A Letter to Parents from President Roush
February 25, 2009
Dear Centre Parents,
Several days ago you received a letter from John Cuny, the College’s vice president for finance, announcing the comprehensive fee that our Board of Trustees has set for 2009-10. In that letter, John noted that we are being especially careful to examine expenditures and reduce them where possible.
In this message I’d like to expand on that and give you an overview of our sources of revenue and areas of expenditure; some detail on things we’re doing to hold down costs; some information on financial areas we can’t control; some information on financial aid and our commitment to remaining a place of access and opportunity; and, lastly, a snapshot of where all that leaves us at this point in time.
Sources of Revenue
Our sources of revenue are as follows:
- Net student revenue provides about 70 percent of our annual income;
- Draw on endowment, 23 percent;
- Alumni and friends gifts to our Centre Fund, 3 percent; and
- Miscellaneous, 4 percent (things such as special program fees, surcharges for international study, government grants, etc.).
I should note that, in terms of revenue, no student pays the full comprehensive fee at Centre. In other words, Centre does not charge any student the actual cost of what is spent on each of them. This discounted tuition is possible because of our annual giving and our endowment. Students are only charged about 70 percent of the actual cost required to provide their Centre education. Some students receive scholarships and need-based financial aid that make that amount even less, but even a student who pays our full fee is still receiving in effect a 30 percent scholarship.
Areas of Expenditure
Our largest expenditure category is salaries, wages, and benefits—about 61 percent of the annual budget.
Additional expenditures are program expenses at 25 percent, which include—
- Instructional support (department program budgets),
- Academic support (includes budgets for the dean's office, the library, instructional technology, the writing center),
- Student services (includes admission),
- Institutional administration (includes the president's office, the development and alumni offices, the finance office, the information technology office, the human resources office, the communications office),
- Plant operations, and
- Auxiliary services (includes the dining hall, the residence halls, and the post office and copy center).
The list of expenditures is rounded out by—
- General institutional expenses (utilities, insurance, and professional fees), 6 percent;
- Capital projects, 4 percent; and
- Debt service, 4 percent.
Things We're Doing to Hold Down Costs
Let me say first what we're not doing: making any cuts that will diminish the quality of our academic program. The guiding principle in all our financial decisions will be, as always, to preserve and secure the nationally recognized excellence of our academic offerings, and specifically the men and women on Centre’s faculty and staff who serve the College and its students. Continuing to provide access and opportunity is another principle to which we will remain steadfast.
That said, the following decisions and commitments are in place:
- A salary freeze—other than for promotions, we do not anticipate salary increases for faculty or staff members for the 2009-10 academic year.
- While we have no plans to cut faculty or staff in the coming year, the process for filling staff vacancies has become more rigorous. Each time a vacancy occurs, a group of senior staff members asks the question, “Is it necessary to fill this position now?”
- Except for admission, we have asked all administrative programs of the College to reduce their travel commitments for the current year and for the 2009-10 academic year.
- We have asked all budget managers for a 5 percent midyear cut to non-academic programs. We are asking all budget managers for another 5 percent cut in next year's budget, as well.
- We have asked budget managers to avoid the purchase of new equipment, and any purchases will only be made with administrative consent.
- We have asked our winter and spring athletic teams to eliminate one planned trip from their schedules, and we are working to find ways to make overall reductions in the cost of athletic travel.
- We have enacted a conservation program that includes reduced power usage, “greener” construction (we anticipate that Pearl Hall, the new campus center, and the new science facility will all achieve LEED—Leadership in Energy and Environmental Design—certification), and robust recycling— all in line with our commitment to sustainability.
- We are looking closely at proposed capital expenditures for next year and deciding which projects of maintenance and enhancement can be deferred, with the guiding principle in these decisions always being the preservation of the excellence of our academic program and maintenance of the safety and health of our community.
- We stand prepared to monitor all these savings commitments and, if necessary, exercise even greater care with the College’s resources.
Costs We Can't Control
While we can freeze salaries and make other decisions that allow cost reduction, there are a number of expenditure categories that aren't “freezable.” Experience tells us that prices will increase in areas as varied as utilities, equipment (everything from computers to microscopes to heating and cooling units), “replenishables” (everything from office supplies to food to cleaning products), intellectual materials (from software licenses to books to online journal subscriptions), and insurance (for example, medical, workers comp, physical plant).
Another area over which we have limited control is draw on (that is, income from) endowment. Centre's endowment is its pool of investments that support the long term financial interests of the College. Best practice benchmarks guide us to spend no more than 5 percent of market value over a 12-quarter rolling average. As I mentioned earlier, at around 23 percent of annual income, endowment draw is our second largest source of operating funds (after net student revenue).
Our endowment, while performing better than the overall market, has declined by about 25 percent – from a high of around $210 million to around $160 million. That means at a draw rate of around 5 percent, we'll have, simply put, 25 percent less revenue from endowment in the operating budget. Our Board of Trustees has given us permission to increase our draw on endowment to around 6 percent for a limited time, linked with a commitment to move back to the recommended rate of 5 percent as soon as possible. To dramatically increase our draw on endowment beyond this would be irresponsible – making things briefly easier in the present by sacrificing a resource that is intended to provide support to future generations in perpetuity.
Bottom line: while we can and will hold down expenditures in a number of areas, we simply have to accommodate the reality of rising costs and decreased endowment income.
In the coming year we anticipate increasing the institutional financial aid expenditure by about seven percent to approximately $16,000,000. Much of our financial aid budget is supported by our endowment, and we have made a special commitment to supporting students who have financial need. While all students and families face increasing college costs, we will make our greatest priority those students who demonstrate financial need using the FAFSA. You can imagine that under normal circumstances, need exceeds resources. Given these challenging times, we expect even more need in the months to come. Families should be sure to complete the FAFSA in a timely way and provide needed documentation to the Office of Student Financial Planning when requested.
Where Does All This Leave Us?
It leaves us not unaffected by the recession, but in a good position to weather the storm and, in fact, sustain the forward momentum we have enjoyed for the last several years.
We continue to benefit from high regard from virtually all those who comment on the quality of higher education in America. U.S. News, for example, gives the College Kentucky's only national top-50 ranking and recognizes the outstanding value we provide; Forbes ranks Centre 13th among all colleges and universities; the National Survey of Student Engagement reports that in all five benchmarks associated with a quality educational experience, the College is among America's leaders, scoring higher – across the board – than its comparison group, its institutional-type group, and the overall NSSE average; and Consumers Digest rates Centre as the No. 1 value among all American colleges. Added to this is an alumni body nationally recognized for its loyalty and a faculty and staff that compare favorably with any in dedication and accomplishment. We have much for which to be thankful. The wind is at our back, even in these difficult times.
Many institutions—some of which are brand-name colleges and universities—are not so well positioned. Harvard University, for example, has announced layoffs of 1,600 employees. Caltech, with its 2,100 students, has laid off more than 140 employees. These institutions and others have halted faculty searches, cut instructional budgets, and reduced services in ways that clearly will affect the overall quality of the student experience.
Three Ongoing Commitments
The first is to provide tremendous value compared to peer institutions: our provision of assistance is dramatic and will remain so. Our national recognition as an outstanding value among premier, undergraduate institutions is earned (we remain the most affordable of the U.S. News top-50 colleges), and we are steadfast in our pledge to work with families to make the College affordable. Our combination of scholarships, grants, loans, and campus employment can provide substantial help in meeting the cost of a Centre education. If you have questions, don’t hesitate to contact our Office of Financial Aid.
Second, we are committed to timely education, and graduation in four years (guaranteed by the Centre Commitment) is our standard; whereas, the reality at many institutions is five, six, and even seven years. The appeal of avoiding extra years of tuition and living expenses is obvious, but the “head start” that Centre graduates enjoy by moving expeditiously into careers and advanced study is often an even greater benefit and a significant factor in the career success for which Centre graduates are known.
The third commitment is not to rest on our laurels. Our enhancement of an already exceptional campus, made possible by generous gifts, continues. This support allows Centre not to “charge” students for the remarkable improvements made to our campus facilities, as these projects are being made possible entirely by outside gifts to the College. These enhancements include the new Pearl Hall; the Campus Center (opening this fall); the Science Center (construction to begin in March); renovation of the Norton Center (currently underway); and renovation of the College’s baseball facility and its football/track and field complex (this summer).
To this list I would add that with our strategic plan, Centre Forward, we are, despite the recession, making progress on a number of fronts that will enhance our position as a national model in preparing students to be global citizens and in experiential, engaged education. We are, for example, currently working to create new minors in global commerce and global law/governance and to develop a new track in the existing environmental studies minor focusing on global environment and sustainability.
An Investment in Knowledge
In sum, let me say that we understand the challenges you and our nation are facing and that we're dedicated to partnering with you to emerge from this period not only intact, but improved. I'll close by quoting Benjamin Franklin, a leader who provided wise counsel to this country during another troubled time: “An investment in knowledge pays the best interest.”
Franklin knew during the era of our country's birth that education was the surest path to a brighter future. His insight remains true today. At Centre we're committed to making your investment in your son's or daughter's education one that pays extraordinary dividends for a lifetime. We're profoundly grateful for your trust and determined to work in every way possible to use resources wisely while delivering a personal education of transformational power.
President, Centre College