Recession Hits Home
by: Special Report by Spencer Conover ‘10Hampden-Sydney not unaffected by economic downturn: students feel the crunch in club funds, endowment takes major hit.
Of course Hampden-Sydney has been affected by the world’s economic crisis. There’s no doubt about that. It’s probably impossible to name a single school that hasn’t suffered from what Economics Department Chairperson, Dr. Sarana Thornton, calls a “very severe recession.”
Consider the big perspective: the number of people unemployed 26 weeks or more was at 5 million in August 2009, up by 166% from August 2008. The median duration of unemployment was 15.4 weeks in August 2009, up from 9.5 weeks 12 months earlier. The GDP (adjusted for inflation) declined by 5.4% in the last quarter of 2008 and declined by 6.4% in the first quarter of 2009. These numbers are even staggering for me, a person who avoids math and numbers at all costs.
How Recession Affects the College
The college derives its revenues first, from students, second, from the endowment, third from the annual fund. For the 2008-2009 academic year, 54-57% of the college’s revenues came from tuition. Students are also major customers for auxiliary services, like the bookstore, telecommunications, and ARAMARK. Auxiliary services accounted for 22.3% of revenues.
Enrollment is down this year. Vice President for Institutional Advancement, Beeler Brush, made it completely clear to me that this year’s smaller freshman class – forty to fifty students short – means a serious loss of income. The drop in enrollment immediately means less income from auxiliary services, which together create what Brush calls “the perfect storm.”
What “could set that storm in motion,” Brush told me, “is a shrinking endowment.” Last year the endowment, invested in the Spider Management Company’s diverse Richmond Fund, accounted for 11.3% of the college’s revenues. As of June 30, 2009, the market value of the endowment sunk to about $115.4 million from its all time high of $140 million in December 2008. That hurts. Every year, the college pulls cash from the endowment – called the payout – to pay its bills.
The payout is a fixed percentage of the endowment. The college uses a three-year rolling average to determine the payout. That is, the endowment’s market values for each of the past three years are averaged together, and the fixed percentage payout is calculated.
Vice President for Business Affairs and Treasurer, Norman Kruger, called this a “leveling step… to take the volatility out of the endowment payouts.” This year’s payout was derived from two good years, and one bad year. Next year, the average will be the opposite, and, two years from now, the payout could be determined by a rolling average of three “bad” years. What’s bad now might be good in two years.
Finally, consider what current unemployment rates and bad markets mean for philanthropic giving to the annual fund, which was about 6% of the college’s revenues last year. What happens when alumni, parents, and friends lose investments and jobs? They all stop giving to the college. Expendable incomes vanish.
When asked what one thing he needs the most, Brush said, “Unrestricted gifts to the annual fund,” so he and his staff “take no donor for granted.” “Every unrestricted budget relief dollar,” Brush said, “equates to the earnings of $20 in endowment funds, so the need for unrestricted giving has never been greater.”
Seniors, this Homecoming weekend, make a pledge to yourself for next year: “When I visit next Homecoming, I will make a philanthropic gift to the college.”
Alumni, this Homecoming weekend, please go ahead and make that gift!
How the College is Balancing its Budget
As students, it may be easy for us to become critical of some of the ways the college balances its budget. When I talked to Dean of the Faculty, Robert Herdegen, he acknowledged this fact, saying, “The entire operation of the college is centered around serving the students, so anything that is cut, it could be argued, is going to have some kind of impact – direct or indirect – on the students.” Herdegen reassured me that “paramount” in balancing the budget “was minimizing the impact on the students, on the academic program.” Every single person I talked to mentioned that their main concern was to protect students from the effects of budget cuts.
Kruger says it was his and the administration’s “early reaction” in Fall 2008 that “saved the day for us, in terms of ending the year June 30, 2009, with a balanced budget.”
That early reaction included “pulling back on some things… over time, any equipment that hadn’t been purchased, travel, freezing positions.” But “just as we thought things had gotten as bad as they could get,” Kruger said, “something else would happen, forcing us to go back and revise our estimates again, mostly on the revenue side.” Preparing a future budget while the economy tumbles forces caution and conservative action.
First, the college was concerned about retention, worrying that families would be forced to have their sons withdraw and transfer. Originally, tuition was to increase 6% over last year’s, but this was dialed back to 4.4% for all students. Additionally, the financial aid budget was increased by 13.4% (the Student Activities Board received 14% less of the Student Activities Fee this year), and a new 0% interest, deferred payment loan program was created. Kruger was excited by what he called “excellent” retention this year, a product, he suggested, of the increased financial aid budget.
More than students, the faculty and staff have directly experienced the impact of cost cutting. The college used to pay 10% to retirement funds and employees added 5% of their salary, but the college now pays only 9%, saving $150,000. In addition, staff and faculty travel budgets have been cut in half. Thornton said that while missing out on this year’s conferences won’t affect her teaching, “multiple years of reduced professional travel budgets will negatively affect the ability of faculty members to stay current in their fields.”
Finally, several hiring freezes and early retirements have occurred. Ironically, this happened as nine new faculty positions were filled. These new hires were the culmination of international searches that were approved by the Board over one year ago. Herdegen praised the decision to uphold the searches, saying, “they [Bortz and the Board] realized it was a time to be bold, to move forward, and dramatically increase the strength of the faculty.” Herdegen was confident in the new professors, saying, “We got our first choices.” The market was on the college’s side.
In regards to the so-called “lay-offs,” Kruger said, “Obviously, with the kind of money we’re talking about losing here, we weren’t going to get it all from the travel and equipment. It did drop down into the payroll lines.”
Several weeks ago, alumni and students began expressing their deep appreciation for Ms. Pettus, Office Manager and Switch-board Operator in Restover, after they had learned she would take early retirement.
Ms. P was, as Kruger described her “leader of the pep band, number one cheerleader for the basketball team,” someone who has “donated her life to this school.” Kruger told me she is taking a “voluntary retirement.” I told him that she did not seem happy about this, and he said, “No, she was not.” I asked him how that could be considered “voluntary.” He replied, simply: “We made her an offer and she accepted the offer.”
Kruger also told me he did not want to discuss personnel, but he did go on to say, “We’ve tried our very best to treat these people fairly in their termination – no matter how they were terminated – whether they moved and we froze the position or early retirement.” Kruger emphasized that these people had been treated with “graciousness and respect.”
Overall, it seems most staff were let down easily. Either people were moving already and their positions were frozen, or they accepted an early retirement plan. People at the lower end of the pay scale, too, were protected from terminations.
How Students Can Help
Our actions directly affect the college. From overfilling our plates in the Commons to generating negative press for the college, everything we do has consequences. At a time when enrollment is low, we must keep our noses clean and out of negative headlines.
Because resources and energy are expensive, we must conserve. Shorter, less frequent showers, less food wasted at the Commons, computers turned off, lights turned off, all of these things – “green in nature” – are money in the bank.
Focusing on studying and grades rather than beer and parties is crucial, too. Doing well in class keeps you here (paying tuition), and, at the same time, makes us attractive to high school seniors and parents.
Also, when you graduate, remember your time on the Hill. If it was a good time, full of opportunities and learning, make sure you make unrestricted gifts to the annual fund. Soon we will be the alumni that work hard to keep our college afloat—when it’s time for us to take the reins of the college’s financial future in hand, we must be ready and willing to do so.
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