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February 7, 2003
MHC
Working to Meet Budgetary Challenges for Next Year
Facing the same economic
challenges as most other colleges and universities throughout
the United States, Mount Holyoke is considering a series of belt-
tightening measures in next year’s budget to counter a projected
revenue shortfall of more than $4.5 million. These measures are
likely to include a 5 percent across-the-board cut in operating
costs and reduced raises for staff and faculty. Other cost-saving
measures will be considered as well.
According to Mary Jo Maydew, vice president for finance and administration,
the College faces a projected $4.5-million decline in two key
funding sources for the upcoming year, including a more than $2-million
drop in endowment income and a $2.4-million shortfall in net tuition
income.
Currently, the College is anticipating a budget of about $82.6
million for the upcoming fiscal year, which starts July 1. While
this figure represents a 2.4 percent increase over this current
year’s revenue budget, the College typically needs revenues
to grow at 4 to 6 percent every year to support cost increases
the institution faces annually. Cost pressures for the upcoming
year include a likely 20 percent increase in health insurance
premiums, significant increases in insurance and utilities, and
the additional costs of reopening an expanded Blanchard Campus
Center.
At the same time as costs are climbing, the College is seeing
declines in two of its three main revenue sources. While modest
growth is expected in the school’s annual donations from
alumnae, parents, and friends, a decline in endowment market value
plus the averaging in of the 2001 tax-exempt borrowing are combining
to reduce the endowment distribution to the operating budget from
$18.7 million this year to $16.6 million next year.
Although the College’s endowment performance has been competitive,
it has declined in value for the past two years, and as of December
31, 2002, stands at $344.4 million. This institution has been
one of hundreds that have seen endowment declines wrought by three
years of economic stagnation and stock market declines. In fact,
a recent report in the Chronicle of Higher Education noted that
endowments for institutions of higher education lost 6 percent
on average last year; for many schools last year also marked the
third consecutive year of decline.
The College is also projecting a $2.75-million increase in financial
aid, to nearly $26.9 million. In arriving at this figure for financial
aid, the College anticipates a 45 percent discount rate, defined
as the cost of financial aid divided by tuition revenues, of nearly
$60 million. (In other words, financial aid costs represent 45
percent of the College’s annual tuition revenues.) This
projected 45 percent discount rate is up significantly from the
41 percent level of the 2001–2002 fiscal year, a change
driven by increasing student need, which is itself a reflection
of the ongoing economic downturn.
However, while the College—and higher education as a whole—is
likely to face economic pressures into the next two or three years,
Mount Holyoke is in much better shape financially than it was
as recently as six years ago, according to Maydew. At the time
the Plan for Mount Holyoke 2003 was instituted in 1996,
the College was drawing too much annually from an endowment that
was already significantly lower than those of competitors. In
recent years, spending from the endowment has been brought into
line with the industry standard of 5 percent per year. At the
same time, the College has seen steady increases in net tuition
revenues. Before implementation of the Plan, financial aid as
a percentage of tuition revenue had climbed to 55 percent, far
higher than at other leading colleges.
The College has already called for a 5 percent across-the-board
reduction in general expenses. This should save close to $1 million.
In addition, Maydew notes that the College would likely not be
able to maintain raises at the levels of recent years. Last year,
faculty received raises of 5 percent, staff of 3 percent.
Over upcoming weeks,
Maydew and her staff will continue to work with members of the
College community to look for further areas of possible savings
in efforts to meet current budgetary challenges. “As a community
we’ve got to look at every opportunity for savings,”
Maydew notes, “and we’ve got to do it in such a way
that we protect our core educational mission.”
The board of trustees
will vote on the College’s budget for next year at its May
meeting.
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