Board of Trustees approves tuition hike, takes action towards balanced budgets – The Middlebury Campus

Sabrina templeton
At its January meeting, the Board of Directors approved plans to balance the budget by fiscal 2022, limit the drawdown of endowment funds and amortize half of the outstanding debt of Middlebury.

After Middlebury suffered a financial blow from the pandemic, the board met in the last week of January to establish a financial stability plan.

Board of directors established three main conditions the institution must fulfill to achieve financial stability: operate with a surplus by fiscal year 2022, increase the endowment and repay half of the institution’s unpaid debts.

To meet these goals, the board increased tuition and fees by 2.5%, limited the endowment drawdown to 5%, and asked the administration to start repaying the principal of half of the l ‘outstanding debt of the institution.

Middlebury will not be making any decisions on extending or ending the salary and hiring freeze until May.

Generate a surplus

Middlebury ran on a budget deficit since 2012. When the board appointed President Laurie Patton in 2016, it established the “Road to a sustainable future», A plan to achieve a balanced budget by FY21. Middlebury was on track to achieve this goal before FY21 before the pandemic arrived, but instead closed FY20 with a deficit of $ 11.6 million due to the pandemic.

Middlebury initially forecast a deficit of $ 18.5 million for fiscal 2021 – which runs from July 2019 to July 2020 – but the latest projection instead estimates a deficit of $ 10.2 million. Middlebury suffered worse-than-expected losses from the strand schools abroad and a lack of income from room and board costs for distant students. However, unexpected “federal and state support for costs related to Covid-19 and lost revenue, ”Executive Vice President of Finance and Administration David Provost said in an email to Campus.

Despite recent losses, the board decided to resume the effort to balance the budget at the January meeting. They ordered the institution to produce a small surplus by 2022 and operate with a surplus of at least 1% by fiscal 23, or $ 2.6 million.

Much of the budget balance rests on increasing college tuition fees. Although college is 3.25% increase in tuition fees For the 2020-2021 academic year, students, parents, faculty and staff sparked strong protests, the council decided to increase tuition and fees by an additional 2.5% for the year to come up. Students will pay a total of $ 76,820 – $ 59,330 in tuition, $ 17,050 for accommodation and meals, and an activity fee of $ 440.

But tuition fee increases alone will not be enough to close the budget deficit, at least as the college defines it.

The college defined the deficit as a function of total income, which includes the annual amount taken from the endowment. If the college kept the draw on the endowment at a constant figure closer to the actual growth rate of the endowment – between 6 and 7% on average – instead of limiting the draw to 5%, the college might perform well with a surplus instead, according to economics professor Peter Matthews, who is co-chair of the Middlebury chapter of the American Association of University Professors (AAUP) finance committee and a member of its executive committee.

According to Matthews, a hard cap on the endowment draw artificially limits available resources, a move that could force the college to make unnecessary cuts and sacrifices in the future.

“It’s one thing to say that sacrifice is absolutely essential to the proper functioning of the institution,” said Matthews. “But I am incredibly uncomfortable to say the least with the sacrifice on the altar of an arbitrary definition of deficit and surplus.”

Limit the draw

Between July 1 and December 31, 2020 – the start of fiscal year 21 and the end of calendar year 2020 – the endowment increased by more than 15.4%, an increase of $ 170.21 million. The institution is still awaiting information on fourth quarter returns, but Provost estimates that growth could actually exceed 16% or even 17%, making it the strongest growth in more than a decade and more than double the growth rate in 2019. As of February 2, Provost estimated that the total value of the endowment exceeded $ 1.25 billion.

The annual endowment draw is calculated on the basis of a moving average of the endowment balance for the three preceding calendar years. Middlebury’s 5% levy for FY22 will come from the average endowment size over 2018, 2019 and 2020 as of December 31, 2020. This strategy ensures that the peak or decrease in an individual year does not cause massive fluctuations in the amount. to draw it, according to Provost.

Middlebury has increased the draw for endowments to 7.5% in FY21 in response to the pandemic, but the council has chosen to limit the prize draw to 5% for FY22 and beyond. Middlebury assumes the endowment will grow an average of 6-7% per year over a 10-year period. A 5% draw would therefore allow the endowment to grow by 1 or 2% each year, according to Provost.

Financial mismanagement by the previous administration caused the institution’s unallocated reserves – the part of the endowment not earmarked for specific purposes or programs by donors or the board – which failed currently represent only $ 4.7 million. Provost said the institution must increase the endowment so that it is prepared for the next “rainy day” after the pandemic ends.

“The endowment is a multigenerational investment tool designed to support multiple generations of students and programs,” Provost said in an email to Campus. “This is not a bank account and we cannot use it to solve the dilemma of the college living beyond its means over the past decade, or to resolve the short-term strains of the pandemic.”

But Matthews wonders why Middlebury is trying to increase the endowment for a future rainy day when the institution is currently in the midst of a crisis.

“It’s important that we preserve a Middlebury for the next generation that is at least as good as the one you like,” Matthews said. “But it works both ways. [Current students are] entitled to a Middlebury that is at least as good as the Middlebury that future generations will enjoy. “

The AAUP advocated for an annual draw of at least 7% in one declaration published in May 2020. A circulation of this size would keep pace with the average annual growth in the endowment. While the endowment is not increasing, it will not decrease either, fulfilling what Matthews sees as the institution’s scope of duty to future generations at this time.

“Especially during the Covid period, [limiting the endowment draw to] five or even 6% effectively punish this generation [for the sake] future generations, ”said Matthews. “[Current students are] one of the generations that matter when it comes to intergenerational equity. “

Pay off a debt

Rather than increasing the endowment draw, the board of directors, at its summer meeting, authorized the institution to borrow up to $ 30 million over the next five to seven years to make up for shortfalls. budgetary. The institution will decide how much it borrows in April or May, according to Provost.

Provost estimates that the loans will have interest rates between 1.75% and 2.25%. However, the real interest rate – what the institution will actually have to repay after adjusting for inflation, typically around 2% – may very well be negative, meaning the institution would pay less than it does. originally borrowed, according to Matthews.

“If you need to borrow to cover shortfalls, now is not a bad time to do it,” said Matthews.

Even as the institution proposes to take more loans, the latest board plans prioritize repayment of its current debt of $ 268,093,000. Rather than continue to pay only interest and defer payments on the principal of the loan, Middlebury has written off half of the outstanding debt, i.e. the institution. will make principal payments of $ 5 to $ 13 million per year over the next ten years.

Provost believes that continuing to refinance loans, even given current financial difficulties, would not be “fiduciary” and unfairly punish future generations.

“With interest rates so low, some will say we should eliminate the debt and not pay off the debt, just keep rolling it over,” Provost said in an email to Campus. Instead, Provost advocates repaying debt incurred to acquire assets as they are used. This way, future generations will not be responsible for paying for the equipment that previous generations enjoyed.

The council also authorized the renovation of the Warner and Voters Rooms as well as the Dana Auditorium at Sunderland Hall during their January meeting. Construction is expected to begin this summer and is expected to cost $ 10.8 million. The majority of these funds come from 2010 bonds, which must be used within 36 months of the date the institution refinanced them last year.

The decision to focus on debt repayment and continue large-scale infrastructure renovations directly contradicts the AAUP’s call to “put people before buildings and debt repayment” in their May statement. 2020.

“People, not fixed assets, define the community of Middlebury, and funds otherwise set aside for infrastructure or accelerated debt repayment should be diverted in the event of a crisis,” the statement said.

Middlebury has yet to make a decision on many of the people-focused issues the AAUP referred to in its priorities – including lifting the hiring freeze, adjusting faculty and staff compensation. and the end or extension of salary continuity. Provost said such decisions would come in May, when the institution does its normal budget planning for the coming year.

Moving forward

The board’s announcement came as a “total surprise” to the faculty, according to Matthews. Not only were they not consulted or participated at all in the decision-making process, the faculty was not even informed that those decisions were being made.

Matthews sees these financial decisions as being at the heart of the values ​​Middlebury prioritizes, values ​​that he believes the entire Middlebury community – faculty, staff and students included – should be part of the drive for.

“We still need a discussion on our common objectives and on the type of financial practices that would allow us to achieve those objectives which are not unilateral and which do not presuppose assumptions on the functioning of financial markets which are totally independent. of reality, ”Matthews says.

The AAUP will meet in March to discuss the board’s announcement and to develop a formal response.

Comments are closed.