As I write this, the markets have tumbled again, the Chronicle notes "renewed jitters" at colleges and universities, and Moody's warns of a mounting backlog of deferred maintenance on campuses, a sign to rating agencies of weakened financial positions.
Whether dire times are ahead or we get a reprieve, the lessons we learned over the last few years should not quickly be forgotten. And one of the lessons learned at Whittier College (Calif.) has been the value of creating a community much more informed about institutional finance and more involved in financial planning. While broader community involvement takes time—which is never easy to capture—the results are well worth the effort.
Ensuring a climate for a transparent, inclusive budgeting process that fosters a broad understanding of the institution's financial condition is probably on each new CFO's "to do" list.
An open process builds trust, educates the campus community about the institution's challenges and opportunities, and should produce greater consensus for spending priorities and strategic goals. For the CFO, more transparency may eliminate some of the pesky calls from those with misperceptions of CFOs as "moneybags" willing to—and having the ability to—hand out funds to those who line up to ask.
Imagine coming to campus as the new CFO just as the economy is crashing. In the fall of 2008, Whittier's trusted CFO was preparing to retire, and we hired a new CFO, Jim Dunkelman. He joined a campus well-versed in sharing information and budgeting decisions.
But nothing we had been doing prepared us for a plummeting endowment with an unknown bottom, a housing crisis affecting families across the nation and particularly severe in Whittier's home state of California, soaring concern about whether our current students could afford to return in the fall and how we might help them, and anxiety over recruiting a new class to our tuition-dependent college. We also faced campus constituencies uncertain about whether and how long they would have a job, and we did not yet know the answer.
We did what others on campuses throughout the nation did during this period. We communicated often, both in writing and in person, trying to find the right balance between reassuring people and providing accurate, up-to-date information about the challenges we faced. Consistent with the dictum that a "good crisis is a terrible thing to waste," we also took advantage of the campus' heightened interest in our finances to educate the community more deeply about the college's fiscal state and the long-term implications of our revenue base.
The results have been extraordinary. If your own campus missed this opportunity to educate broadly about your financial realities, I urge you: wait no longer. Here are some thoughts about where to begin.
Listening and Sharing
Start by examining the depths of financial literacy on your campus. As Dunkelman listened to concerns and questions during his first months, he quickly identified gaps in our community's financial savvy. Readers probably will not be surprised to learn of significant lacunae about the role of the endowment in college finance, the college's dependence on tuition, the hazards of using one-time sources of revenue (e.g., a bequest) to fund ongoing expenses (e.g., salaries), and the function of reserves ("no, reserve funds are not there to be able to say 'yes' to those who ask").
With the ability to address the campus' level of understanding, the next step is to prepare a tutorial to improve financial literacy and, even more importantly, to stimulate needed conversations.
At Whittier, one helpful element of the tutorial Dunkelman prepared was a five-year budget projection, with reasonable placeholders for tuition, salary increases, and financial aid, and assuming constant enrollment and a declining endowment payout. Most critically, he took into account two long unmet college goals, both widely shared on campus and affirmed by our board of trustees. First, he factored into the five-year budget the cost of raising faculty salaries to achieve "parity," using an index established some years before. Second, like most colleges and universities, Whittier has plans for expansion, but already had built up a rather large deferred maintenance agenda for its 125-year-old campus. Jim added a hefty capital renewal line to reverse the direction of this liability.
Factoring the funds necessary to address unmet, high-priority goals into a five-year budget projection, to say the least, would be illuminating to any campus community. At Whittier, doing so immediately demonstrated the wide chasm between reasonably predictable revenue and the amount needed to achieve our goals. The projections showed that we would continue to offer the same great education that our students had come to expect and that we could pay our bills. But, without substantial additional revenue or dramatic restructuring of our mission or the way we did business, we did not stand a chance to achieve faculty salary parity nor enhance Whittier's physical plant, as wise stewardship required.
Another informative element of any tutorial involves setting a campus' budget allocations in the context of national and sector norms for expenses and sources of revenue. Pie charts comparing the proportion of expenditures for the academic program, student services, and administration can build trust in decision-making and priorities, or point the direction for further study. Comparing sources of revenue is equally useful. In Whittier's case, our relatively large dependency on tuition and small endowment payout displayed the challenges we faced in achieving our goals, despite a strong commitment to try.
Sharing these types of analyses in a series of meetings and workshops with constituencies throughout the campus stimulates creative thinking and motivates action. Two examples on our campus lead me to recommend the same exercise to readers. First, Dunkelman's tutorial graphically illustrated the tradeoffs represented in a budget and why the mantra of great planners is often the seemingly simple statement "a budget is a strategic plan." On a private college campus, the commitment to small classes, a low student-to-faculty ratio, healthy financial aid, residential character, and many other factors have concrete ramifications for the draw on revenue and for a budget's high "fixed" costs. Everyone on campus needs to comprehend this basic fact, and from this common understanding, productive campus conversations will ensue.
At Whittier, these conversations have led to rethinking our enrollment capacity and investing in growth—producing a host of changes to course scheduling and advising that better respond to students' needs. With a larger student body, but the same commitment to small classes and close mentorship by faculty, we now are engaged in deliberations about the curriculum and where to expand the faculty. Knowing that our endowment would likely remain small for some time, we also invested resources and energy in growing the annual fund, to good effect.
A second important outcome has been widespread recognition that neither growing enrollment to match our capacity nor heightened annual giving will produce the revenue sufficient to achieve our high-priority goals. This realization has stimulated new modes of collaboration among staff, faculty, and administration to become a much more entrepreneurial campus and find new sources of revenue through entirely new business ventures and partnerships.
Can everyone on campus explain our budget in strategic terms? Are we a perfectly cohesive engine of collaboration for resource generation and allocation? Not yet. But we are on our way. And it all started because of a worldwide economic crisis and a CFO who sought to do what we all do on a college or university campus—educate and use the results of that education to better our community.
Sharon Herzberger has been president of Whittier College in Whittier, California, since 2005. She serves on the board of directors of the Council of Independent Colleges, www.cic.edu.