Oberlin Alumni Magazine
Spring 2009 Vol. 104 No. 3
Oberlin and the Economy
President Marvin Krislov
To the Oberlin College Community:
These are the most challenging economic times in recent memory. No one can say for certain when economic growth and the financial markets will begin recovering. But history tells us they will. History also gives me confidence that Oberlin College will emerge from this downturn stronger.
It is important for us to keep in mind that previous generations of Oberlinians confronted even greater challenges. They overcame them by defending the values on which our College stands: the relentless dedication to achieving academic, artistic, and musical excellence; the steadfast commitment to inclusion, diversity, and access to Oberlin’s excellence; and the unwavering conviction that an Oberlin education is special, that its rigorous, interdisciplinary nature teaches young women and men to succeed in any endeavor they choose.
These values are personified by the generations of alumni I meet on my travels. Whether the person is young or old, living in Houston, Chapel Hill, New York, or Istanbul, the common threads of their Oberlin experience—close faculty-student ties; enduring, active friendships with Oberlin peers and fellow alums of all ages; love of learning; and determination to improve the world—shine through. Through wars, depression, and recessions, through times lean or flush, these Oberlin values endure.
I have been continually reminded of the attributes that make Oberlin special. Many visitors—scholars, experts, and alumni from around the world—who sit in on or lecture to our classes, tell our faculty members afterward how impressed they are with our students, especially the level of student involvement. Several visiting scholars have remarked that Oberlin students obviously care deeply about the subjects they study, that they are informed, articulate, enthusiastic, and eager to debate ideas. That is high and unsolicited praise for Oberlin. One hears similar comments from Oberlin faculty members. I, too, have witnessed this deep level of student engagement in the constitutional law and politics classes I teach.
I am proud to say that Oberlin remains committed to providing access to worthy students who meet our high standards. We remain committed to our mission of pursuing academic, artistic, and musical excellence. And we remain convinced that a liberal arts education at Oberlin teaches students to master new challenges, to hone their analytical skills, and to develop the multifaceted, international perspective needed to flourish in the 21st century. To defend these values, we rely upon your continued support. No group of individuals better understands the life-changing nature of an Oberlin education than you, our alumni.
Times are tough. But it is more important than ever to provide our extraordinary educational opportunities to future generations of Oberlin students from every walk of life. My senior staff and I have created the following list of questions and answers to explain how Oberlin has been affected by the current economic downturn, and how we are working to reduce expenditures college-wide. History tells us that if we work hard together and remain true to our values, we will weather this downturn, and Oberlin will be better still when recovery comes.
1: How is Oberlin affected by the economic downturn?
Oberlin, like other colleges and universities, is coping with the dramatic declines in global equity markets over the past 12 months. The sharp drop in prices of stocks and other financial assets has eroded the support that Oberlin’s operating budget receives from its endowment. The economic slump is having a deleterious effect on the total amount of philanthropic giving to Oberlin from alumni, friends, and institutions, many of whom have reduced somewhat the gifts they are able to make in this economy.
Thus, the College’s major sources of revenue—net student fees, endowment support, and annual giving—are all likely to decline or to grow at a much slower pace than the College had expected. We must now carefully position Oberlin’s assets to weather the current economic crisis while planning for a clearly different financial future in the short and possibly longer term.
2: What is the College doing to address issues caused by the downturn?
We are taking a number of steps to reduce the operating costs of the College, many of which President Krislov has already communicated to the campus community. There will be no salary increases for Oberlin’s faculty or administrative and professional staff next year. The College will significantly reduce its expenditures in such areas as printing, publications, postage, professional fees, and travel. We will continue to look for ways to further reduce expenditures across the institution.
Oberlin went through an intensive strategic planning process in 2004-05. In that process, we learned that while no one can predict the future, we can build in financial flexibility to deal with uncertainty and risk. In the short term, the senior administration will strategically reduce budgets in a manner that will have minimal impact on our programs and operation. Our top priorities remain preserving Oberlin’s academic mission and maintaining our commitments to excellence and access. Our near-term reductions will give Oberlin’s leadership the time necessary to evaluate issues and priorities and communicate those findings to our faculty, students, parents, staff, and alumni.
Given the economic situation at this time, a further series of reductions is inevitable. The reductions will require a participatory process involving many groups in the Oberlin community. This process will be time consuming and emotional, and will require a great deal of leadership and patience to be successful. In the longer term, the president will engage faculty and staff councils in discussions, and they will make recommendations on how we might further reduce spending. We will also look to the larger community for ideas and suggestions. Individual faculty, staff, students, parents, and alumni are encouraged to contribute their ideas for reducing spending.
3: Will there be layoffs?
Higher education is very labor-intensive; approximately 70 percent of Oberlin’s operating budget goes to salaries, wages, and related benefits. Fortunately, at this juncture, any reduction in staffing expenditures will happen through vacancy savings (i.e. delaying the replacement of employees who retire or resign) and not layoffs. While future years may require additional reductions in staffing, that option would be a last resort.
4: Is there a hiring freeze at Oberlin?
No. But as noted above, certain positions will remain vacant. In tough financial times, some positions are more vital than others in fulfilling our mission as a premier institution of higher education. As an ongoing practice, division heads will determine on a case-by-case basis whether vacated positions need to be filled immediately. Only positions deemed critical to the educational mission, required to fulfill contractual obligations, or that will produce positive financial payback will be filled. Currently, most faculty tenure-track searches are continuing for the next academic year.
5: As of June 30, 2008, the College’s endowment was nearly $750 million. Even factoring in declines, why can’t more endowment money be used to address our financial issues?
The value of our endowment has declined significantly since June 2008; we are currently projecting it to be in the $500 million range as of June 30, 2009. In conjunction with the reductions in operating costs taken so far, the Board of Trustees has approved a temporary increase in the endowment payout above our financial plan for the upcoming year. This will provide sufficient time to do the careful planning required to strengthen Oberlin’s academic programs while making further cost reductions. However, increasing endowment spending over an extended period of time when financial markets are at their lowest levels in years would seriously undermine the College’s long-term financial health.
6: Did Oberlin’s endowment decline due to poor investment management? How does our performance compare to that of peer schools?
Each college or university pursues its own investment strategy. Our endowment performance compares favorably to our benchmarks and to our peer schools. Last year our endowment was down less than 2 percent. The prior year, our endowment generated a return of 22 percent. Current assumptions include flat returns through June 2010 with modest growth in the following two years. Oberlin’s Investment Committee, which manages the endowment, spent the past several years assessing the risks of Oberlin’s investment portfolio. Unlike some of our peer institutions, Oberlin has ample liquidity to meet its needs.
7: Did the College have any investments with Bernie Madoff, Stanford Financial, or Westridge Capital Management?
No.
8: Shouldn’t Oberlin stop renovating campus facilities and building new ones? Wouldn’t that save money?
Many colleges and universities have announced plans to reduce or suspend large construction projects. Oberlin is fortunate to have acquired long-term bond funding at favorable interest rates and major donor support for significant capital projects such as the Litoff Building, North Professor Street Student Housing, and the renovation of the HVAC and storage areas of the Allen Memorial Art Museum. It is in the College’s best interest for these major projects to stay on track, as they take years to plan and build. Bond funding is project specific; we can’t simply transfer funds from bond issues to other purposes or projects. If we do not expend the bond proceeds on the projects for which they were approved, we would be legally required to call the outstanding bonds and return the proceeds, but would not recoup all of the issuance costs. This would be extremely shortsighted.
Unfortunately, deferring maintenance on existing buildings to cut spending in the short term rarely helps the long-term bottom line. These projects continue to grow and often increase in magnitude and cost if not addressed in a timely way. Projects are scheduled during the summer months when the institution is not in session. Skipping a year or two of scheduled maintenance due to funding shortfalls makes it very difficult to catch up during improved financial times. Facilities Planning and Construction will reevaluate all capital maintenance projects scheduled for the next three fiscal years to prioritize projects that involve life-safety issues, building envelope projects, and major mechanical systems. These projects need to be addressed to avoid safety hazards, major water damage, or system failures that would close buildings and disrupt academic or residential programs at Oberlin.
Short-term allocations can be reduced for equipment, furniture, and furnishings, thus reducing the financial burden on the endowment by $4.3 million over the next three years. Fortunately, there are adequate balances to acquire critical equipment purchases without disrupting our multitude of programs.
9: Oberlin has a proud tradition of access and inclusion. Will our commitment to financial aid be affected by the economic slowdown?
Providing worthy students with access to our academic, artistic, and musical excellence is a fundamental Oberlin value. Our commitment to socioeconomic diversity remains a top priority despite the economic downturn, and we will do everything possible to maintain our strong financial aid programs for the duration of the current financial climate.
10: Will this downturn have an impact on the College’s commitment to sustainability?
No. Oberlin is a nationally recognized leader in environmental responsibility and sustainability, and will remain at the forefront in these areas. The College will continue its green initiatives and adhere to its goal of becoming a carbon-neutral institution. Carbon neutrality and fiscal responsibility are not mutually exclusive. By utilizing our innovative campus resource monitoring system, by lowering our thermostats, by making less use of College vehicles, and by turning off unnecessary lights, machines, and appliances, we are helping to reduce Oberlin’s impact on the environment.
11: Will the College increase the number of enrolled students to balance the budget?
No. The long-term strategic plan actually calls for reducing the undergraduate head count to 2,720. The current economic situation has caused Oberlin to slow the process of this reduction by holding the student body static at 2,831 for the short term; however, increasing the student body beyond this in order to generate additional revenue would have a negative impact on housing, access to classes, and our faculty-student ratio, among other things.
12: Are the benefits Oberlin provides its employees going to change?
After salaries and wages, the cost of our benefit programs is the second largest expenditure at Oberlin. The College annually reviews and amends all benefit plans to assess the management of future costs, including comparison of our benefits to peer institutions. The Benefits Committee recently completed a very thorough evaluation of our health plan, such that immediate material changes are not likely. However, other programs will be reviewed for opportunities to better control the costs of these programs, including tuition remission and retiree health benefits.
13: How will travel expenditures be reduced?
Some reduction will occur naturally, as travel costs usually decline during recessionary periods. But we will also require that individuals carefully consider on a case-by-case basis whether travel is essential, and ask that they explore alternatives whenever possible.
14: Will the College curtail its cost cutting when the economy rebounds?
No. Finding ways to keep the cost of a college education affordable is a top priority at Oberlin. As the economy rebounds, inflationary pressures tend to cause expenditure growth on our operating budget. Controlling expenditure growth is a continuous process that Oberlin embraced long before the current financial downturn. However, if the economy improves adequately, faculty and staff salaries that are currently being held flat will be reevaluated.
15: What can the Oberlin community do to help the College successfully navigate the current economic climate?
President Krislov and the senior staff have already engaged many members of the Oberlin community as the College looks to identify additional ways to reduce expenditures. We hope to develop additional channels through which students, faculty, and staff can suggest cost-saving measures.
Philanthropic support from alumni and friends is critical to the health of the College, especially during difficult economic times. If you haven’t already done so, please consider a gift to Oberlin.
Editor's Note - Effective April 22, 2010: Since this article originally appeared, the Litoff Building has been renamed. Oberlin's new home for jazz studies, music history, and music theory is now the Bertram and Judith Kohl Building.