College fundraises $25M to cut debt
A college in dire financial straits just a few years ago now sees a light at the end of the tunnel.
Calvin College, a Christian liberal arts school in Grand Rapids, said today it has raised $25 million in donor pledges in eight months, which will go toward reducing the college’s long-term debt of roughly $116 million.
The original goal of raising $25 million was approved by the college’s board of trustees in October 2013 with a deadline of 2017.
Michael Le Roy, Calvin’s president, said donor response to the urgent request is “humbling,” and he attributes the success to having a great team in place and striving to be transparent with the supporting community.
“All of our donors and friends by this time knew about the circumstance, knew about the situation," Le Roy said. "We really tried hard to communicate to them. We made the case that we were already working to address this problem. . . . People were really responsive to that. Keeping our donors and friends apprised of our situation really helped.”
Calvin said it has received $34 million in total pledges for the 2013-2014 fiscal year, and the annual fund is anticipated to have another record-setting year for gifts and pledges. The total pledge amount includes the debt campaign, in addition to donor support outside of reducing the long-term debt.
Although the original fundraising goal seemed high at first, Le Roy said the college will not increase the financial pledge target for 2017.
“We were really pleased to get to this,” Le Roy said. “We aren’t anticipating moving the goal post. We feel it would be disingenuous to our donors.”
The effort to raise funds to bring down the long-term debt at Calvin is part of the institution’s five-part plan for establishing a strong financial footing outlined in the strategic plan “Calvin 2019: Strengthen, Support, Secure,” which was approved by the board of trustees in late January.
Calvin said it has a current operating deficit of $4.5 million and a forecasted operating deficit of $7.7 million by 2017. The $25 million in donor pledges will help reduce annual debt service payment, as well as long-term debt.
Although the $25 million is mostly in pledges, the college has already received between $8 million and $9 million in the door at this point, Le Roy said.
“It’s phenomenal to me," Le Roy said. "I knew that this was a great community when I came here and that people were very supportive. It does seem like people’s hearts are centered on our Christian mission and really believe what we are really about. And this is the best evidence we could provide. It is quite an experience — I have never had anything like it.”
He said the strategic plan anticipates Calvin will reduce its debt from roughly $116 million to $70 million by 2017, which will bring down the annual debt-service-payment-to-operating-budget ratio to an acceptable range between 5 percent and 7 percent.
“It is based on comparable colleges and what the credit agencies like Moody’s recommend,” said Le Roy in reference to the ratio.
The median outstanding debt for private colleges and universities in 2011 was approximately $1.4 million, based on a sample size of more than 250 academic institutions, according to a Moody’s outlook report in 2012. The debt-service-to-operations median for universities was 5.3 percent in 2011.
Rest of the plan
Other financial strategies the college has set in place include closing current and forecasted operating deficits, reducing the accrued long-term debt by selling non-core real estate assets, increasing revenue through enrollment growth and reducing annual operating expenses $4.5 million by June 2017.
Le Roy said the Glen Oaks East housing rental property was put out for competitive bid and was sold for $8 million recently, and the net proceeds of $7.5 million from the sale will go toward the college’s debt.
“We are making good progress on each of these strategies,” Le Roy said. “What we have heard throughout this process is that our various stakeholders are pleased to see Calvin taking the necessary steps to make sure the college is financially stable for years to come.”