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President’s Summary of Learning

Financial Review Task Force Report and Recommendations
February 21, 2013

After arriving at the college in July of 2012, and in preparation for leading the College through strategic planning, President Michael Le Roy started a due diligence process of understanding the college’s financial situation. This process produced more questions than answers as it became apparent the college would be facing financial challenges.

Recognizing that the sound financial administration and governance of Calvin College is critical to our ability to live up to our principles and to fulfill our mission, President Le Roy commissioned an independent task force in October of 2012 to review these performance areas. This task force included:

  • Ms. Mary Tuuk, task force chair, a Calvin graduate who is President of Fifth Third Bank - Western Michigan and Executive Vice President of Fifth Third Bancorp. Mary formerly served as Chief Risk Officer of Fifth Third Bancorp

  • Dr. Brian Benzel, Vice President for Administration and Finance at Whitworth University in Spokane, Washington

  • Mr. William Boer, a Calvin graduate who is president and founder of Grey Dunes in Grand Rapids.  Bill  served as Calvin’s Vice President for Administration and Finance from 1987 to 1993

  • Mr. Milton Kuyers, a Calvin alumnus, CPA  and Milwaukee businessman who served as Calvin’s Chairman of the Board of Trustees from 1999 to 2005

It has taken several months of analysis and study to gain a full and accurate understanding of all that contributed to the financial challenge Calvin College faces today.

The situation—as detailed below in this summary of the task force report and recommendations—is complex and challenging to communicate with clarity. But it is critical that we do so in order to uphold the integrity of our institution and to provide our faithful communities a clear understanding of the situation. We have conferred with the task force in developing this summary and it has been an open and collaborative process.

It is apparent from the report that a number of causes could be cited for the financial challenges affecting Calvin. That said this review and report identifies areas in which we can improve to help ensure better oversight and improved performance. As educators, we recognize that learning from experience can be the most effective teacher. We would be remiss if we did not seek a full understanding of our shortcomings and work for institutional renewal in a spirit of truth and grace.

The Task Force

With expertise in finance, risk management and governance, the task force members, including several Calvin alumni, accepted the President’s request to conduct a comprehensive due diligence process. Specific focus areas included the division of finance and administration, governance processes with the board of trustees and committees of the board of trustees, the internal control environment, financial reporting, and the culture of transparency, reporting and information sharing related to financial decision-making and processes.

After receiving and assessing the task force report in early December of 2012, the president shared the information with the cabinet and the board of trustees. The administration and relevant board committees initiated its reform agenda in response to this situation and met in February to discuss the report results. (Response to the report from Scott Spoelhof, chair of the board of trustees)

Summary of Learning from the Task Force Report

Since 1997 the college’s construction strategy for physical plant projects, particularly major new construction, has been to immediately borrow to build, while investing project gifts in investments in the hope that this would raise additional revenue. During the period from 1997 to 2012 the college incurred long-term debt of $115 million and short-term debt of $7 million (which has been paid in full as of February 1, 2013).1 Debt of $115 million for a college with $442 million in assets is within an appropriate range for colleges of our size and type; though we are near the high end of where our debt threshold range should be. The problem is that we have not built the debt service payment into the budget. Most schools with Calvin College’s financial profile and good credit carry debt service payments of between 5% and 7.3% of their operating budgets. Calvin College’s debt service payments are at about 6.1% now and will grow to 9.2% by 2017 if our revenue holds constant. The problem is that we have not built more than .9% of the debt service payment into our operating budget.

The original plan expected to use gifts and investment returns to avoid drawing funds from the operating budget, but this plan did not work as expected. The task force estimates a total gap between sources and uses of cash in the Plant Fund, which was originally intended to pay the debt, to be $69.4 million. The major components of this total include:

  • Costs of construction projects exceeding fund raising (noted above): $30.8 million

  • Real estate purchased with Plant Fund assets and redirected to college use for which no funds were raised: $5.0 million

  • Negative accumulated cash flow from Glen Oaks and Weyhill real estate properties which were purchased with Plant Fund assets: $1.3 million

  • The variance between interest paid on debt and portfolio earnings derived from Plant Fund investments: $32.3 million (Interest paid of $49.3 million less portfolio earnings of $17.0 million). The Task Force notes that this “arbitrage strategy” was not effective except for the year 2007.

Cost overruns and project additions, partially covered by transfers totaling $11 million from Current Fund accounts beginning in 2000 resulted in the net overspend of $30.8 million for capital projects. In addition, a strategy was deployed of borrowing the estimated full amount of a project and then using those funds plus received pledges and gifts to cover the project and its additions. This activity contributed to the net “gap” of $30.8 million plus interest for the years that the overruns occurred. The task force found that this process allowed the administration to use fund-raising receipts to cover unfunded projects and overruns and obscured the problem. The ensuing shortfalls significantly reduced the investments that were planned to pay the debt service that was due.

The task force’s analysis of the Plant Fund debt and investments demonstrates that the liquidity situation is more urgent than originally thought. Liquid investments to pay debt service will be sufficient through the 2014-15 fiscal year assuming no sale of the real estate assets held in the Plant Fund investment portfolio. Because it was believed that the debt service payments could be carried by the investments, the vast majority of the college’s debt service payments were not built into the annual operating budget. With the preparation of the 2013-14 budget, the college is beginning a new practice where debt service and amortization payments are fully visible in our annual operating budget.


The task force provided numerous recommendations organized under the heading of seven goals, each with numerous detailed objectives. These are:

  • Strengthen Calvin’s Financial Position

    The task force proposed numerous strategies to improve reporting, investment advice, a review of core assets, debt structures and operational finances. The task force strongly recommended that Calvin adopt the practice of individually displaying all fund groups in every aspect of its financial management from department reporting to Board of Trustee level reporting. In addition, we clearly recognize that we must also live within our means. As there are multiple causes for our financial challenges, there will be multiple solutions to solve the challenges. The college is currently prioritizing programs and services to help reduce expenses, enhance revenues, restructure debt, liquidate non-core assets, improve cost and value of vendor services, and preserve academic and service quality.  The prioritization and strategic planning processes will be completed in the fall of 2013, but the college will take immediate action on good ideas to improve our financial position.
  • Adopt ERM (Enterprise Risk Management)

    The task force recommended that the college employ an Enterprise Risk Management discipline for its business operations that is applicable for higher education institutions such as ours. As part of that implementation, the college should adopt a top-ten risk report and form an Enterprise Risk Management Committee.
  • Strengthen Governance Structure

    The task force recommended that the college make significant changes to strengthen its governance structure, focusing on board committee structure, composition, content, and meeting protocols. Further, the task force recommended that the audit function be modified within the board’s governance affairs.
  • Culture

    The task force recommended that the college continue its present culture of openness and transparency.  A number of other culture improvement opportunities were also specifically highlighted by the task force related to ownership and accountability, mechanisms to act on “early warning signs,” leadership, trust and verification, best practices, employee recognition, employee development and effectiveness of internal operations.
  • Skill Sets

    The task force made recommendations to enhance the collective skill sets of the board and also made recommendations to improve financial services structure and skill sets.
  • Financial Services Organization

    The task force outlined steps to strengthen the financial services office effectiveness, both short-term and long-term.
  • Information Technology

    The task force outlined several observations related to systems architecture, governance and future needs.


The activities and action steps the college and board of trustees have already undertaken in response to the Task Force report are numerous and comprehensive. These include, but are not limited to, the following:

  • Structural and personnel changes in the administration and finance division

  • The development of a plan to address the $69.4 million Plant Fund gap, and improve the current Plant Fund liquidity

  • The review of vendor and consultancy services to add value, reduce costs and improve planning effectiveness

  • Commissioning a prioritization and strategic planning process—the prioritization component of this process directly addresses the current financial challenge. Every program and service of the college is being evaluated and prioritized according to the college’s mission.

  • The college has started a search for a new vice president and chief financial officer.

  • A new investment charter has been created including a requirement that the Investment committee chair must be a board member appointed by the executive committee of the board. Also a majority of the investment committee’s voting members must be members of the board and not less than one committee member must also be a member of the administration and finance (A&F) committee.

  • The investment policy is under review and being revised.

  • The A&F committee is now meeting almost monthly.

  • Meetings are underway with key stakeholders to establish confidence in current and future financial strategies and processes, and to identify opportunities for additional fundraising for previously unfunded projects.

  • Implementing top-ten risk report

  • Beginning the process of culture change in the College by means of the Best Christian Workplaces Survey to establish a baseline and generate key objectives to empower employees.

These initiatives represent the first steps down the path toward institutional renewal. We work from a firm foundation. Calvin College’s Reformed Christian mission is clear and compelling, our academic reputation is strong, enrollment is increasing and our ratio of assets to liabilities is positive. Working together in our mutual desire to preserve academic excellence and to serve our students well, we can meet these challenges with a united and joyful spirit.

1 The college also entered into a series of swap agreements to hedge against interest rate volatility on the college’s variable rate bonds.  The swaps are valued at $30 million in the college’s 2012 consolidated financial statements and will only be due if rates remain low and the college seeks to pay principal early.