Weathering the Storm

While the economic slump has battered some colleges, Kenyon meets the challenge with modest belt-tightening, fiscal constraint, and a keen awareness of its strengths and weaknesses

Bishop Philander Chase was no stranger to tough economic challenges. Kenyon's founder and first president famously crossed the Atlantic to raise money for his dream of a college in the Ohio wilderness, and when those funds ran dry, he toured the East Coast in search of more.

Chase also penned the College's first fundraising literature, an 1828 pamphlet called "The Star of the West" in which he plaintively acknowledged "the anguish of disappointed hope" and which he mailed to everyone he'd ever known, including his enemies. "Give something, even a trifle," he begged. "Whoever reads this is . . . most respectfully and earnestly entreated immediately to enclose ONE DOLLAR, in aid of the present struggles of Kenyon College."

It wasn't subtle, but it worked. President John Quincy Adams sent $100. "Kenyon Circles" were formed in many towns. "The dollars, it is said, came to Gambier as the leaves fall in autumn," according to an account in The Kenyon Book. In all, Chase raised $25,000.

Perhaps the tenacious spirit of Philander Chase is helping Kenyon weather the nation's current economic storms, which have been as painful for higher education as they have been for many other sectors of society. The stock-market collapse ravaged endowments, forcing some colleges and universities to slash budgets, freeze hiring, and delay construction projects. Families confronting depleted college funds or even unemployment find a college education harder than ever to afford-all of which puts greater pressure on financial-aid offices. Meanwhile, skyrocketing health-insurance costs have squeezed educational institutions as well as their employees.

Kenyon has certainly not been immune to the economic ills, but its fiscal discipline and aversion to debt have enabled the College thus far to impose belt-tightening measures that are modest compared to those of many other schools. Still, the current slump has highlighted some of Kenyon's persistent problems, most notably its small endowment and its relatively heavy reliance on tuition and student fees to make ends meet.

"This is probably the most difficult period universities have ever had," a Wake Forest University official recently told the Chronicle of Higher Education. Between 2000 and 2002, the value of Wake Forest's endowment plunged by more than 24 percent. Other institutions were luckier, but not much, and some fared worse. A Standard & Poor's report last year went so far as to predict that colleges and universities might "consolidate in large numbers or close as they struggle against stagnant levels of financial resources and substantially higher levels of debt."

"There's no question that we're going to enter a period of financial constraint," says Kenyon's new president, S. Georgia Nugent. The budget adopted by the Board of Trustees for the 2003-04 fiscal year does entail some retrenchment. Every department will reduce spending by 5 percent. The College will eliminate nine staff and administrative positions (actually, 9.5, in terms of full-time equivalents). With just a few exceptions, raises for members of the staff and administration will be limited to the amount needed to cover increased health-insurance premiums. The academic program next year will include six fewer courses than in 2002-03.

The good news is that, notwithstanding these budget reductions, the College has been able to maintain its commitment to priorities central to its academic mission. No faculty positions have been eliminated. The 2003-04 budget includes a 3.24 percent raise for faculty members and provides for the normal schedule of merit raises-measures that should keep professors' salaries in the top 20 percent of salaries at similar institutions nationally.

Two new administrative positions have been added to address serious needs: one in the Office of International Education, to help handle the large numbers of students who study abroad as well as the logistical and other problems faced by international students; the other in library and information services, to focus on the growing problem of computer-network security. Fortunately, moreover, of the nine positions to be eliminated, eight can be cut through attrition, and the ninth person was transferred to an opening in another area.

Kenyon's ability to avoid significant disruptions owes a good deal to its unswerving commitment to conservative fiscal policies. "The need for fiscal discipline has been in place so long that it's part of our institutional culture," says Vice President for Finance Joseph G. Nelson. "I've never heard a colleague argue that we should relax our discipline or incur a deficit."

In fact, the College has an unblemished record of balancing its budget every year since 1969. Kenyon also maintains a three-tiered structure of "contingency reserves" to offset unexpected setbacks ranging from storm damage to sudden drops in enrollment. Because of these reserve funds, the College won't have to act rashly if a crisis strikes; instead, the administration and trustees will be able to maintain normal operations while analyzing the problems and the options for addressing them.

"I don't think you can find an institution where the money goes further than at Kenyon," says trustee Barrett A. Toan '69, the chairman of the Board's development committee and chairman of ExpressScripts, a Fortune 500 health-care company. "The financial stewardship at Kenyon is enviable."

Kenyon's chief "exposure points," as Nelson calls them, remain the small size of the endowment and the resulting dependence on tuition and fees.

The College's endowment climbed to a peak market value of $144 million during the boom, up from just $9 million in 1980. It's now valued at about $120 million. Some of the colleges considered Kenyon's peers have suffered equal or greater losses, but their numbers were often much higher to begin with. Many of the College's peers still have endowments more than five times larger than Kenyon's, and in a few cases the figure is ten times higher.

Kenyon uses a complex formula to determine how much endowment income to spend. In any given year, a sum equal to approximately 4 percent of the endowment's market value goes into the operating budget. Thus, sustained market losses translate into diminished revenue to cover operating expenses.

Institutions that have larger endowments-and that derive greater proportions of their budgets from endowment income-have suffered the greatest pain. Some, moreover, financed major expansions on the strength of a runaway stock market and now can't pay for them. For example, when Notre Dame saw a half billion dollars of its portfolio vaporize, it stopped work on one big construction project and put six planned developments on hold, including a law school addition and new complexes for engineering and science.

Kenyon officials are glad to have avoided this kind of problem. But that doesn't mean they see a large endowment as a liability. Far from it. "Our number one objective is still to increase the size of the endowment as quickly as we can," says Nelson.

And significant growth, he points out, is not going to come from a turnaround in the stock market or from shrewd investing. Nelson uses the example of a school with a $100 million endowment versus one with a $500 million endowment. If both schools earn an 8 percent return on the money (not unreasonable in "normal" times), the larger endowment will earn $40 million, while the small one will bring in just $8 million. For the small endowment to match the gains of the larger one through investment success alone, it would need to achieve a 40-percent return. "That's not going to happen," Nelson says.

The lesson is that growth "has got to come from new gifts. We need new money."

Kenyon's relatively small endowment results in a disturbingly high "fee dependency"-the proportion of the annual operating budget that comes from tuition, room, board, and other student fees. The College's fee dependency has hovered around 80 percent in recent years. It currently stands at a slightly lower 78 percent, thanks to successful fundraising efforts, especially during the recent "Claiming Our Place" campaign.

But this figure is still much higher than desirable. A relatively heavy reliance on fees is inherently risky because it makes the College financially vulnerable if enrollment dips. "Fee dependency remains our Achilles heel," Nelson says.

He adds that "it's a tough number to improve." To reduce this year's fee-reliance by just one point, from 78 to 77 percent, Kenyon would need $500,000 in additional revenue from other sources. Or it would need more than $12 million in new endowment funds.

The Board is well aware that Kenyon cannot meet financial needs merely by raising tuition every year. For 2003-04, the Board raised tuition and fees by 5.9 percent, bringing total charges to $35,370 per year. Tuition increases result in greater demand for financial aid-and financial aid already takes up more than 20 percent of the budget. The rise in tuition also affects the College's competitiveness in the rough-and-tumble recruiting game, in which elite colleges and universities jockey to win over students whose parents, facing their own tight budgets, negotiate aggressively, sometimes playing one school off against another.

The limitations faced by Kenyon along with other colleges make fundraising all the more important. Part of the College's message every year when it seeks donations to the Kenyon Fund and the Kenyon Parents Fund is that tuition and endowment income don't cover the complete cost of a Kenyon education. Alumni and parents have responded generously. The Kenyon Fund grew from less than $1.5 million in 1993-94 to almost $2.8 million in 2001-02. In the same period, the Kenyon Parents Fund increased from nearly $307,000 to almost $576,000.

As of late May, a month before the end of the 2002-03 fiscal year, Kenyon Fund donations were keeping pace with last year, while the Kenyon Parents Fund had already surpassed its 2001-02 total. The College was gratified to see that the numbers of donors were up, by nearly 13 percent for alumni and almost 37 percent for parents.

Kenyon is striving to inspire greater participation in the Kenyon Fund especially by younger alumni, who constitute an increasing proportion of the total alumni population and who thus, in no small measure, hold the College's future in their hands. At the same time, like its peer institutions, Kenyon is promoting "planned giving," a term covering various arrangements whereby donors transfer wealth to the institution, most commonly by including it in their wills.

"If donors want to have a dramatic impact on our endowment," says Vice President for Development Kimberlee A. Klesner, "one of the best ways is to provide for Kenyon in their estates."

Fundraising-soliciting for the annual funds as well as seeking longer-term gifts-clearly will remain very much a part of the financial picture at the College. That's one reason why Kenyon, like its founder Philander Chase, still pens fundraising pamphlets that, if less plaintive, are just as insistent.

President S. Georgia Nugent offers a reminder that the essence of a college like Kenyon has more to do with intangible transactions than with money. A classics scholar, she looks to the intellectual parentage of the liberal arts, in ancient Greece. "They didn't have libraries; they didn't have fancy laboratories," she says. "What they did have were great conversations. It was in the give and take of one mind with another that they came up with tremendous advances. That process doesn't always take a lot of money. The liberal-arts education that Kenyon offers so well is really rooted in that ideal."

At the same time, Nugent points out that in the liberal arts and sciences college of the twenty-first century, the intangible and the tangible are inextricably entwined. The conversations that define intellectual growth take place between students who pay tuition and professors who earn salaries and benefits. Their give and take often transpires on networked computers that become obsolete every few years, on a campus where the buildings must be heated and maintained, where the lawns must be mowed, the trees trimmed, and the snow plowed. Where the students, having shopped around for the "right college," chose Kenyon in part because of the efforts of an admissions staff that showered them with glossy mailings and logged thousands of miles to visit their high schools. And where those students expect to find not only attentive professors but also sports and clubs, career counseling and personal counseling, nice housing, good food, and, yes, well equipped (if not fancy) laboratories.

Kenyon knows that money is necessary but not sufficient; and, to reverse the emphasis, that while money isn't sufficient, it is certainly necessary. And so, while the College continually strives for the ideal of intellectual discourse unfettered by material concerns, it cleaves to the tenacious habits of its visionary founder, who gave sermons but also delivered dollars.

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