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Finances

Prioritization Process Update

May 2015

President Michael K. Le Roy, Ph.D.I am pleased to present this online update on our overall debt situation and our prioritization efforts to put the college on a sustainable financial footing by the fall of 2017. There is much good news to report since our financial challenges first emerged, but I temper this good news with a reminder that we are just a little more than halfway through our restructuring efforts and continued self-discipline will be critical to our success over the next 30 months. The prioritization plan recommended by the college’s Planning and Priorities committee in December 2013, after campus-wide hearings to include the contributions of faculty, staff and students, was approved by our Board of Trustees, is integrated into our overall strategic plan and has been our guide since our financial issues first surfaced. We believe we are on track to complete the following restructuring goals by the end of 2017:

  1. Raise $25 million by 2017 to pre-pay principal on the college’s long-term debt.

  2. Sell non-core real estate assets by 2017 and use the proceeds to reduce principal on long-term debt.

  3. Refinance remaining long-term debt in 2017.

  4. Increase revenue through enrollment growth, new program growth and differentiated tuition and fees for some higher-cost programs.

  5. Reduce annual operating expenses $4.5 million by June 30, 2017.

The good news I have to report also comes with a deep sense of gratitude. On April 1, 2015, we made another principal payment on our long-term debt. This payment was in the amount of $13 million with most of the funds coming from the sale of a building the college had owned since 2007, the Weyhill Building at 2025 East Beltline, and from debt-reduction gifts that we have received.

We now have paid down a total of just over $26 million in principal since July 1, 2014, and our overall debt now is just below $90 million. This is truly good news, and I am so thankful to the many, many people who have helped make it happen, including our internal campus community and a variety of external supporters. Our goal is to get our overall debt down to $75-80 million, a number we believe would be a manageable and appropriate level of debt for an institution of Calvin’s size.

Here, in more detail, is where we stand on each of the five goals in our prioritization strategy.

  1. Raise $25 million by 2017 to pre-pay principal on the college’s long-term debt.

    Status: We completed this goal in the spring of 2014.

  2. Sell non-core real estate assets by 2017 and use the proceeds to reduce principal of long-term debt.

    Status: Most of these real estate assets have been sold, and proceeds from these sales have been used to make principal payments on college debt.

  3. Refinance remaining long-term debt in 2017.

    Status: Now that we have completed the sale of major real estate assets our financial services team can turn to the task of preparing for the anticipated refinance window in 2017.

  4. Increase revenue through enrollment growth, new program growth and differentiated tuition and fees for some higher-cost programs.

    Status: Higher-than-expected enrollment in the fall of 2013 enabled the college to earmark more net revenue than expected toward our annual debt service payment, and it put the college ahead of schedule in our efforts to fully include our annual debt payment in operating budget expenses. In addition an academic task force is currently exploring enhanced revenue from other program growth opportunities.
  5. Reduce annual operating expenses $4.5 million by June 30, 2017.

    Status: As of the beginning of the next fiscal year the college will have reduced expenses by more than $2 million since July 1, 2014. Substantial reductions have been made in every division of the college. Since 2012 attrition, reorganization and some involuntary reductions in force have reduced staff by 29 FTE (full-time equivalent) and faculty by 22 FTE. These reductions are difficult, but we will continue to align our resources with our student enrollment levels until we reach a financially sustainable level of operation. Among the next steps is the outsourcing of our campus store, a process undertaken by a representative committee of students, faculty, staff and the campus store manager, who concluded that we would be well served by awarding a contract for this work to Follett. The committee believes that this initiative both will continue the great service students, faculty and staff expect and save the college up to $250,000 annually.

In addition as our deans and the provost revisited the assumptions of the prioritization plan using 2014-2015 data, they concluded that a more active strategy was needed to align resources with needs and strategic goals. Thus, there are two steps they decided to take immediately.

  1. Provost Cheryl Brandsen appointed an academic prioritization task force which will make recommendations to her and the deans, so that they, in turn, can make final recommendations regarding our academic programs in early fall 2015. It is possible that program restructuring or elimination will lead to involuntary separations of faculty from the college. Faculty who are part of reductions identified in the fall of 2015 will complete their service in accordance with college policies.

  2. A voluntary reduction-in-force package (a buyout) has been offered to faculty members in selected departments who voluntarily resign effective the end of this academic year.

These two steps are hard, but necessary, and we will proceed with them as we have at every step along the way thus far: in openness, in transparency, in trust and in faith, taking time to mark the good progress we have attained, sustained by the mission that unites us as a Calvin community and grateful for the prayers and support we receive from so many.

Michael Le Roy

Michael Le Roy

Supporting materials

Presidential Summary
Financial Review Task Force Report and Recommendations

Board of Trustees Letter
Scott Spoelhof, Chair

Related reports

The Financially Sustainable University PDF
by Bain & Company

U.S. Private College and University Medians Underscore Revenue Challenge and Mixed Outlook for Sector PDF
by Moody's Investor Service