Responding to Your Questions About Financial Sustainability
February 5, 2018
Dear Students, Staff and Faculty:
In my January 22 letter, I provided an update on our five-year financial sustainability initiative and invited your questions. I write to address those questions and provide further updates.
As I have said in many contexts, getting the process right is key to any successful change initiative. I am committed to clear communication and a collaborative, transparent process that utilizes our appointed and elected committees, such as Faculty Council, Staff Council, the Advisory Committee on Resource Allocation and the Student Government Association. Executive Vice President for Finance and Administration Mike Howard and I have been and will continue meeting regularly with students, staff and faculty, in leadership groups and at large. Further, as noted in my recent letter, I invite each of you to write to me and my Cabinet at financialsustainability@smith.edu with your questions, concerns and suggestions.
In addition to the external financial challenges we have been discussing—e.g., projections for lower endowment earnings, the imperative to contain college costs, the new tax on endowment earnings—it is important to acknowledge the internal considerations that also inform our financial sustainability initiative. For example, we are committed to access, which means we will continue to provide significant student financial aid. We are committed to maintaining our low student-faculty ratio in order to provide the individualized, transformative education for which Smith is known. We are committed to making significant, urgent information technology investments to ensure we are providing the best available tools to support our academic and administrative work. We are committed to funding the initiatives in the strategic plan. And we are committed to balancing our budget every year.
One of the ways we will address these external and internal factors will be to reorganize our work processes and structures to become more efficient. By removing barriers to productivity, we will be able to focus more of our resources on the activities at the core of our educational mission. Currently, members of my Cabinet are working on significant proposals to make the college more cost-effective and more strategically focused. At the same time, we are finalizing a multiyear IT transformation plan. Staff members across the college will play a role in these process and technology changes.
In the course of restructuring our work, some jobs will change, some jobs will be eliminated, and some jobs will be created. It is never easy for a community when a job is eliminated. I want to assure you that we will support affected colleagues to the best of our ability during their transition, for example with job placement assistance. As with everything we do, these changes will be approached with care.
I have received questions on the following topics:
Staff salaries
Decisions about staff raises are made year to year in the context of a number of factors, including job performance, inflation, market trends, and the college’s budgetary constraints. While no decisions have been made at this time regarding raises for FY19, we remain strongly committed to offering competitive compensation and benefits for our employees.
Supporting staff
If a position is eliminated, Human Resources will make efforts to place the affected staff member elsewhere at the college. If this is not possible, staff will be eligible for severance pay and other assistance as reflected in our policies.
Financial markets
Although financial markets are currently performing well, analysts predict that long-term endowment returns will be lower in the future. Some of you may have seen the recent NACUBO-Commonfund Study of Endowments, which noted that “Despite this year’s improved return, the mission-critical 10-year average annual return fell to 4.6 percent from last year’s 5.0 percent.” If our future endowment returns over the medium and long term are lower, we won’t be able to increase the amount we draw from the endowment over the current level.
The endowment excise tax
The precise impact of the new endowment income excise tax is not clear at this moment. While we know that the excise tax on endowment income went into effect January 1, 2018, the Treasury Department has yet to issue guidance on terms or definitions used to put the ruling into practice.
We are a vibrant and resilient community and I know we will remain so as we make needed changes. The best way to maintain the strength of our community as we make difficult choices is to act with openness, respect and compassion. While it can be challenging to reexamine our work processes and structures, we will continue to celebrate our successes and create moments to be with one another in community.
Thank you for your questions, which I will continue to answer, online and in person. And thank you for your insights and ongoing partnership.
Sincerely,
Kathleen McCartney
President