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Message from President Chopp and Dean Lyle Roelofs on approved 2009-10 budget (April 2, 2009)

We write this letter to provide an update on Colgate’s financial position and report on the university’s approved budget for 2009-10. This year’s budget has been developed in the context of significant financial challenges we, like all other institutions of higher education, are facing in the wake of the severe downturn in the capital markets and the global recession. Fortunately, we face these challenges from a strong financial position and with significant institutional momentum. Now, as always, our work is guided by a commitment to preserve academic excellence while operating in long-term financial equilibrium.

As you know from previous letters, Colgate is experiencing the impact of the economic downturn through each of its principal annual revenue streams: student charges, endowment spending, and unrestricted Colgate Annual Fund contributions. Revenue from these sources, which have enjoyed expansive growth for an extended period of time, will increase, if at all, at modest rates for the foreseeable future.

Pressure on primary sources of revenue
Student charges represent Colgate’s largest form of revenue contributing approximately 65% to our operating budget. This recession impacts everyone and, for this reason, we will be limiting our increase in total student charges for 2009-10. Additionally, we remain fully committed to increasing annual investment in financial aid in order to make possible an increase in the number of students who qualify for financial aid in the entering Class of 2013 and provide additional assistance to those students whose family circumstances may have changed and now qualify for financial aid. We must restate that Colgate remains committed to meeting the full demonstrated financial need of all current students. These important commitments will put Colgate’s most significant annual income source, net tuition revenue, under extraordinary pressure.

We also anticipate that Colgate’s second largest annual revenue source, support from the endowment, will suffer an actual reduction over the next several years, as explained in more detail in the following paragraph. The investment performance of the Colgate endowment investment portfolio has been strong relative to both broad equity markets and peer institution endowments. This is due in no small part to the outstanding management by our Board of Trustees Endowment Management and Finance Committee. Nevertheless, the Colgate endowment has sustained losses of 22% for the nine months ending February 28, 2009 (Colgate’s current fiscal year). We anticipate that the Colgate market value, after write-downs for illiquid investments are recognized, will be approximately $520 million or almost $210 million lower than its May 31, 2008 value.

As a result of the endowment’s lower market value, the university’s budgeted endowment spending rate has increased beyond a level that is sustainable for an extended period of time. One way to think about this situation is to recall that Colgate’s endowment on May 31, 2006, was $558 million and the endowment was budgeted to provide $25.8 million in operating budget support for the subsequent (2006-07) fiscal year. Currently, we expect the market value of the endowment to be in the range of $500 to $550 million at May 31, 2009; yet budgeted endowment support is more than $33 million for the next fiscal year (2009-2010). The challenge we must collectively address over the next two to three years is to bring the amount of annual endowment spending back to a level that is commensurate with the underlying market value. We are currently estimating that this will mean restructuring the budget to make up approximately $7.5 million, a figure that has been reduced from an original target of $12 to $15 million thanks to the cost-cutting measures described below.

Colgate alumni, parents, students, and friends have a history of generous giving; and we are fortunate that the Colgate Annual Fund has grown in recent years, providing critical support to the operating budget. While there continues to be significant interest in supporting today’s students through philanthropy, instability in the markets and its effect on those making gifts has made this stream of revenue less predictable; and, consequently, we cannot assume the same increases in our Annual Fund that we have seen in recent years.

2009-10 budget
Over the past several months, thanks to the cooperation of the Colgate community and the guidance of the on-campus Budget Committee, we have pulled many of the “levers” which have enabled us to effectively control expense growth as we have developed the 2009-10 budget. Steps already taken include: 

• a 5% decrease in divisional operating budgets across the university saving Colgate almost $2.0 million 

• a $2 million reduction in the annual allocation to capital project reserves which will result in far fewer campus facility renovation and maintenance projects during summer 2009 

• a hiring freeze for all open staff positions, which has thus far saved the university almost $500,000 

• tight controls on salary increases, resulting in a net savings of $1 million.

These measures have enabled Colgate to make significant progress in balancing the 2009-10 budget, and they are a significant part of the reason why we are now projecting a necessary budget restructuring of $7.5 million instead of $12 to $15 million. We must now continue to prepare the university to pursue its educational mission in a less prosperous economic environment.

The finalized 2009-10 budget recently approved by Colgate’s Board of Trustees includes: 
• a 3.6% increase to total student charges, Colgate’s third lowest annual increase over the last 30 years 

• a 5.3% increase to the financial aid budget. This infusion of $2 million will allow us to expand the number of aid opportunities for the incoming Class of 2013 and provide additional aid to currently enrolled students who need it 

• targeted salary increases for employees in three groups:
- assistant professors and faculty who earn tenure or promotion or receive special adjustments in the current year. The Board of Trustees is committed to ensuring that faculty compensation remains competitive over time with our ambitious peer group

- regular employees who have an annualized salary of less than $50,000 and who are eligible for an increase based on performance

- bargaining unit employees in Buildings and Grounds who will receive the increase agreed upon, last year, in their contract with the university.

Faculty and staff who are not in one of the categories listed above will not receive a salary increase for the 2009-2010 year.

The hiring freeze implemented earlier this year has helped to manage compensation expense. Nevertheless, we must continue to control Colgate’s single largest expense category. Fortunately, Colgate has enjoyed a period of generous increases to salaries in recent years. Most of Colgate’s peers have announced similar measures to those outlined above, and therefore we expect that the competitiveness of our compensation will not suffer relative to our peers.

Looking to 2010-11
While the decisions and deliberations that have gotten us to a balanced 2009-10 budget have often been difficult, we have been able to continue to provide a superb education to our students and a positive learning environment for the campus community in spite of the economic challenges we face.

A balanced 2009-10 budget, however, is only the first step towards the financial equilibrium we must attain within the next two to three years. So that we are able to reduce annual support from the endowment for the operating budget, we anticipate needing to keep the 2010-11 overall salary expenditure budget and the 2010-11 divisional budgets at their 2009-10 budget levels. Please note that we are not able to indicate what this means to individuals or particular employees at this point, but we wanted to share in advance that the overall money spent on all compensation and departmental budgets will be approximately the same over the next two years.

These measures alone, while extremely helpful, will not be enough to bring us back to financial equilibrium and we must therefore work collectively to develop strategic plans for the university that maintain Colgate’s excellence and restructure the university’s budgets for the current economic reality. It is worth mentioning again that, were we not taking the significant steps in compensation and operational budgets, the challenges in restructuring our budgets would be far greater and likely require more drastic measures, similar to those taken at other institutions.

Economic Environment Working Group
The current economic climate requires that we examine the university's budget priorities. A campus working group has been charged with considering and developing options that will enable Colgate to operate in long-term financial equilibrium while continuing its pursuit of academic excellence. This committee will be advisory to the president and, subsequently, to the interim president.

The working group will be co-chaired by Harold Orville Whitnall Professor of Geology Bruce Selleck ’71 and Vice President for Finance and Administration David Hale ’84. Members will include Interim Provost and Dean of the Faculty Jill Harsin, Associate Professor of Economics Nicole Simpson, Professor of English and Division Director of University Studies Constance Harsh, Vice President and Dean of the College Charlotte Johnson, Secretary of the College Kim Waldron ’81, Vice President and Senior Philanthropic Advisor Bob Tyburski ’74, Associate Vice President for Budget and Financial Aid Hugh Bradford, and Associate Provost Trish St. Leger.

The working group will identify several scenarios for strategic realignment of Colgate’s operating budget. All options must be on the table; no option must be assumed untouchable. We will charge the group to devise a consultative process and to hear the suggestions and concerns of the entire community. The working group is encouraged to think boldly and to be clear and wise about determining what is essential at Colgate.

Coming together
The development of this budget has been a significant undertaking and required the cooperation of a wide variety of members of the Colgate community. Staff, faculty, students, and alumni have provided input and shared information on how other institutions are navigating this challenging climate. We are grateful for the superb efforts of so many in our community, including senior academic and administrative staff, the on-campus Budget Committee, the Advisory & Planning Committee, and the Board of Trustees, who all are helping Colgate to navigate these challenging times.

As we look forward to 2009-10, it will be important for us to consider the challenges that we face but always keep our focus on the opportunities we can seize. Colgate is not alone, and we are well positioned. We will be cutting back on some of our expenditures, but we remain committed to excellence. The Colgate community has a history of responding with determination during difficult times and now is a time when we must do so again.

Thank you for all that you do for Colgate’s students and, as a result, Colgate’s future.

Sincerely,

Rebecca S. Chopp
President 

Lyle Roelofs
Provost and Dean of the Faculty

Past Messages


President discusses 2009-2010 budget (Feb. 4, 2009)

President outlines campus response to poor economy (Nov. 25, 2008)

Diversity on campus (Nov. 10, 2008)

President Chopp addresses impact of economic downturn (Oct. 21, 2008)