Scripps and the Economy 101

How is Scripps doing in these uncertain financial times? We asked President Fritz Weis and Vice President and Treasurer James Manifold to make sense of what’s happening and why Scripps may be ahead of many of the nation’s colleges in weathering this financial storm.

Q. With the decline in the stock market, what’s happening for Scripps in terms of its endowment?

A. Our endowment is down 17.5%, from July 1 through December 31, 2008; nationally, other colleges’ endowments face declines of 25-35%, or more. Spending from our endowment supports about 23% of the College’s operations. Ironically, the nation’s ultra wealthy schools are struggling more than we are this year since many rely upon their endowment spending to support up to 50% of their operations.

Q. Where does the rest of our income come from?

A. The College has three main sources of income: net student revenues, gifts and other sources, and endowment payout. Net student revenues support 64% of our operations, endowment payout, 23%, and gifts to the College and other sources, 13%.

Q. Who decides the College’s operating budget each year?

A. The Finance Committee of the Board of Trustees presents a budget to the full board for approval each spring. The trustees voted to approve the 2009-10 budget at their March 29 meeting.

Q. It certainly wasn’t “business as usual” in determining the operating budget this year. Set the stage for us, please.

A. To say that this year’s budget exercise was challenging would be an understatement. As we watched the financial markets unwind over the last three quarters, each of us involved in the process wrestled with new budgetary realities. The grim news in the media served as a background for the Finance Committee’s deliberations.

Fortunately, the College has been in budgetary financial equilibrium for the last three years and in financial equilibrium for the last four, based on actual results of operations going back to fiscal year 2005-06. Also, we are projecting we will end the current fiscal year with a $500,000 operating surplus. Scripps has always operated on a lean budget, and that has significantly helped us stay financially healthy and be able to move ahead in this current economy.

Q. What is financial equilibrium and why is it important?

A. Financial equilibrium is a condition where operating revenues equal or exceed operating expenses. Financial equilibrium is important because it provides a stable base from which to absorb financial shocks to the system. The whole financial structure of a college is, by design, crafted for slow, incremental change, rather than supple, quick moves.

Q. The College hired 11 new faculty this year, as well as four last year. How was this possible?

A. These new faculty are all replacements for already budgeted faculty positions. Although many other colleges canceled or deferred searches this year, Scripps elected to maintain our commitment to small classes and a low studentfaculty ratio. With the buyer’s market, we were able to hire a superb cohort of young teacher-scholars and to fill some positions that had been vacant for several years.

Q. Are we growing the student body?

A. Not at this time. This fall, we anticipate bringing the total enrollment of students to 900, down from 932 in 2008, when we had an unusually high yield from those admitted. This decrease will bring the student-faculty ratio closer to our goal of 10:1. We will move toward our strategic plan goal of 1,000 students only when this growth is consistent with the priorities of the plan, including academic excellence and other measures of quality.

Q. What are the highlights of the 2009-10 operating budget?

  • We are increasing student charges by 2.2%, the lowest percentage increase since 1972, and most likely among the lowest percentage increases in the nation this year.
  • Financial aid dollars in support of Scripps students will increase 10%, or five times the rate of the tuition percentage increase.
  • Endowment spending in support of operations will increase by $325,000 (from $10.9 million to $11.2 million), based on Scripps’ approved spending policy. Our policy will be modestly adjusted to slow the impact of market changes on the budget in both up and down markets.
  • An anonymous pledge of $5.7 million over the next three years in support of the James E. Scripps (JES) Scholars Program has added some budgetary flexibility to future operations. Next year’s budget includes use of $1.9 million received in support of the JES Scholars Program. The remainder of the pledge will be used strategically over the following four years.
  • Modest salary increases for faculty salaries are being supported in part through spending from the Scripps College Faculty Retention and Hiring Endowment Fund.

Q. Historically, tuition has gone up each year, by an average of 7% over the last three years at Scripps. The 2.2% increase in total student charges is the lowest percentage increase in the past 20 years. Why so low this year?

A. We recognize the difficulties our students and their families are facing in today’s economy. If we can balance our budget, maintain the academic programs, and keep up our staffing levels, and at the same time keep our fees as low as possible, we will do so.

Q. In a year when other businesses and organizations are laying off employees, freezing salaries, and increasing revenue where possible, how can Scripps have such a low tuition increase and give salary increases, too?

A. Scripps finds itself in an unusual budgetary position relative to its competitors, principally due to the anonymous gift in support of the JES Scholars Program. This astonishingly generous and timely gift has really made all the difference in allowing the budget process to avoid program cuts and the postponement of all strategic plan goals.

Q. What are the College’s contingency plans?

A. In addition to our $500,000 surplus, the College has identified $500,000 of cost savings that could be made as a mid-course correction should enrollment be short or financial aid exceed the budget.

Q.Shouldn’t we suspend capital expenditures until the economy turns around?

A. This year’s total budget of $2.5 million for capital expenditures is $1 million less than last year’s, and capital equipment in the operating budget is 4% less than last. A total suspension would not save money in the long run; it would create deferred maintenance, something the College worked very hard to address over the last 15 years. It is estimated by some that every dollar of deferred maintenance creates $2-$3 of eventual spending down the road.

Q. What’s ahead for Scripps?

A. What is clear is that Scripps is obliged to make decisions that advance its mission based upon current conditions. Since we find ourselves in an advantageous budgetary position, we are using this opportunity to gain some ground on strategic plan goals. We are confident that the College is in good financial shape — with sound advice and management from the Board of Trustees — to continue to thrive in the years ahead and support its mission of providing the finest liberal arts education to our students.

 

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