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September 15, 2009
From: Russell K. Osgood
To: Campus Community
Re: Budget Planning for the Next Fiscal Year
We are beginning the more intensive phase of our budget planning process for the fiscal year 2011 (FY 2011, beginning July 1, 2010 and ending June 30, 2011). As you may already know, budget planning at Grinnell College takes place in the Budget Steering Committee, whose membership is comprised of individuals in leadership positions among our students, faculty, and administration. The Committee’s charge is to advise on institutional priorities as they are then expressed in our budget, and to help develop next year’s budget proposal, which usually goes before the Board of Trustees for approval in February. This task begins with an early assessment of what the Committee thinks the main issues for the upcoming year’s budget will be. We look at anticipated revenues, student need, what we think our many expenses might be, and then get down to the difficult work of balancing the budget. Along the way we confer several times with the Budget Committee of the Board of Trustees.
For more information about Grinnell’s budget, the Budget Steering Committee, its membership and activities, please visit the Institutional Planning web site at http://www.grinnell.edu/offices/institutionalplanning/.
Some of the issues that will affect our conduct this year and shape the planning for next year’s budget include balancing our projected revenues and expenditures this year and the next.
- Some general comments about the budget this year and next
Our largest sources of revenues are tuition, gifts and grants and foundation support, auxiliaries (such as book store sales and dining revenues), and the endowment. Almost all of these sources—per capita net tuition revenues, gifts and grants, and the endowment—have been adversely affected by the economic crisis. Particularly critical for our operations is the value of the endowment, because it provides almost 50% of the funds we need to run the college from year to year. It also provides the bulk of the funds to pay the college’s debt and for our capital projects. I have just read the letters from the presidents or chief investment officers of Harvard, Yale, and Williams reporting additional endowment declines and announcing the needs for additional significant budget and personnel reductions.
While most institutions face significant reductions in revenues again this year, the budgetary solution we seek for Grinnell will be distinctive and will address our particular needs, strengths, and weaknesses.
Clearly, much can change in the global economy between this year and next, but we know that the College’s endowment has significantly dropped in current market value terms. Our endowment spending policy, which allows us to spend no more than 4% of the rolling 12-quarter average, has had the effect of softening the immediate impact of the economic crisis on our operations by spreading the reduction in endowment revenues out over time. The impact, however, is still palpable. For FY 2010, we reduced the endowment’s contribution to the operating budget by 5%, and we expect needing to reduce it a further 5% in FY 2011. (This appears to be less than the reductions contemplated by the three schools I mentioned above.) At the same time, we anticipate reductions from gifts and grants and continued increases in financial aid, which in turn will lower our net revenues from tuition and fees. All of this means that we need to reduce spending as well.
- Planning next year’s (FY 2011) budget
When a large and complicated institution is in a multi-year budget reduction cycle, it is not possible to give a one size-fits-all prescription of what we seek to do in each and every budget. In some cases a budget will need to grow. Other budgets may be static but overall we need to reduce the draw of all of the budgets put together. As we start this process we have identified some things that we seek to prioritize for growth:
- Continuing to increase financial aid as part of our commitment to need blind admission, meeting the full demonstrated need of our admitted students, and to capping student loans as part of their financial package (Some of our peers after imposing such caps are now signaling that they may have to back away from them. We do not plan to do this);
- Include a modest salary pool for faculty and staff;
- Finish implementing a few of the core elements of the strategic plan, including one or two additional EKI positions that are well along in the planning cycle.
To balance planned-for increases and adjust to the decline in our various sources of revenue, we must seek reductions elsewhere. In particular, we are looking to find non-salary budget savings in:
- “Discretionary” spending, including
- travel, meals, and entertaining,
- optional projects (those that may be good things but not central to your area’s or the college’s mission), and
- purchases of certain kinds of equipment and furniture;
- Printing and copying (which amounts to over $1,000,000 in the current year’s budget!);
- Overtime, casual and temporary wages; and
- Terminating or scaling back unsuccessful activities.
On the personnel/compensation side of things (60% of our budget), this past year we managed to modestly decrease staffing levels through attrition and voluntary hour reduction programs. For this year we will need to have further modest decreases also achieved in these ways. Finding savings in these areas will help the college continue to advance, and to protect the key functions and programs that make Grinnell one of the best liberal arts colleges in the United States.
- Last year’s budget
This past year we asked you to do your best to hold down expenses as we moved into a time of considerable economic uncertainty. Your response to our request was immediate and strong. Combined with a few other things going in our favor (such as mild weather that kept utility costs well below budget), your actions and good money-saving ideas helped us close the year with a good surplus. In this manner we effectively reached the reduced FY 2010 levels of spending early, a promising indication of how we are likely to do in keeping within this year’s budget. The Board of Trustees resolved that we should hold surpluses from last year and probably this year as a special back-up fund to help protect the College and its programs from any further deterioration of the economy or unforeseen large expenses as in a sudden growth of financial aid or energy or interest rate spikes. You have helped keep the College in a good position as we enter into another difficult budgetary year.
I know I speak for the entire Budget Steering Committee and the Board of Trustees Budget Committee when I thank you for all that you have done. I also thank you for the efforts you will make to help us continue to reduce expenditures in this budget year and in the next one we are now putting together.
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