Dickinson and the Economy

September 24, 2009 

Dear Members of the Dickinson Community:

In Dickinson’s spirit of transparency, I write to update you on details about the economic status of the College. To cut to the point, we have done well in the initial year of our four-year plan to deal with the global economic duress, but like everyone else, we remain challenged in endowment, giving and financial aid. We believe by continuing the same careful execution of a judiciously-organized plan, we will protect our core values and excel. This is not just our judgment. Within the last few months—right in the midst of the crisis—Standard & Poor’s Rating Service reaffirmed the College’s “A” debt status and continued its “positive outlook” on Dickinson’s future.

Permit me to thank you personally for your commitment to our College through this most demanding period. Dickinson continues to distinguish itself by careful planning, effective decision making and community commitment. I thank our community for absorbing with wisdom and understanding the cost reductions that have helped us achieve this favorable position. Many of us have never lived through such a period of economic restraint. The old adage, “May we live in interesting times!” certainly applies today. With the good work and good will of everyone in our community, interesting times will prove to be good times for our College.

A full report to the community follows.

Sincerely,

William G. Durden ‘71
President

Report to Community

Positive Operating Results FY2008-2009

Throughout the last academic year, our community approached the unprecedented volatility in global financial markets with candor, transparency and discipline. A structured four-year plan was immediately put into effect to move us through the crisis embracing a variety of pragmatic management and financial measures, to include both cost reductions and progressive increases in available financial aid for students and families with demonstrable need. We did NOT anticipate a quick global economic recovery.

By February 2009, the All-College Planning and Budget Committee—a long-standing, critical part of Dickinson’s representative process of dealing as a community with planning and budget—recommended cuts in service, supplies and capital budgets across the campus equal to $2 million for FY2009-2010 (FY10) with more to follow for at least the next two years. The faculty, administrators, support staff and students on the Committee asked every division to suggest cuts to be put into place “early” during spring 2009. Discussions about the various proposals for cost reduction took place in many quarters including faculty meetings, other all-campus committees and the Student Senate. The Dickinsonian also provided extensive press coverage of the issues. The entire campus rose to the challenge, approaching spending with cost reduction in mind. These focused efforts brought our community through a turbulent time when, had spending continued in a more “normal” pattern, the College could have run an operating deficit.

The first year of our four-year plan was a success and gives us tremendous confidence that we are, as a community, following the right path to insure the economic positioning and vibrancy of the College in most demanding times. The College—along with all institutions of higher education and many organizations in other sectors of the economy—anticipates absorbing still more expected losses in giving and in spending from the endowment in the years ahead, as well as anticipated increases in student families’ need for financial aid. But again, we are already in process to confront these challenges head-on. I extend many, many kudos to all my colleagues who pulled together as a “can-do” community, assessed the situation and made the tough decisions both to complete FY09 on a positive note. This work helped prepare the College for the three-year (FY10 through FY12) financial challenge that lies before us.  

And here is the result of those initial difficult, but necessary decisions: for the fiscal year ending June 30, 2009 (FY09): we expect a surplus of approximately $3.3 million after debt service and transfers. This surplus was primarily the result of having 44 more students on campus during 2008-2009 than were budgeted. Dickinson just experienced one of its highest retention rates from first to sophomore year in its long history (92.3%) affirming for us the value of our education to those who receive it. Student tuition, fees, room and board comprise 80 percent of the $102 million net operating budget, so focusing on recruitment and retention is critical. While there were losses in giving, grants and investment income related to the recession, the savings in other expense areas across the entire campus community more than made up for them. The institutional self-discipline that led to these unusually positive results will continue.

The FY09 surplus will be used to fund $1.5 million in capital projects specifically targeted at student recruitment given the priority of success in this area as key to our future. Monies, for example, will be expended on sorely-needed renovations to the Admissions House in summer 2010 and other projects such as residence maintenance and renovation. We will also create a $1.8 million “recession reserve” for operations during the FY2009-2010 (FY10). This reserve is especially important in this current recessionary environment. Last spring, we graduated our largest class ever. This fall, we admitted a smaller first year class (582) than in previous years (the average was 621 over the previous five years), but we also admitted the second highest number of transfer students—29—in our history bringing the total number of new students to 612. We also committed almost $3 million more in financial aid to our students, bringing the total financial aid commitment from Dickinson up to $32 million. Although we increased the discount rate (the amount of money on every dollar received in tuition that immediately goes back to students in the form of financial aid) only a few percentage points from an average 33 percent in recent years to 38.6 percent for the first year class this fall, this increase in the amount of financial aid needed and the smaller number of entering first year students will have a negative impact on our primary source of revenue for the operating budget. The overall FY10 budget remains positive, but it has less flexibility than in the past. The cushion provided by the FY09 surplus “recession reserve” is necessary to keep the College’s financial situation flexible and strong.

Demand for a Dickinson Education Remains Strong

The demand for Dickinson in this climate remains strong. As of this writing, we have just over 23,000 senior inquiries compared to just over 13,000 as of this date last year. If inquiry to application rates hold, these inquiries are projected to generate between 5,500 and 5,600 applications for the 2009-2010 application cycle. The increase is largely attributed to an emphasis on regaining market share in our primary markets (Pennsylvania, Maryland, New York, Connecticut, New Jersey) with continued outreach to our more distant secondary and tertiary markets (Atlanta, Chicago, Los Angeles, Phoenix, Houston, Denver, etc.). A new integrated communications platform with messaging clearly and purposefully articulating Dickinson’s value proposition is under development, as is a new web site, including emerging social media.

The significant work over the last decade has resulted in a new market position for Dickinson. In 1999, the College’s admissions overlap was largely regional with eight of the ten schools in Pennsylvania. As a result, Dickinson was at the top of its peer group in terms of selectivity. In 2009, the College enjoys a new competitive position with a much more selective and resource-rich peer overlap (to include Middlebury, Kenyon, Tufts, William and Mary, Hamilton and Colby), presenting both challenges and opportunities as Dickinson develops strategies to strengthen and sustain its new position. Our positioning in this new peer group provides opportunities to expand the pool of highly talented applicants for whom Dickinson is a competitive fit.

The College’s third comprehensive strategic plan (2011-2016), currently under development, will address the importance of Dickinson’s value proposition within its new sphere of competitive influence. The issue of being competitive within this new sphere is also closely linked with our institutional wealth and thus we must continue—despite the demanding economic times—to make the case to those who have been enriched in so many ways in life through a Dickinson education. We need our successful alumni from all walks of life to join with us and increase the size of our endowment and our annual fund. We are encouraged that Dickinson alumni and friends will rise to the occasion. With two years until the scheduled conclusion, our current capital campaign is but $14 million away from its goal. We wish to finish this campaign on a high note with a community feeling of immense confidence towards the future of the college. With resolve and conviction, we can contradict national giving trends (as some institutions are) and make now the time for our college to become everything we have always wanted it to be. In 2003, David Kirp in his much-acclaimed book Shakespeare, Einstein and the Bottom Line (Harvard University Press) declared that our College would be a “winner” in the 21th century and we have every intention to prove him right!

Financial Markets Affirm Dickinson’s Strength

The College's $15,000,000 bond issue approved by the Board of Trustees last January sold on the morning of September 13th on Dickinson's own "A" rating without enhancements. This is a very strong affirmative on third-party confidence in Dickinson’s financial position. The College sold $10,000,000 at fixed rates (FRD) and $5,000,000 variable rate (VRD) for which the rates are fixed for three years. Even the VRD sold on Dickinson’s own name without a bank Letter of Credit or any other enhancement, a mark of the growing strength of the College’s reputation. (VRD included no interest rate swaps and were not auction-rate securities, thus limiting risk in challenging credit markets.) The markets were friendly, and the College’s issue was oversubscribed. In fact, the demand was so high, we were able to sell with NO debt service reserve fund (which means we have more net proceeds to fund necessary projects) and yields were able to be reduced during the selling period. There was more than eight times the number of subscribers who wanted Dickinson's paper than the issue could accommodate. 

The $10,000,000 FRD were sold at fixed interest rates of 5 percent. The $5,000,000 VRD yielded 2.75 percent and rates were fixed for the first three years. In both cases, these rates were lower than the College anticipated, saving the budget hundreds of thousands of dollars over the 30 year life of the bonds. Being able to sell these bonds at very attractive rates without enhancements from any bank or insurer and without the requirement of a debt service reserve fund marks a clear message from the financial community. Dickinson’s financial position is strong. The College achieved good rates and the market rewarded Dickinson for its momentum and growing reputation.

The proceeds from the bond issue will be used to renovate the Althouse building into a home for Economics and International Business and Management; to repair roofs on the Kline Center and on Kaufman and Tome Halls; to install sprinklers in certain residence halls; to fund infrastructure improvements completed in summer 2008 in preparation for Rector Science Hall III; and to provide funding for other miscellaneous campus capital projects of strategic importance.

Endowment Down, But Outperforming Markets and Peers

Spending from the endowment provides approximately 10 percent of Dickinson’s operating budget revenues, or about $10 million per year. Investment markets since December 2007 have been extraordinarily volatile, but Dickinson’s broadly diversified approach to investing and its focus on protecting the endowment during down markets has performed well on a relative basis. For the fiscal year ending June 30, 2008 (FY08), Dickinson’s investments returned +2.8 percent, compared to an average return of negative (3.0 percent) for all institutions nationally. For the twelve months ending June 30, 2009 (FY09), the College’s portfolio was down (17 percent). Preliminary reports suggest this performance will once again—for the fifth year in a row—place Dickinson’s investment returns in the top quartile of all institutions nationally. Positive results in the pooled endowment brought the 14-month investment results to approximately negative (10.7 percent). The total endowment on August 31, 2009 had recovered to $295 million, down from its high of $354 million in spring 2008.

Even with these “better than others” results, declining investment values will mean endowment support for operations—scholarships, salaries, library resources and the like—will decrease over the next three years as market losses work their way through the 12-quarters of market valuation data that form the basis of our spending calculation. Added to expected losses in grants and giving, and to significant increases in students’ need for financial aid, the operating budget will continue to “feel the pinch” through FY11 and FY12. We must also remember that the Dickinson endowment, even before the recession, was considerably lower in value than that of our new competitive institutions—hundreds of millions of dollars less.

A Multi-Year Challenge

During spring 2009, as expense cuts were being identified to bring the FY10 budget into balance, the College focused on service, supplies and capital budgets to find $2 million in savings. Efficiencies were identified and implemented—from reducing cable TV service in residence halls to decreasing administrative professional development funding and replacing computers less frequently—thus keeping the operating budget balanced and preserving Dickinson’s financial strength. There also were no raises for faculty and staff. We remain committed to doing everything possible to preserve jobs for those who work incredibly hard as faculty, staff and administration to permit Dickinson to have the success it is currently enjoying and to position it for additional success as this recession winds down and a more robust economy returns.

To balance the FY11 budget, another $2 million of cuts must be identified; again in FY12, an additional $2 million in cuts will be necessary to deal with losses in revenue and expected increases in aid related to the economic recession. As part of its work this year, the All-College Planning and Budget Committee will continue to explore additional efficiencies in services, supplies and capital budgets. At the same time, the Committee will begin looking at the 60 percent of operating expenses that support salaries, wages and benefits. The Committee will review early retirement options as well as ways for the College and employees to benefit from containing health care costs while maintaining the quality of our current medical plan. Simultaneously, the College will invest in those projects that will ensure Dickinson’s ability to recruit and retain the very best students, faculty and staff in an increasingly competitive and challenging marketplace.

When employees leave the College for other employment or when one of our colleagues retires, we will continue to rethink how we provide service to our students and colleagues. When vacancies arise, senior officers will work together to see if there are ways to reassign staff among divisions or reconfigure job responsibilities to be more efficient. Such carefully targeted staff actions when vacancies arise can save the College money, help to balance the budget for FY11 and beyond, and minimize the need to take the kind of drastic personnel actions now commonplace at many other institutions.

Commitment to Dickinson’s Core

The College’s targeted deliberations continue to be driven by a firm and unwavering commitment to those core characteristics that define the distinctive liberal arts education that we offer to Dickinson students:

• A low student-faculty ratio that encourages individualized learning;
• A highly talented student body;
• A commitment to access and diversity among our students; and
• A focus on those areas of excellence—global education, environmental sustainability, and a commitment to a useful liberal education as preparation for engaged citizenship—that collectively distinguish us from our peers.

To honor these commitments, we, for example, unlike many of our peer institutions, are filling all tenure track faculty vacancies to sustain quality and comprehensiveness of our academic program. Similarly, we have added more than $3 million to financial aid for fall 2009—a 12 percent increase over what was budgeted for fall 2008—in order to maintain the quality and diversity of our student population.

We will not lose sight of these core elements of a Dickinson education. They define who we are and what we value. They are non-negotiable, and we will go to whatever length necessary to preserve them. As the College community has done since the current economic conditions began almost two years ago, we will work together to tackle these difficult problems.

Our work is not complete. Budget cuts will continue into the next two budget cycles. Last spring’s response from the Dickinson community to our budgetary challenge gave us tremendous momentum as we tackle this multi-year challenge. We are off to a good start with a balanced budget planned for this year and a “recession reserve” surplus to help us meet upcoming needs. Continued budgetary discipline by every division along with prudent and collaborative planning will help Dickinson maintain its upward trajectory and guarantee its future as a leader in undergraduate liberal arts education. We will also look to invest in positive opportunities for our students and faculty when these make sense and the monies are available. We remain prudent but entrepreneurial at heart. Dickinson intends to use our relative financial and leadership strength during this period of monetary pressure to reposition ourselves most positively among our peer and aspirant institutions as the national and global economy recovers. Such opportunities occur infrequently in the life of an institution and we must insure that we both recognize this moment for what it is and move on it.