowdoin is a fantastic college and our future is strong and secure.
Bowdoin, however, like all other colleges and universities is not immune to current economic conditions and must make some difficult choices to remain secure financially. We are better positioned relatively than most colleges and universities to respond to these changing times. We have all read in the press many of the actions taken by other institutions. It is clear that given these economic times, all institutions will have to modify the manner in which they operate.
I write to inform you of our progress. The committee, consisting of faculty, students, and staff, has met three times and reviewed a variety of financial and program data. The committee has reviewed information regarding the endowment, college staffing levels, major expense categories including payroll and benefits, compensation policies, and other pertinent information. The meetings have been candid and constructive and we all should be grateful to the committee and the efforts the members have made to this point.
We have also discussed and affirmed the four fundamental principles I outlined previously: we will continue to provide sufficient resources, including our new no-loan policy, to students who require financial aid; we will continue to support our academic program and our faculty; we will continue to perform major maintenance on our facilities; and we will continue to support the sense of community at Bowdoin so vital in times like these, focusing especially on our staff.
In our discussions, a fifth principle emerged that I believe is vitally important ‐ that the changes we implement be shared among all members of our community.
On the basis of these meetings and the analysis completed with the assistance of the senior staff of the College, I am now prepared to share my preliminary observations and recommendations with you.
Over the past five years Bowdoin's endowment has achieved top decile performance with annualized 5, 10, and 20 year returns of 14.8%, 10.1% and 11.9% respectively. We are coming off a strong base. For the year ending June 30, 2009, we are assuming that we will have an investment return of -20%. We are conservative in predicting future investment returns on the endowment; in subsequent years we have assumed returns of 0% for fiscal year 2010 and fiscal year 2011, and 7% for fiscal year 2012 and thereafter. We believe these assumptions are prudent given the economic advice we have received from members of our investment committee and investment professionals we have consulted. All told, these predicted investment returns create serious budget shortfalls in the coming years.
Bowdoin has an extraordinary record of fundraising. As of December 31, 2008, the Bowdoin Capital Campaign had commitments totaling $243 million toward our $250 million goal. We expect that we will reach our target goal by the campaign end date of June 2009. In addition, we have thousands of alumni and hundreds of parents who contribute generously to the College. This year we are on track to meet our target for annual giving, but we are witnessing a decline in the number of gifts received as compared to last year as donors, like others, experience financial stress. We need to be conservative in terms of our projections, at least for the near term.
After factoring endowment and gift projections into our financial planning model, as well as reductions in some other sources of revenue, the College could have budget shortfalls in the range of $2 million to $17 million in fiscal years 2010 to 2014.
Steps to Reach Equilibrium
Many options have been considered to put us on sound financial footing. I believe we should set a strategy for the College's future and financial stability that will provide us with a multi-year perspective, rather than focus on short-term measures. Accordingly, we are making recommendations that have multi-year effects, rather than looking only at next year. Although this perspective may be uncomfortable to consider, it has the benefit of allowing us to know what to expect as we plan our own individual financial futures. I have selected options that can be pared back or eliminated should economic conditions improve sooner than expected.
Increase the student body by 50 full-time students over the next five years
The addition of ten students per year for five years provides the College with a reliable source of additional revenue. Tuition and fees represent the single largest source of income to the College — the annual distribution from the endowment being second. If the economy bounces back sooner and our endowment begins to experience higher rates of return, we may not need to increase the student body by the entire 50 students and we could pare back the size of the student body to our current size. We expect that this increased enrollment will be accomplished in a manner allowing us to continue our "need-blind" admissions policy. Dean Judd and our faculty will continue ongoing discussions and studies to ensure appropriate class size and the successful enrollment of students into their desired classes. Dean Foster and student life staff members have considered the impact on residential life and housing and have created strategies for housing that will not have a significant adverse affect on the quality of life on campus for our students.
Freeze faculty and most staff salaries for two years
Bowdoin offers competitive salaries and generous benefits to faculty and staff. Our salary structure is important to attract and retain the best and the brightest faculty and staff. That being said, salaries and benefits comprise more than 60% of our total operating costs. Like many colleges and universities that have reported their plans, we must consider freezing salaries for a period in order to balance our budgets. Many colleges and universities wealthier than Bowdoin have announced faculty and staff salary freezes as well as a number of other measures, including hiring freezes, faculty layoffs, and suspension of tenure track hiring for replacement positions. Although our thinking has been informed in part by these actions by other colleges, we have considered alternatives
that are appropriate for Bowdoin specifically.
I am very concerned about avoiding layoffs wherever possible so I (and I believe the rest of the community) would prefer to keep people working at their jobs and retain programs in lieu of salary increases. Moreover, it is my strongly held view that it is important for the strength of our community that faculty and staff share these burdens equitably across our campus.
For the faculty, I am recommending a two-year temporary suspension of the "4,5,6" policy. This policy adjusts the salary base for continuing faculty at each rank based on a three-year lagging average of percentage increases for faculty at colleges ranked 4th, 5th, and 6th by average salary in our comparison group. Faculty salary levels will be fixed at current levels for the next two years. Increases for promotions among ranks will be retained, however, and we will continue to hire faculty to fill existing tenure track positions that become vacant in accordance with our current policies.
After two years, I am committed to allocating budget resources to gradually restore any ground that may have been lost in the competitiveness of our faculty salaries during the suspension period. However, given what we read in the press about other colleges and universities, it is not likely that we will find ourselves significantly disadvantaged in faculty salaries relative to our peers over this period.
It is important for our community to recognize that our policy of faculty compensation is central to our success and vital to our future. I am committed, and I am confident the Trustees are committed, to the compensation levels and relative competitiveness of compensation accomplished by our "4,5,6" policy.
To that end, the financial planning model includes a salary increase pool of 6% for faculty in fiscal year 2012 and thereafter. Exactly when and how the policy will be restored will require careful thought and analysis. In this regard, I intend to appoint a committee of the faculty to work with Dean Judd and me to ensure the equitable reinstatement of the faculty compensation policy represented by "4,5,6."
For the non-faculty staff, I am recommending a salary freeze for two years for those earning more than $40,000 a year. For those earning $40,000 or less a year, the budget assumes a 2% increase for the next two years that will be paid either as a salary increase or as a one-time payment in each of the next two years. Although this freeze will be painful, it is consistent with actions reported by businesses in Maine and New England and college and universities across the country. And, to the extent this salary freeze allows us to avoid layoffs, it is far preferable to keep people employed and maintain our sense of community and commitment to our dedicated employees.
College benefits offered by the College, including health and retirement benefits, continue to be among the most competitive and affordable in Maine. No changes to our benefit structure are being contemplated at this time.
On the staff side, we are also closely scrutinizing vacant positions. Each opening is being carefully evaluated by supervisors, managers, and senior staff to determine whether the opening needs to be filled and whether we can reengineer the jobs to provide the same or similar level of services more efficiently. I recognize that many staff are concerned about layoffs and are concerned that these recommendations are the first step to a later announcement of layoffs. Although I cannot guarantee that layoffs will not happen, especially if our economic circumstances deteriorate, I can assure you that based on our current planning models we do not anticipate a general reduction in staff to balance the budget. Only time will tell if the economy will hold firm or improve, but our staff should take some level of comfort that we are doing all that we can to preserve jobs. The shared sacrifice of salary increases for faculty and staff is essential to this commitment to maintain jobs for our staff at the College.
Hold operating costs flat
To make our budgets work, we must also hold the College's core operating costs to current levels for at least the next two years. This may be difficult if inflation occurs during this period, but at this point we are not seeing inflationary costs. It will also be difficult should the cost of energy and fuel begin to soar again as it did over the last year.
Starting immediately, this means the costs for items such as supplies, services, meals, equipment, and travel need to be reduced or held level to achieve acceptable operating budgets. We have already seen our budget managers achieve significant savings this year in anticipation of this announcement, but all of us must remain vigilant to avoid spending increases. We also must recommend that all discretionary expenses be reduced to a minimum or eliminated. We must pay particular attention to discretionary travel by staff for conferences and professional development. We suspect that many organizations will make professional training available remotely and we should encourage our employees to take advantage of these opportunities rather than travel. Managers and supervisors should continue to work with staff to seek ways to reduce all non-essential spending.
The College is a good partner to many businesses and we already have been successful in achieving considerable savings in many of our business arrangements. Where we can, we are encouraging competitive bidding and stepped-up negotiations to reduce costs.
Deferred Maintenance and Capital Projects
One area where we need to be careful in a "down economy" is our physical plant and facilities. Bowdoin has a beautiful and historic campus and we must take steps to keep up with necessary repairs, replacements, and deferred maintenance projects. As a result, I am recommending that we maintain current funding levels for major maintenance and capital renewal, but that we put major capital projects on hold (other than construction already in progress like the Fitness, Health and Wellness Center), unless funded by gifts or grants. Over the recent past, the campus has witnessed many new building and renovation projects. The challenge now is to make sure we maintain these buildings and our infrastructure. It would be irresponsible to allow our buildings to deteriorate and to pass along deferred maintenance to future generations.
The steps outlined above will allow the College to achieve budget surpluses in the current year and the following two to three years. It is our expectation that these savings and budget models will cover anticipated deficits through fiscal year 2014. While it is very difficult to forecast beyond the next five years, we are confident that these steps will put us on a secure financial footing, assuming that the economic situation does not significantly deteriorate. We are also optimistic that at some point, the financial markets will turn around and that our endowment will enjoy a growth period again. Adhering vigilantly to these changes will allow us to be nimble and make mid-course corrections if necessary.
The next step in this process is for us to discuss our economic situation and these recommendations with the entire Bowdoin community. It is vital that everyone have an opportunity to ask questions and that the process be transparent and open. Toward that end, we will hold a series of public meetings for faculty, staff, and students.
The dates and times of these meetings are:
For the faculty, we will also have an opportunity at the next faculty meeting to discuss these recommendations and our financial condition.
I want to thank the members of the financial "blue tarp" committee and look forward to working with them to refine these recommendations based on the discussions over the next couple of weeks. Our goal is to reach final recommendations in advance of the Trustees Meeting in early February so that these recommendations can be adopted.
I want to emphasize that our College is strong and we have much to be proud of at Bowdoin. The challenges we face are no different from all other colleges and universities in America. I believe that the next period will require us to redefine our sense of accomplishment in ways other than new buildings and growth, which have been the measures of success emphasized over the past 20 years. This new period will require us to focus on our core values of education and to take pride and satisfaction in the excellence of our liberal arts mission and our residential life environment. This refocus is, in many ways, a positive development as it emphasizes the values that truly define our worth as an educational community. It is our resolute commitment to these values that sets our College apart and will ensure our preeminence and strength into the future. We have every reason to be optimistic and confident.