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Spring 2003

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Whoa-oa-oa!
Balancing the books in precarious times

by Susan Rosenberg

There’s no getting around it: a high-quality education is expensive, both for families to pay and for colleges to provide. Why that’s so—and how the budget battle plays out at Skidmore each year—is a tale of dilemmas and deliberations.
     The good news, says President Jamienne S. Studley, is that “Skidmore’s academic quality compares remarkably well to colleges with much greater resources.” That’s also the bad news, says Karl Broekhuizen, vice president for business affairs. “To maximize every dollar, we operate very close to the bone. There’s virtually no wiggle room, no fat to trim. We’re stretched flat,” he says. Studley agrees, “Outperforming our financial base is a high-wire act honed by a long tradition of penny-pinching and the extraordinary devotion of faculty and staff.” Even in flush times, she admits, “we have plenty of sleepless nights.”
In the troubled economy, the squeeze is on at Skidmore
     At Skidmore and most colleges, tuition doesn’t cover the full cost of educating a student; other funds have to fill that gap. Especially for colleges with small endowments, like Skidmore, budgeting is a game of chicken: they funnel every dime of revenue back into the enterprise, keep prices as low as they dare, and hustle for donations as they walk the razor’s edge between red ink and black.
     “Skidmore has managed to operate in the black for the past twenty-five years,” says Broekhuizen. “But the fact is, our revenues are too small to continue all our programs at current levels.” Indeed, in each year’s initial budget draft, projected expenditures always outpace projected income—the result of Skidmore’s dedication to providing the richest educational experience it possibly can, according to John Morris, chair of the trustees’ finance committee. “The kind of faculty we have and the kind of facilities we build,” he says, “reflect that strong, deliberate commitment. And that includes a commitment to crafting a budget, even in difficult times, that will support these most fundamental elements of our college.” It typically takes months of whittling and adjusting by college financial planners before a balanced budget plan can be approved by the board of trustees.




     Skidmore’s budget negotiations (something of a cross between expert choreography and a twelve-car pileup) involve individuals and committees from the board of trustees, administration and faculty, and student body, debating everything from how many teachers are needed for a large course to how often the lawns are mowed. But discussion always starts with four keystones: number of students, comprehensive fee (tuition plus room and board), amount of financial aid, and salaries and benefits. The first two determine the vast majority of Skidmore’s income; the second two, the vast majority of its expenditures. With just these four figures, the options—and the consequences—are mind-boggling.
     One way to balance the budget is to boost the number of paying customers. “Say we enroll fifty more students this year,” offers Mary Lou Bates, Skidmore’s dean of enrollment. Allowing for the varying amounts of financial aid granted to many Skidmore students, budget planners count each student enrollment as roughly $21,000 in net revenue, so fifty students could bring in $1 million-plus. But, Bates counters, “How would we house them? Who would teach and advise them? Which courses would they, and their fellow students, get closed out of?”
     Perhaps more crucial, she adds, Skidmore’s academic strength and selectivity would falter if it reached deeper into its applicant pool. About 280 offers of admission are needed to “yield” fifty enrollees, and that could push the college’s overall acceptance rate above 50%, the point at which the marketplace tends to strip a college of its “highly selective” label, its reputation dims, and strong applicants look elsewhere.
     Another option is to hike tuition rates. “Ten or twenty years ago, the market could bear 8% increases in fees,” recalls Bates, but “recently most colleges have worked very hard to keep their increases under 5%. With Skidmore’s budget so heavily tuition-dependent, we can’t avoid raising tuition. But we can’t raise it too much, or we’ll drive students away.”
     With tuition rates already putting pressure on students and families, cutting financial aid is problematic too. “More and more families are requesting—and qualifying for—financial aid,” notes Robert Shorb, Skidmore’s student-aid director. Having septupled its financial-aid budget in the last twenty years, Skidmore now provides some aid—often enough to meet the full amount of a family’s need—to 42% of its students.
     It’s well worth it, argues Michael Casey, vice president for advancement: “It’s not by chance that the steady rise in the quality and diversity of our student body coincides with our increased investment in student aid.” Most faculty and administrators agree that if Skidmore admitted only students who could pay, its educational vitality—the richness of its exploration, inquiry, and discourse—would all but dry up. And Skidmore faces stiff competition in student recruitment. Bates says, “We can talk about Skidmore’s commitment to access, but the bottom line is, we still lose too many students to schools with bigger aid budgets.”
     Reducing personnel costs is a fourth option, also highly unpalatable. Skidmore’s salaries are widely regarded as fairly modest, so budgeteers usually try to allow for 2–4% raises each year. Generous pension plans, health coverage, tuition remission, and other benefits help keep the college’s overall compensation sufficiently attractive and competitive.
     What about layoffs? Like most colleges in the past few decades, Skidmore has enlarged its nonteaching staff in response to rising demands for counseling and other student services, technology and lab assistance, heightened fundraising, and other needs. Would scaling back diminish the campus experience and put the college at a disadvantage in today’s competitive climate? On the academic side, Skidmore and other colleges have been relying lately on adjunct faculty—part-time, non-tenure-track professors—to pick up various teaching duties. With initiatives such as Liberal Studies, new minors and majors, and high expectations for scholarly work, “we’ve continued to expect more from our tenure-track faculty without adding significantly to their number,” says Sarah Goodwin, associate dean of the faculty. Skidmore’s recently adopted strategic plan emphasized the need for more faculty, not fewer.
     Of course, many compromises go into each budget plan: tuition does get bumped, or enrollment targets nudged, or salaries stalled. In addition, scores of smaller items are pinched and prodded to extract a few more dollars.

     Take heating and electricity, for example. With utility rates climbing fast, and with fifty large buildings housing high-tech labs, round-the-clock computers, night-owl students, and even a swimming pool, Skidmore’s utility bills are colossal. This winter, says facilities director Mark Struss, heating bills ran about $3,000 per day; lighting alone costs nearly $1,500 per day.
     Among the fastest-growing costs is employee health insurance. For a personnel-intensive enterprise like a residential liberal-arts college, health benefits are a gigantic operating expense, even when prices aren’t soaring. In addition to covering its active employees, Skidmore abides by regulations that require it to set aside a pool of money to cover an actuarial estimate of current and future retirees’ health-care needs. Michael Hall, financial planning director, explains, “We have to set aside enough to cover payouts and still maintain a sufficient pool. In just two years, that figure has tripled—it’s $3 million this year.”


     On the revenue side, another moving target is the college’s endowment—a diversified, interest-bearing investment fund. Skidmore’s endowment, even after big gains in the 1990s, is still minuscule compared to many of its peers’. For endowments of any size, an “industry standard” for the amount taken out and spent each year is around 5%. Ideally that comes from interest and dividends, so the principal is never drawn on and any extra earnings are plowed back in.
     Even in last year’s gloomy stock market, Skidmore’s endowment gained a few points—besting the major indexes, and most other colleges, which took outright losses. This year Skidmore is losing too, but still not as badly as many. And, as VP Broekhuizen notes wryly, “Our small endowment provides such a tiny fraction of our income that you could say we fared less poorly than the billionaire schools like Harvard and Yale.”
     From tuition and salaries, to endowment and summer program revenues, to computer upgrades, meal plans, and even parking tickets, budget negotiations can be intense. If faculty and administrators sometimes square off, it’s only natural, says James Kennelly, a business professor who chairs the advisory Financial Policy and Planning Committee. “It’s the faculty’s job to stay idealistic and inspired in their teaching and research, while it’s the budget managers’ job to be conservative and say no.” He adds with a grin, “Once, when I was a comptroller myself, I had a sign over my desk defining the comptroller as the guy who comes to the battlefield to bayonet the wounded.” In fact, says FPPC member Denise Smith, on the exercise-science faculty, all constituencies feel the gravity of the task. “It’s frankly excruciating,” she says, “to contemplate a slowdown in financial aid or a salary freeze. When budgets tighten, the debates really heat up as we narrow the focus of our priorities even more.”
     Skidmore’s constant struggle to stretch a dollar brings a certain advantage for advancement VP Casey, in that “every investment, every donation, goes farther here than at other colleges.” He adds, “When I think about where Skidmore was only thirty years ago—its youth, its size and scope, its financial base—it’s truly astounding how far we’ve come.”
     Again, that good news is also bad news, because Skidmore is living on a shoestring compared to its well-heeled peers. And it has to keep a white-knuckled grip on its purse—squeezing tuition against financial aid, enrollments against personnel—just to hold its ground.


Scope editor Sue Rosenberg confesses that her best arithmetic skills have never, ever produced a correct checkbook balance.

Editor’s note: Watch for future reports on Skidmore’s investments, financial aid, and other money matters.

 


© 2003 Skidmore College