By Gregory A. Volk
Executive Vice President
In September 2003, Lawrence’s vice president for business and administration, William F. Hodgkiss, retired from the college. President Richard Warch appointed vice president for development and external affairs, Gregory A. Volk, to the new post of executive vice president with responsibilities for both offices.
These are difficult times for higher education. Colleges and universities nationwide are struggling with the economic challenges of diminished endowments, reducing operating budgets while contending with escalating uncontrollable expenses in areas such as health insurance and controlling financial aid expenditures while seeking to improve the quality of the student body. Stanford University has announced a plan to freeze faculty and staff wages, Massachusetts Institute of Technology intends to lay off 200 to 250 of its 10,800 employees, and Yale recently stated that it plans to reduce its work force by 780 jobs in light of a $30 million budget deficit.
Lawrence, then, is far from alone in wrestling with financial challenges, and the campus community is thinking creatively about ways to continue to do what we do better and at less cost without diminishing the quality of the academic program and the educational experiences of our students.
To be sure, Lawrence remains fundamentally a strong institution with growing enrollments, a solid development program, and an endowment that posted a positive return after three years of negative results. At the same time, our decision to hold flat the endowment distribution for the operating budget, to reduce all program budgets by 5 percent, and to reduce capital project commitments indicates that the college will necessarily continue to control expenditures even as we strive to maximize revenue in the current year and beyond.
Operations
Net operating revenue totaled $41.02 million in fiscal 2003, a decline
of $883,000 from last year’s $41.8 million in unrestricted revenue.
The principal sources of revenue consist of the endowment distribution,
student revenue, and gift income.
While the endowment distribution was budgeted at $10.078 million, in response to a directive from the Board of Trustees to ensure the purchasing power of the endowment over time, that distribution was reduced to $9.5 million.
Net student revenue (that is, gross student revenue minus financial aid) totaled $22.46 million, an increase of $150,000 above the budgeted amount.
Unrestricted contribution revenue for operating purposes tallied and net assets released from restriction stood at $6.71 million versus last year’s $8.88 million. Due to a change in accounting practice, restricted gifts for long-term purposes (e.g., endowment and plant) are now recognized as non-operating income. Those gifts stood at $8.968 million.
Regarding other revenue sources, government grants ($576,000) and other income ($461,120) fell short of last year’s results by approximately $100,000, while auxiliary enterprises produced $1.842 million versus $1.6 million in fiscal 2002.
Operating expenses (including the non-cash expense of $5.3 million in depreciation) totaled $45.37 million, an increase of 2 percent over last year’s expenses and 2 percent over budget.
Expenditures related to the academic program (instruction, research, and academic support) rose modestly to $16.94 million versus $16.86 million in fiscal 2002.
Student services expenditures totaled $4.14 million versus $3.95 million last year, due in part to increased enrollment.
Institutional administration totaled $7.29 million, an increase of nearly $400,000 as a result of increased insurance costs and an overall salary wage increase of 2.4 percent.
Physical plant and auxiliary expenses totaled
$9.86 million, slightly less than last year’s $9.82 million in expenditures
in these areas. The college’s
interest expense, stemming from debt services expenses related
to the bond financing of various construction projects and short-term borrowing
via the
college’s line of credit, grew slightly to $1.848 million.
Furthermore, Lawrence is now required to incorporate depreciation
(a non-cash expenditure)
in its operating
budget. Depreciation grew from $4.93 million in fiscal 2002 to $5.3 million
last year. The decline in operating revenue, coupled with the increase in
operating expenses, enabled us to cover only $848,000 of our depreciation
expense in fiscal
2003.
Endowment
After three successive years of negative returns, the college
posted a modest increase in the value of the endowment.
As of June 30,
the endowment’s
ending balance stood at $164.4 million versus $162.8 million
one year earlier.
Over the course of the year and as a consequence of the volatile stock market, the valuation of the endowment ranged from a low of $143.8 million on September 30 to June 30’s more robust $164.4 million. Fortunately, the infusion of $9.34 million in endowment gifts helped to stabilize the endowment’s value in the midst of market fluctuations. Overall, the endowment produced a one percent return versus an 8.6 percent negative return in fiscal 2002.
Lawrence, like most colleges and universities, adheres to a policy that calculates the distribution applied to the college’s operations based on a 12-quarter average of its market value. As referenced earlier, however, in light of the negative returns in recent years and to move toward a 5 percent “take” or distribution, Lawrence opted to reduce the distribution to $9.5 million in fiscal 2003 and to hold the distribution at that level for the 2004 and 2005 fiscal years.
The investment committee of the Board of Trustees continues to evaluate our investment strategies and works closely with EnnisKnupp & Associates, our investment managers, to monitor the performance of each asset class within our endowment. Over the long run, our approach of investing 80 percent in equities and 20 percent in fixed income vehicles has served us well, and we are committed to monitoring carefully the endowment’s performance while simultaneously reducing the spending policy.
Physical Plant
Unquestionably,
the major capital project of the past year was the construction of Hiett
Hall, our magnificent new
78,000-square-foot student residence.
Lawrence had not built a major residence hall since 1967,
when Kohler
Hall was constructed,
but in response to the persuasive and compelling need articulated
by the Task Force on
Residential Life and thanks to the
extraordinary generosity
of Kim
Hiett Jordan, ’58, Hiett Hall stands now as a state-of-the-art
residence hall. This $15.5 million project was completed
over the summer, and Lawrence
dedicated the building on October 16. The building incorporates
four floors of residential living with suite-style units,
lounges, computer rooms, and kitchen facilities.
Other capital projects included
the renovation of the baseball and softball fields and minor remodeling
within the Lawrence
Academy of Music.