Proposed Budget 2009-10and

Forecast for 5 Years, 2010-2014

Board of Trustees Meeting

January 28, 2009

The Westminster Schools

Keep class size low

Planning by wish listAttract great students

Hire the best teachers

Keep morale high

Pay them wellKeep parents happy

Grow endowment

Increase financial aid

Be more affordableIncrease enrollment

Balance the budgetTeach

Chinese

Keep up with technology

Be more green

By Corey McIntyre, Chief Financial OfficerNational Association of Independent Schools

NAIS-Financial Sustainability

Generative thinking- How does a Board leave the legacy of a school “built to last?”

How would the School’s thinking about this question change as a result of the current, sustained economic downturn?

NAIS Financial Sustainability along five continua

Environmental Global Demographic Programmatic Financial

NAIS Ten Financial Planning Assumptions

Market Position and PricingAffordabilityTuition DependencyStaff SalariesProgram and StaffClass SizeFacilities, equipment, and technologyDebtGiving Alternative Revenue streams

NAIS recommends that schools have frank conversations around these 10 continua or position points.

Change in Budget Approach

Acknowledge the current economic environment,

Anticipate slow recovery

Thus budgeting needs a longer term view

Finance Committee goal for 2008-09:- 5- year Budget for 2010-2014

Budget Variables (Drivers)

Tuition Faculty Salaries Cost Reduction

Endowment Spending Rate Enrollment Westminster Fund giving Capital Maintenance & Reserve renamed -PPRRSM

Provision for Plant Replacement, Renewal and Special Maintenance Financial Aid

Proposal 2009-10: 1st of 5 years

Tuition 3.5 % Faculty Salaries 3.0 % Endowment Spending Rate:

-target rate move 4% to 5% -net of debt & land

5.3%-net of campaign & interest expense 6.2%

Financial Aid 5 % PPRRSM Add $100,000

Cost reductions $500,000 - $800,000 Enrollment Add 15 students (15 X $20,000 = $300,000)

Tuition and Faculty Salaries

Tuition: ( 1% = $330 k) Proposed increase 3.5% Prior two years: 6.5 % & 6% Remains with in range of peers

Faculty Salaries: (1% = $200 k) Proposed increase 3.0% Prior two years: 5% and 5.5% At or above cost of living Aligns with Teaching for Tomorrow campaign

Cost ReductionsPres. Clarkson met with faculty and staff in Dec. - explained financial conditions - goal: no employee cuts due to economy no salary freeze or reduced benefits maintain positive morale

Division heads in detailed search for savingsCampus wide reduction efforts in energy savingsAdministrative team leading:

- Sr. Admin team requested personal salary freeze

No Ordinary Time

Westminster’s ResponseTo Hard Economic Times

RevenuesRevenues Percent of AOB

Tuition 67%Westminster Fund & Restricted Gifts 7%

Endowment Support 18%Interest Income 2%Auxiliary Income 6%Total 100%

ExpensesExpense Categories Percent of

AOB

Instruction & student services – 85 % wages & benefits 57%Financial Aid 6%Institutional Support 16%Facilities 14%Auxiliary 7%Total 100%

ExpenseExpenses Dollars (millions)

Wages & BenefitsInstruction & student $25Wages & BenefitsAdministration & operations 10Instruction and financial aid 5General & Administration 4Plant & auxiliary 6Total $50

What are we already doing?

•supporting student initiatives to conserve energy, reduced: 8% to 18% over the past several months•streamlined and automated the application and reenrollment processes through our website•moved student account billing and payment on-line •improving operating efficiency of the energy management systems•renting facilities when appropriate•reduced dependency on and cost of water by digging wells that provide irrigation to all athletic fields•implemented campus wide ‘green’ cleaning, saving both time and money•reduced facilities grounds staff by one through attrition 

Faculty WorkloadWorkload data is a moving target with many models for how faculty or administrators divide their time between teaching and non-teaching responsibilities.

Faculty workload in the different divisions is hard to compare, but it is necessary to understand and quantify with regard to thinking about a financially sustainable model and equity issues.

Class Size and Workload Study

Class size categories Number

# Students/ FTE in ES 5.7:1#Students/ FTE in JHS 7.2:1#Students/ FTE in HS 7.3:1

Ratio of Total Number of Std to Total Number of Class Sections (JHS & HS)

13.8

Do’s and Don’ts DON’TFreeze salaries

Reduce employee benefits

Display angst

Do’s and Don’t s DOTake this opportunity to foster stewardship of resources

Reassure teachers and parents that your school’s mission will continue to be delivered at the highest level

Budget Variables (Drivers)

Tuition Faculty Salaries Cost Reduction Endowment Spending Rate Westminster Fund giving Capital Maintenance & Reserve renamed: PPRRSM -Provision for Plant Replacement, Renewal and Special Maintenance Enrollment Financial Aid

Endowment Spending

Spending at 4% using ‘Yale’ formula (10+ years)

Incremental 1% change = $600 k ( in 2010 only )

Recommend: temporarily move from 4% to 5%

20% market drop: 5% target = 6% net of land/debtReturn to 4% with economic recovery

Current draw appropriations above spend rate: - Campaign expense $ 500 k to $600 k - Bond interest $1,000,000Higher Ed and Schools stats average 4.6%

Westminster Fund GivingPropose no change in 09-10 budget (flat)

Remain at $2,800,000 in 5 year budget

08-09: $275,000 below YTD goal for cash & pledges

Cash collection behind as solicitation later in ’08

If goal cannot be met in 08-09, other cuts in 08-09

and may need to reduce budget for 09-10

No significant donor change since downturn

A few donors requested delayed payment schedule

Provision for Plant Replacement, Renewal and Special Maintenance (PPRRSM)

Higher education industry norms average 3% of replacement value ($132 million) to maintain facilities

Annual: avg. capital investment $ 2 million capital need at 3% norm $3-3.5 million avg. depreciation $ 4.5 million

Campus sf. grew 1/3 since 2000 (200,000 sf.) without increase in capital maintenance budget

Student tuition does not cover the use of the buildings and equipment.

EnrollmentRevisit strategic cap of 1825

Proposed budget includes: 2010 – attempt to add 15 students to 1830

2011 – attempt to add 15 students to 1845

Enrollment in ‘07, ‘ 08 and ‘09: at our 1815 budget

Anticipate meeting goal based on applications and inquiries received to date

Financial AidProposed budget increase 5% Incremental 1% change $30 kAnticipating much increased need:

- due to economic downturn- changes to standard aid formula- average increase $3,000/ recipient

projected by NAIS5- year budget increase: 4% for 4 more years

Budget ProjectionsCaution: 5 year model tool for forecasting less less precise for future years

1 Year budget approved annually year by year

Many thanks to Roz Brewer and Paulino Barros for assisting in building budget model

Find the optimal class size that is financially sustainable given the School’s model

Planning by wish listAttract great studentsHire the best

teachers

Keep morale high

Pay them well

Don’t fret if parents sometimes complain

Grow endowment

Increase financial aid to meet the School’s socio-economic diversity objectives

Be more affordable

Develop an enrollment plan that meets the School’s strategic objectives

Balancing the budget will be easier

Don’t teach ‘Chinese’ unless it fits into the school’s mission

Keep up with technology, but evaluate its effectiveness

Be more green

By Corey McIntyre, Chief Financial OfficerNational Association of Independent Schools

NAIS Financial Sustainability

Three essential questions from NAIS1. What key areas of the School’s financial structure

need attention?

2. What is the rate of change needed to solve the challenge in each area while remaining in financial equilibrium?

3. If financial equilibrium is not achievable, what other budget areas may require sacrifice in order to meet the desired future, or which revenue sources need to be targeted for growth?