May
24, 2002
2002–2003
Budget Meets Financial Goals of Plan for 2003
A
2002–2003 budget was presented to and approved by the College's
board of trustees at its May meeting. This budget meets the financial
goals of The Plan for Mount Holyoke 2003 and reaches financial
equilibrium. Financial equilibrium is defined in the Plan as a balanced
budget; increases in reserves for facilities and equipment of $1.5
million a year; no use of unrestricted bequests for operations;
and endowment spending of 5 percent of the average market value,
an appropriate level for the College's long-term financial health.
At the time the Plan was adopted, fiscal year 1997, spending from
endowment was over 6 percent, so the decrease "represents a
reduction in spending from endowment of almost $5 million,"
said Mary Jo Maydew, vice president for finance and administration.
"Meeting the endowment spending objective was the final unmet
financial goal of the Plan, and it is a major achievement."
The $80.6-million budget for 2002–2003 maintains competitive
salaries and support for key initiatives, reduces the reliance on
spending from endowment, and continues support of facilities and
equipment reserves.
The
News about Revenues and Expenses
In the 2002–2003
budget, total operating revenues increased 4.6 percent from the
fiscal year 2002 projected level. Net student-charges revenue
(tuition, room, and board less financial aid) represents the only
significant increase in revenue in the fiscal year 2003 budget.
The College expects small increases in gifts and other revenues
and a decrease in investment income. The decline in investment
income results from the combined impact of the reduction in spending
rate from 5.2 percent to 5 percent and the increase in debt resulting
from a June 2001 bond issue.
On the expense side,
of the $3.5-million (4.6 percent) increase in expense for fiscal
year 2003, 79 percent represents increases in salary pools, benefits
costs, and restricted expenditures (which are offset by restricted
income). This increase was mitigated significantly by the College's
ability to negotiate aggressively health insurance rates. Percentage
increases in the market for health insurance remain in the double
digits. However, Mount Holyoke was able to secure a 4.5 percent
decrease in HMO Blue premiums and smaller increases than expected
for Blue Cross/Blue Shield POS (11 percent increase), CIGNA HMO
(8 percent increase), and CIGNA POS (9 percent increase). Other
expenses are virtually flat, despite significant increases in
energy and insurance costs.
As has been true in
past years, in developing the College's operating budget for 2002–2003,
Mount Holyoke officials focused on furthering The Plan for
Mount Holyoke 2003 through a series of financial and programmatic
goals.
Financial
Goals
Reduce Endowment
Spending Distribution
As discussed above, the Plan calls for endowment distribution
to be reduced to 5 percent in fiscal year 2003, and this has been
accomplished with the new budget. In June 2001, the College issued
$60 million in bonds, including $40 million in new debt, the proceeds
of which are providing funding for a variety of campus construction
projects and serving as a means of refinancing previous debt to
reduce interest costs. The addition of debt decreases the amount
from the endowment that is available to distribute to the operating
budget. To lessen the impact on the operating budget in the initial
year of the adoption of the debt, the debt has been averaged into
the endowment spending formula over three years, allowing the
operating budget to absorb the impact of debt more gradually.
Over the next three years, the full impact of the additional debt
will flow through the operating budget.
Balance the Operating
Budget
Given the softness in the economy and the downturn in the financial
markets, the 2002–2003 budget was difficult to balance. An
approach that helped to make a balanced budget possible was a
salary savings target of $250,000. It will be achieved by delaying
the filling of vacant staff positions for up to four months or
more whenever possible. These decisions will be made through an
"informed and thoughtful process," says Lauren Turner,
director of human resources. "We know that holding positions
vacant will be a burden to existing staff and may even have implications
for service, but by not filling position vacancies immediately,
we can also save money. We established the goal of $250,000 after
careful review of the last three years of turnover, and by analyzing
whether the College can tolerate vacancies in certain areas."
Donal O'Shea, dean of faculty, Turner, and Maydew will consider
each vacancy on an individual basis and will receive input from
department heads before deciding on vacancy periods. Savings will
also be sought from the faculty salary budget, but given the faculty
budgeting/staffing process, it is more difficult to predict the
potential for savings in this area.
Increase Tuition
Revenues
In fiscal year 2003, net tuition revenues are budgeted to increase
5.6 percent. Over the course of the Plan (1997–present),
net tuition revenue increases have averaged 15.2 percent annually.
The discount rate for 2002–2003 (financial aid as a percentage
of tuition revenues) is expected to be 43 percent, higher than
fiscal year 2002's rate of 42 percent, but still well below the
Plan goal of 47.8 percent.
Programmatic
Goals
Meet Enrollment
Goals
The College has enjoyed another record year in applications with
2,934, exceeding substantially the Plan's annual applications
goal of 2,600. The Take the Lead program continues to be extremely
successful and has begun to produce applicants to Mount Holyoke
from among its participants.
Continue Fundraising
Momentum
The overall fundraising campaign performance has been extremely
strong, achieving the $200-million goal two years ahead of schedule.
In terms of gifts for current purposes, unrestricted gifts and
grants and contracts are significantly above the levels outlined
in the Plan, while restricted gifts are lower than Plan levels.
Maintain Salary
Competitiveness and Benefits
Despite the difficult budget year, the College has attempted to
maintain the gains of earlier years with an across-the-board pay
increase of 3 percent for staff plus a small pool for equity increases.
The pool for faculty salary increases is 5 percent, and individual
faculty members will receive a salary increase of between 3 and
5 percent, plus promotional increases as appropriate.
Notes Turner, "From
the beginning of the budget process, the College has been committed
to preserving competitive salary pools despite the difficulty
of the budget process during these hard financial times. We have
had to think creatively and will have to continue to do so."
Turner is pleased to announce that the College has recently enhanced
its long-term disability benefit. For many years, Mount Holyoke
provided a long-term disability policy that offers a basic 40
percent income replacement paid for by the College and options
for employees to purchase an additional 10 or 20 percent (so the
income replacement is at 50 and 60 percent). The College now provides
a 66 and 2/3 income replacement option. Says Turner, "It's
a benefit we hope employees will never have to use, but one that
will be there should they need it." In addition the College
has identified a group dental plan as a budget priority and has
made a commitment to implementing a plan in the near future.
Maintain Academic
Support
The College has maintained fiscal year 2002 levels of support
for the library and for faculty development. A significant investment
in faculty grants is needed and is a priority for future years.
Maintain Support
for the Financial Assistance Needs of Qualified Applicants for
Study-Away Programs
The College was able to fund 111 students, which represents 79
percent of qualified applicants in fiscal year 2003. Mount Holyoke's
long-term goal is to fund all qualified applicants.
Campus Construction
Projects
Although the most visible sign of change at the College is the
construction projects—the science center, the expansion of
the Mount Holyoke College Art Museum, the Pratt Hall renovation,
and the renovation and expansion of the Blanchard Campus Center—those
projects are only indirectly related to the annual operating budget,
Maydew explains. Gifts and borrowing cover most of the construction
expenses for the projects, Maydew says, with the remainder coming
from the budgeted reserves. While the capital projects budgets
are not part of the operating budget, there are some connections.
Increased debt levels have an impact on the amount of endowment
spending that is available for operations. Also, additions to
operating reserves for facilities and equipment are included in
the operating budget.
While noting that
this budget is an achievement worthy of celebration, Maydew cautions
that financial challenges remain. "As we move into the plan
for 2010, achieving and sustaining competitive salary and benefits
levels for staff and particularly for faculty will continue to
be difficult. Also, with the passage of time and with additional
data, we now know that the facilities and equipment reserve levels
that were our goal in The Plan for Mount Holyoke 2003,
and which we exceeded, are insufficient and need continued, significant
growth. While we have improved support for many important College
priorities during the past few years, other important priorities
remain in need of additional support, including faculty grants
and funding for study away. The downturn in the economy and in
the financial markets has put pressure on all revenue streams."
This said, Maydew is pleased with the "care, thought, and
creativity" that went into drawing up the 2002–2003
budget and the "long-range thinking" that has already
gone into considering the budgeting process for the next several
years.
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