sais economic forum stephen robinson, president southern association of independent schools

SAIS Economic Forum

Stephen Robinson, PresidentSouthern Association of Independent Schools

Southern Association of Independent Schools

Factors of Concern

Enrollments (Tuition Revenue)

Endowments/Investment Earnings

Fund Raising (Annual Fund, Capital Campaign)

Managing/Trimming Expenses

Planning for a multi-year downturn

Managing the Response


Lessons From the Past (based on NAIS data)

Recession Years (in Red)

Average Enrollment

Annual Giving per Student

1968-69 339 $ 170

1969-70 345 $ 147

1970-71 337 $ 150

1972-73 347 $ 203

1973-74 359 $ 220

1974-75 361 $ 203

1975-76 360 $ 173

1979-80 387 $ 267

1980-81 390 $ 420

1981-82 397 $ 313


cont. Lessons From the Past (based on NAIS data)

Recession Years

(in Red)

Average Enrollment

Annual Giving per Student

1989-90 403 $ 862

1990-91 408 $ 875

1991-92 414 $ 907

2000-01 487 $ 1,248

2001-02 485 $ 1,273

2002-03 482 $ 1,343


Confirm the Mission

Schools that tend to survive crisis are schools that remain completely committed to their mission.

The first step to approaching the current crisis should be a thorough discussion of the mission.

All strategies should be developed by the board and administration in concert with the mission.


Know the Demographics

What is the pool of students you depend on and what is the future of this pool?

What is the employment prospect for your current school families?

Is there another pool from which to recruit new students?

Do you know if your school families will really be hurt from the current crisis?


Increase Perceived Value

Families make decisions to enroll based on ability to pay and the perceived value or your school versus the perceived value of the alternative.


Enrollment Coefficient (EnC)

High Ability- 10

- 9

- 8

- 7

- 6

- 5

- 4

- 3

- 2

- 1

- 0

Low Ability

Ability to Pay Perceived Value of Your School

Perceived Value of Alternative School

High Value- 10

- 9

- 8

- 7

- 6

- 5

- 4

- 3

- 2

- 1

- 0

Low Value

High Value- 10

- 9

- 8

- 7

- 6

- 5

- 4

- 3

- 2

- 1

- 0

Low Value


Increase Perceived Value

Families make decisions to enroll based on ability to pay and the perceived value or your school versus the perceived value of the alternative.

What can you do to enhance the value of what your offer your school families?

Economic crisis also affects negatively the alternate options to Independent Schools.


Increase sensitivity to retention

Follow-up with all families that do not renew their contracts and invite them to discuss their financial hardship.

Retention is everyone’s responsibility: Remind your faculty and staff of this fact and go the extra mile to serve your families.

Do not assume that all current students are planning to reenroll.


An NAIS Overview FrameworkTaken from Pat Bassett’s presentation “Financial Survivability”

Acknowledge and reconcile yourself functioning in a climate of uncertainty.

Recognize that each school faces many unique circumstances, so no generalities will apply to all.

Hope for the best but plan for the worst: Create three financial contingency plans: best case, worst case, most likely case.


An NAIS Overview FrameworkTaken from Pat Bassett’s presentation “Financial Survivability”

Don’t waste the motivation of crisis to fast-forward to a more financially sustainable future: trim fat and waste; dry-dock programs that no longer are viable; go green fast; moderate tuition increases and spike financial aid; grow school in down market by aggressive net tuition

discounting or merit aid.

Communicate to your constituents about school finances, the value proposition, and the importance of giving.


Immediate First StepsTaken from Pat Bassett’s presentation “Financial Survivability”

Endowment: Sit tight and ride out the storm. "Investments have historically yielded positive

results to investors who bought when others were fearful, sold when most others were euphoric, and stood their ground when the situation was unclear. While past performance does not guarantee future results, one defense against short-term fear is long-term confidence.“

Cash: “Trust in God…but tie your camel.” Consider putting cash in FDIC-insured savings or brokerage accounts


Immediate First Steps (cont.) Taken from Pat Bassett’s presentation “Financial Survivability”

Financial Scenario-Planning:

A.) Contingency Plan: Income Down 5% - 10%

B.) Disaster Plan: Income Down 20%


Scenario 1: A Contingency Financial Plan - Income Down 5% - 10%: Recommendations from the field. Taken from Pat Bassett’s presentation “Financial Survivability”Cut Expenses (Except Increases for Financial Aid):

Freeze “non-defense spending”: i.e., put a hold on discretionary expenditures.

Postpone capital expenditures: e.g., capital renovations and replacements.

Double up assignments to cover staff attrition rather than hiring replacements.


Scenario 1: A Contingency Financial Plan: Income Down 5% - 10%Taken from Pat Bassett’s presentation “Financial Survivability”Cut Expenses (continued):

Go Green FAST: Recommendations from the NBOA and NAIS list serves and the field…

implement dramatic conservation strategies (the 3 Rs of reduce, re-use, and recycle);

re-structure athletic and field trip travel schedules;

adopt policies to reduce electricity and oil/gas consumption;

incentivize use of public transportation and ride-sharing;


Scenario 1: A Contingency Financial Plan: Income Down 5% - 10%Taken from Pat Bassett’s presentation “Financial Survivability”Go Green FAST (continued):

listen to your business manager and maintenance director and environmental science faculty on other savings possibilities;

see NAIS’s piece on “100 Ways To Go Green and Global”.

Cut deeply enough to spend less overall while…

Expanding financial aid budgets to meet increased need of current and future families.

Maintaining or increasing admissions, marketing & development budgets.


Scenario 1: A Contingency Financial Plan: Income Down 5% - 10%Taken from Pat Bassett’s presentation “Financial Survivability”Cut Expenses (continued):

If you anticipate being down for longer than the current year, beyond steps 1 -5, consider

Moderating tuition increases

Moderating salary increases (e.g., making COL+ raises contingent upon achieving balanced budget enrollment projections)


Scenario 1: A Contingency Financial Plan: Income Down 5% - 10%Taken from Pat Bassett’s presentation “Financial Survivability”Increase Income:

Use net tuition discounting to grow enrollment without adding staff.

Strengthen advancement messaging and cultivation to raise more money.

Fully utilize the school’s physical capital (expanding use of campus)

Exploit the schools intellectual capital (creating related businesses-online courses, tutoring services, boarding program for international students, etc.)


Scenario 1: A Contingency Financial Plan: Income Down 5% - 10%Taken from Pat Bassett’s presentation “Financial Survivability”Higher risk options (to avoid if possible):

Borrowing more (risking exacerbating debt service demands: if necessary, “borrow from yourself,” using reserves and endowment with a formal payback schedule).

Abandoning your spending policy, taking a larger draw from the endowment that invades principal, (risking jeopardizing standing with donors)

Committing publicly now to very ambitious capital campaign goals (risking timing and attainability issues)


Scenario 2: A Financial Disaster PlanTaken from Pat Bassett’s presentation “Financial Survivability”

Disaster Plan: Income down 20% or more.

Make a heroic commitment to maintain full services, to the extent possible, the Katrina model of being the one safe harbor in the storm for kids and parents.

“Right-size” the school: Downsize staffing = “rightsizing”: toward a more financially sustainable ratio of students to staff, a one-time opportunity to prune the shrub so it can grow back strongly.

Necessity being the mother of invention, under dire circumstances the idea of merging neighboring independent schools together begins to look more attractive and less impossible.


“Unshakeable Beliefs” Counter “Brutal Facts”Taken from Pat Bassett’s presentation “Financial Survivability”

We have the freedom to act quickly and decisively when needed, since we are effectively independent of government or church in our governance and finance.

We have the capacity to act with resources behind us since we have intellectual, physical, and social capital, unmatched by any other PS-12 segment.

We have confidence our schools “will not only endure but prevail,” since history is on our side: If any institutions are “built to last,” it is independent schools.



Within challenges, lie opportunities to make…

A dramatic commitment school by school to sustainability financially, environmentally, demographically, programmatically, and globally.

A transition from our truculent insistence on independence to a more efficient openness to interdependence as we collaborate with other schools and other sectors to market ourselves, to share resources, and to co-create 21st. C. schools.



Within challenges, lie opportunities to make…

A paradigm shift (“Scarcity and Privilege” –Peter Cobb): What’s “required" in the architecture of our schools and in the architecture of our lives? To recognize that “to live life abundantly, this generation of young people does not need to live” wastefully, and “to live life richly, this generation of young people does not have to consume” ceaselessly.


Recommendations from NBOA

Based on a presentation by:

Sarah P. Daignault, Executive Director

National Business Officers Association


Is there a bubble in Independent Schools?

Long-term school growth spurred by: 1. Growth in housing prices and financial market

values.

2. Increases in consumer borrowing.

3. Increases in the prosperity of high-income households.

4. Increases in the number of children in high-income households.


What Should Schools Do?

Reduce costs or scale of operations:

Eliminate non-performing sectors.

Sell off particular divisions or assets.

Maintain mission: Do not lose the school’s identity.


Find New Revenue Sources

Use or rent existing resources more intensively – evenings, weekends, summer.

New customers – Adult Ed? Exec Ed?

If you are already doing this – to do more you have to get way outside the box.


Enhance Brand

Compete by specializing more or targeting particular markets.

Take advantage of loyalty and parents’ commitment to education.


Entertain Crazy Ideas

Merge with competitor.

Corporate sponsorships.

Shared services; consortiums.


Signs of Trouble

If you are struggling to fill the school.

If you are borrowing money to fund operations.

If your mission is unclear.


Principles to Guide the Response Students come first - we must maintain quality of the

education.

Long term financial sustainability of the organization is imperative.

Remain strong in areas of long term importance to the organization - admissions, development - and not make capital cuts so dramatic that it is hard to catch up.


Potential Actions

Ask staff about finding savings.

End Silo-type problem solving – use the expertise you have.

Multiple budget scenarios for the coming year, at different levels of enrollment and different levels of endowment return.

Senior management MUST lead by example.


Your job: Big Picture Is it more important to be full or to admit the right

students?

Understand the long-term ramifications of potential decisions.

Assess all decisions in light of mission and culture before you act.

Take care of your people – older faculty, parents – now and later.

Recommendations from Independent School Management (ISM)


Hard Economic Times: Dos and Don’ts for Private-Independent SchoolsTaken from Ideas & Perspectives Vol. 33 No. 14, an ISM Publication DO continue to do strategic planning/strategic

financial planning.

DON’T violate the published and marketed tuition gradient shown by your current strategic plan/strategic financial plan.

DO continue to work hard on building your faculty culture, focused on professional growth.


Hard Economic Times: Dos and Don’ts for Private-Independent Schools (cont)Taken from Ideas & Perspectives Vol. 33 No. 14, an ISM Publication DON’T reduce the budget line dedicated to faculty

professional growth and development.

DO reduce staffing, if opportunities present themselves and conditions allow, by means of attrition.

DON’T reduces staffing by dismissal (except for cause).

Do continue to increase tuition, at a minimum, at a rate consistent with your prior estimate of inflation.


Hard Economic Times: Dos and Don’ts for Private-Independent Schools (cont)Taken from Ideas & Perspectives Vol. 33 No. 14, an ISM Publication DON’T freeze salaries.

DO utilize your cash reserves, as needed.

DON’T borrow money from lending agencies.

DO keep to your (renegotiated) debt-retirement schedule.

DON’T reduce employee benefits.


Hard Economic Times: Dos and Don’ts for Private-Independent Schools (cont)Taken from Ideas & Perspectives Vol. 33 No. 14, an ISM Publication DO take this opportunity to foster stewardship for

your school’s resources.

DON’T display angst.

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

Sacred Cows

Taken from “The Nine Sacred Cows of Financial Management” by Littleford and Associates


Nine Sacred Cows of Financial Management (Littleford and Associates)

The key to achieving the school’s goals and yet balancing the budget and controlling expenses, especially in a time of economic downturn, is to know how to balance the “Sacred Cows.”

How do Independent Schools analyze these tradeoffs and make appropriate financial management decisions that support the mission and vision of the School?

How can these decisions be made promptly, effectively and decisively when the era of scarce resources and tight budgeting is facing us?


Income Source Sacred Cows (Littleford and Associates)

Tuition and fees.

Total school enrollment.

Giving of all kinds.

Profit Centers.

Class size.


Expense Sacred Cows (Littleford and Associates)

Salaries

Plant

Program

Financial Aid


In Summary It is a general consensus that:

Independent Schools tend to weather national economic crisis. Schools must “stay the course” and remain “mission focused” When cuts are necessary, schools should do so with a surgeon’s

precision so as to minimize the negative impact of community morale.

Schools should move forward with planned tuition increases. Schools should expect more financial aid requests. Schools should view this time as a positive opportunity to

examine areas in which waste can be trimmed and schools can be made more financially sustainable.

Schools should maintain a high value for quality faculty and make cuts in faculty and professional development as the last alternative.


Stephen Robinson, Ph.D., PresidentSouthern Association of Independent Schools

[email protected]

(404) 227-2770

sais economic forum stephen robinson, president southern association of independent schools

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