Financial Survivability
Living with High Anxiety
Patrick F. Bassett, NAIS President
bassett@nais.org
http://www.nais.org/resources/movie.cfm?ItemNumber=151365&Token=0ABC75DE-F155-4A36-931E-95A3A428ECD4&field1=value1&field
Play clip
My faculty members are very
anxious about the economy’s
impact on their jobs.
Instant Poll at NAIS Annual Conference, 02/26/09
41%
1. Strongly Agree
2. Agree
3. Neutral
23%
21%
4. Disagree
13%
5. Strongly Disagree
3%
1
2
3
4
5
Financial Sustainability?
Finanicial Survivablity in
an
Economic
Meltdown
Patrick F. Bassett, NAIS President
Brutal Facts vs. Unshakeable Beliefs
The “Perfect Storm”: Six Factors in Confluence.
What Shape is your Strategic Plan in?
1. Enrollment Shaky (or Worry about Next Year): For some schools
this, year, higher than usual summer attrition and lower than usual
enrollments resulting in a shortfall of students, in some cases up to
fifty off budget. Universal worry about next year and thereafter.
See NAIS monthly pulse surveys on admissions funnel to track
industry patterns.
2. Financial Aid Demand Growing: Current families of higher incomes
starting to demand and qualify for financial aid as tuitions have
skyrocketed while family salaries remain flat and equity in homes
and investments tanks.
The “Perfect Storm”
3.
Debt Service Rising/Endowment Income Falling: Those
with variable bond rates saw their rate soar from 3% to
10% in some cases, impacting heavily and unexpectedly
the current year budget’s debt service obligations. Even
for schools with fixed rate bonds, some found their
Debt:Endowment ratio “under water,” with value of
endowments and income from endowment plummeting,
impacting their liquidity and capacity for borrowing.
4. Demographics Changing: In the number of school-age
children in many locales where independent schools are
located as housing stock and cost of living become
prohibitively expensive for young families.
The “Perfect Storm”
5. Affordability Disappearing as Tuitions Skyrocket: A climate of
caution where even families with substantial dual incomes fear a
job loss could bring financial catastrophe, making independent
school tuition, heretofore considered a necessity, all of a sudden
considered a discretionary luxury. NAIS School Search Trends
Survey 2009: IECA Consultants seeing a drop off in interest and
growing fears by families regarding their capacity to pay for our
schools. ISM Re-enrollment Survey Jan 2009: Some shakiness.
6. Wealth Declining: A chilling zephyr on feelings about one’s wealth
and capacity for eleemosynary giving. See NAIS monthly pulse
surveys on annual giving to track industry patterns.
But…. Are we the harbor during the storm? Is private school a luxury
or necessity? What are the lessons from the past?
The early indicators?
NAIS Schools Holding on during Recessions
Recession Years (in Avg Enrollment Annual Giving per
Red)
Student (unadjusted $)
1968-69
1969-70
1970-71
339
345
337
$ 170
$ 147
$ 150
1972-73
347
$ 203
1973-74
1974-75
1975-76
359
361
360
$ 220
$ 203
$ 173
NAIS Schools Holding on during Recessions
Recession Years (in Avg Enrollment Annual Giving per
Red)
Student (unadjusted $)
1979-80
387
$ 267
1980-81
1981-82
390
397
$ 420
$ 313
1989-90
1990-91
1991-92
403
408
414
$ 862
$ 875
$ 907
NAIS Schools Holding on during Recessions
Recession Years (in Avg Enrollment Annual Giving per
Red)
Student (unadjusted $)
2000-01
487
$ 1,248
2001-02
2002-03
485
482
$ 1,273
$ 1,343
SSAT Test Volume as of 1/15/09: October test up 8%; November
test up 1.5%; December test up 2.9%; January test down 13.5%;
SSS Apps: Up 6.6% compared to last year.
Giving: Overall in the US, giving goes up every
year, even during recessions. During recessions it goes up in three
out of four sectors: Church, Social Services, Arts, Colleges.
Admissions Funnel Stable for NAIS Schools, over Time
(except inquiries down 20%)
Prior Year Number Number Average Average Average
Funnel Schools Inquiries Applicants Accept Enrollees
2009-09
1129
724
278
143
96
2007-08
996
714
287
146
97
2006-07
965
754
282
145
99
2005-06
967
797
280
147
99
2004-05
951
819
278
149
98
2003-04
916
856
285
150
98
2002-03
805
929
311
155
103
2001-02
899
975
318
151
103
2000-01
835
1061
329
153
104
1999-00
809
1038
319
154
106
1998-99
855
991
296
148
103
1997-98
869
998
296
147
102
Average Enrollments at NAIS Schools Stable over Time
Year
#
Schools
Totl
Enrolment
Avg Enrolment
2001
1,218
551,944
453
2002
1,688
744,342
441
2003
1,534
627,230
409
2004
1,523
606,551
398
2005
1,656
660,479
399
2006
1,492
645,916
433
2007
1,491
650,895
437
2008
1,468
670,139
456
2009
1,493
681,762
457
Spikes = Beyond the normal 6% increase
NAIS Monthly “Pulse Surveys”
• Signed Enrollment Contracts: 67% (2009-10 academic
year through March as a % of last year total)
• Annual Gifts: 74% (2008-09 fiscal year through March
as a % of last year total)
• Signed Enrollment Contracts: 94% (2009-10 academic
year through April as a % of last year total)
• Annual Gifts: 82% (2008-09 fiscal year through April as
a % of last year total)
• Note: Since many if not most schools have budgeted for
somewhat fewer students, many if not most schools are
already close to budget targets for enrollment. Since many if
not most schools budgeted for higher annual giving (before
the market collapse), many if not most schools may fall
short of this year’s goal.
An NAIS Overview Framework
There are no “one-armed” economists: 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 Framework
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.
The Financial Crisis - : “First Response” Moves, Fall ‘08:
1. Endowment: Most School Sat tight to ride out the storm.
Financial Consultant: "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."
2. Cash: “Trust in God…but tie your camel.” Most schools had
or put cash in FDIC-insured savings or brokerage accounts,
despite the low rates of return.
The Financial Crisis : “First Response” Moves, Fall ‘08:
3. Debt-Financed Bonds: Many schools became cautious about
initiating borrowing. Jeff Lewis (lewis@icemiller.com) “Not
a great time to begin a bond-financed campaign…. (If you
do—go with a strong bank’s letter of credit.) For those that
are already impacted by the credit crunch and related fall-out,
there is not a single source of guidance: Remain in close
contact with banking partners, bond counsel, and government
regulators.”
4. Financial Planning: Many schools began creating a 3Scenario Plan Framework: NAIS’s suggestion:
 Best Case: +/- 3-5% (based on historical fluctuations in
normal times)
 Worst Case: Down 20% or more
 Most Likely: Down 5 -10 %
(Down in enrollment, budget, and giving)
Which outcome best describes what you
anticipate for next year for your school in
terms of enrolment, budget, and giving?
Instant Poll at NAIS Annual Conference, 02/26/09
55%
1. Up or down 3-5%
2. Down 5% – 10%
36%
3. Down 20% or more
4. Some other outcome
8%
2%
1
2
3
4
A 10-Rung Ladder of Contingencies:
Ideas from NAIS and the Field
Cut Expenses (Except Increases for Financial Aid
and maintaining budgets for marketing and
advancement):
1. Freeze “non-defense spending”: i.e., put a
hold on discretionary expenditures.
2. Postpone capital expenditures: e.g., capital
renovations and replacements.
3. Double up assignments to cover staff
attrition: rather than hiring
replacements.
A 10-Rung Ladder of Contingencies:
Ideas from the Field
4. Go “green” fast: Recommendations from the
NBOA and NAIS listserves 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;
 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”.
A 10-Rung Ladder of Contingencies:
Ideas from the Field
5. Moderate tuition increases: While expanding
financial aid budgets (to meet increased need of
current and future families)
6. Moderate salary increases: Some schools
offering stepped sequencing, offering frozen salary
now, then bump up for COL or COL+ contingent
upon achieving balanced budget enrollment
projections.
A 10-Rung Ladder of Contingencies:
Ideas from the Field
Increase Income:
7. Use net tuition discounting (and consider
merit aid) to grow enrollment without adding
staff. (Restricted to new students.)
8. Raise more money by strengthening
advancement messaging and cultivation.
9. Fully utilize the school’s physical capital
(expanding use of campus)
10. Exploit the schools intellectual capital by
creating related businesses: online courses,
tutoring services, boarding program
for international students, etc.
Higher Risk Options:
 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)
A Financial Disaster Plan
Disaster Plan: Income down 20% or more.
1. Maintain full services by making a heroic commitment,
to the extent possible, the Katrina model of being the
one safe harbor in the storm for kids and parents.
2. Right-size the school: Downsize staffing =
“rightsizing”: toward a more financially sustainable ratio
of students:staff, a one-time opportunity to prune the
shrub so it can grow back strongly.
3. Merge: 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”
1. 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.
2. 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.
3. Industry leaders 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.
(Faculty, trustees, and parents need reassurance: high anxiety
levels.)
“Unshakeable Beliefs” Counter “Brutal Facts”
Within challenges, lie opportunities to make…
1. A dramatic commitment school by school to
sustainability financially, environmentally,
demographically, programmatically, and globally.
2. 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.
“Unshakeable Beliefs” Counter “Brutal Facts”
Within challenges, lie opportunities to make…
3. 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.
The Leadership Part:
Many of the people we need to make all of
this happen are in the room.
CASE STUDIES
1. What are what Harvard’s Jim Honan invites, the “deeper
conversations” and "beyond the usual" responses? Or James
Surowiecki’s “wisdom of the crowd?”
2. One school’s plan: rather than cut back, spend endowment
and use aggressive merit aid to grow school enrollment and
program as competitors contract.
3. Another school’s plan: YES (“Year Entry Set Tuitions”):
Freezing tuitions at entry point for four years.
Small School Case Study: 3-Scenario Budgeting:
Benchmark School Comparison:
Best Case,2008-2009
Worst Case, Most Likely
Benchmark Schools (20082009)
Grade K
Tuition
Grade 3
Tuition
Grade 6
Tuition
Grade 8
Tuition
Starting
Teacher
Salary
Highest
Teacher
Salary
Mean
Salary
Median
Salary
School 1
$15,382
$15,382
$16,082
$16,082
$31,662
$75,625
$58,693
$55,739
School 2
$10,350
$10,650
$10,950
$11,150
$28,000
$48,045
$39,286
$40,565
School 3
$14,500
$14,500
$14,700
$15,000
$33,391
$65,755
$51,518
$51,239
School 4
$13,640
$13,640
$13,640
$13,640
N/A
$58,275
$42,271
$42,790
School 5
$15,800
$15,800
N/A
N/A
$31,600
$44,400
$38,720
$42,800
School 6
$9,475
$9,750
$9,750
$9,750
$20,000
$40,000
$30,000
$31,929
Our School
$12,980 (5/7)* $12,980 (5/7) $13,680 (3/6) $13,680 (3/6) $30,500 (4/6) $47,950 (5/7) $37,081 (6/7) $36,400 (6/7)
*( our school/pool) = Our School Rank
Forecast Budget Scenarios 2009-2010
TOTAL STUDENTS
Lower School:Middle School
% Tuition Increase
$ Tuition Increase
LS Tuition
MS Tuition
190
145:45
7%
+$920:$990
13900
14850
210
155:55
7%
+$920:$990
13900
14850
225
168:57
7%
+$920:$990
13900
14850
2683750
-47500
-55500
-402563
710730
2888917
2971250
-47500
-55500
-445688
710730
3133292
3181650
-47500
-55500
-540880
710730
3248499
1164052
1824187
273700
28350
-24250
-3266039
1164052
1824187
273700
28350
-24250
-3266039
1164052
1824187
273700
28350
-24250
-3266039
Net
Depreciation
-377122
208727
-132747
208727
-17539
208727
Mortgage Principal
PPRSM
Lease
Med Plan Benefit
Capital Expenditures
-185634
14000
-15000
-10000
-20000
-185634
14000
-15000
-10000
-20000
-185634
14000
-15000
-10000
-20000
CASH FLOW +/-
-385029
-140654
-25446
REVENUE
Total Tuition Revenue
Tuition Discount
Sibling Discount @$500/child
Financial Aid 15%/Total Revenue
Other Revenue
Total Revenue
EXPENSES
General (+3%)
Salary (+3%)
Medical Benefit (+15%)
Insurance (+5%)
Mortgage Interest
Total Expenses
Mitigation Options:
Expense Cuts:
•Professional Development
50K
•Leadership Stipends
25K
•TIAA Contribution
35K
•Marketing
15K
•Salary
@ 210 2x35K =
70K
@ 190 5x35K =
175K
• Close 1 Building: @190
TOTAL:
355K
55K
195 to
Revenue Enhancement:
•Summer Camp
•Fundraising
+15K
Our School: Enrollment Scenarios 2009-2010
Enrollment
190
(Worst Case:
Down 20%)
Grade Sections
210
(Most Likely:
Down 10%)
# Students
Grade Sections
# Students
225
(Best Case: No
Change or +/- 3-5% )
Grade Sections
# Students
PK
1
18
PK
1
18
PK
2
22
K
2
26
K
2
28
K
2
30
1
2
24
1
2
28
1
2
30
2
1
18
2
2
22
2
2
25
3
2
24
3
2
28
3
2
29
4
1
18
4
2
20
4
2
20
5
1
18
5
2
20
5
2
20
6
1
18
6
1
20
6
1
21
7
1
11
7
1
11
7
1
13
8
1
15
8
1
15
8
1
15
190
210
225
Financial Sustainability/Survivability
The End!
(See related slides in Appendix)
Return
Private School: Luxury or Necessity?
Coloradans deal with the recession diet
By Kevin Simpson and Michael Booth, The Denver Post (from January 21, 2009)
(Denver, CO) – “Shrinking family incomes, the market's free-fall and fearsome financial
forecasts have forced consumers to confront the real difference between what they need to live
and what they can live without. Interviews with experts and individual consumers confirmed
findings of an unscientific Denver Post e-mail poll of 69 Coloradans that found 70 percent have
given up some luxury they once regarded as a necessity. They were asked to choose the easiest
to jettison — and the hardest.
Hardest To Give Up:
1. Cable TV/Internet
2. Private School …tied with #3…
3. Vacation
4. Hairdresser
5. Gym Membership
ISM Re-enrollment Survey January 2009
Household Income Distribution
Gross annual
income
Cumulativ Each Group
e
# Respondents
Under $40,000
4.1%
4.1%
551
$40,001 - $75,000
16.6%
12.4%
1653
$75,001 - $125,000 40.2%
23.6%
3136
$125,001 - $175,000 56.3%
16.1%
2145
$175,001 - $225,000 65.9%
9.6%
1272
$225,001 - $275,000 72.1%
6.2%
820
$275,001 - $325,000 76.0%
4.0%
528
$325,001 - $375,000 78.3%
2.3%
303
$375,001 - $425,000 81.0%
2.7%
363
$425,001 or greater 89.6%
8.6%
1144
No Answer
100.0%
10.4%
1376
Totals
100.0%
13291
Families >$100K: 20% send to private schools (vs. 10% overall) (US Census)
http://www.census.gov/population/www/socdemo/school/cps2005.html
Varying by region, 4%-9% indicate “will not or probably not stay”
“Leaner Times at Independents”—Washington Post, 3/2/09
“As Economy Tanks, Schools Seek Survival Tactics” – Jewish Journal, 1/28/09
“Private schools put big price tag on education”-- Tufts Daily, 2/4/09
“Private Schools Feel the Pinch Amid Recession”—Wall Street Journal, 1/26/09
“Economic downturn causes worries for private schools”—New Orleans TimesPicayune, 1/31/09
"Recession Hits Private Schools" – Crain’s New York Business, 2/11/09
“Student Base Shrinking for Local Private Schools” – Santa Maria Times, 2/11/09
http://www.workforce.com/section/11/feature/26/20/01/
NAIS Schools Data on Non-need Merit
Aid: School Year 2008-09
28% of schools now offering merit aid. 5% of all aid recipients.