Calvin College faces budget shortfall by 2017
Administrators respond with academic prioritization.
Calvin College has a money problem on its hands.
Like many higher education platforms these days, the private Christian school’s budget has eroded slightly due to faltering investments, and could be facing a budget shortfall by 2017.
“There are people at Calvin College who’ve been concerned about this for a long time, especially since the economic downturn,” said newly elected Calvin President Michael Le Roy. “Our investments were fairly heavy on alternative investments and hedge funds. That meant with the collapse of the stock market in 2008, by definition, we were going to be hit harder than others.”
Calvin’s investments with the Fuller Foundation and the Common Fund were hit hardest. Calvin had losses that were in excess of the market loss for the same period, Le Roy said. The returns even since the economic rebound have not met market averages, he said.
Calvin’s investment committee signaled shifting strategies in 2010, Le Roy said, and finally appointed Goldman Sachs last week as its new fiduciary investment partner.
“We are going to need to repurpose about 10 percent of our operating budget toward debt service and other needs,” Le Roy said. “Over the next five years, you’re talking about a 2 percent repurpose each year, roughly, to close the gap by 2017.”
The current plan is to start an academic prioritization process in January. After a campus-wide, internally submitted assessment of programs and funding, the planning and priorities committee will submit its resolutions by December 2013, Le Roy said.
Calvin also will undergo strategic planning, wrapping up its entire process of college evaluation by spring 2014, Le Roy said. Budget repurposing will begin then.
Last week Monday, Calvin officials held an all-faculty meeting to discuss the situation. Le Roy said there was a general feeling of frustration and disappointment, though none of it was directed at him, personally.
The main question on everyone’s mind: “Why didn’t we know about this two years ago?”
“For a variety of reasons, the whole picture wasn’t clear then,” Le Roy said. “Some people were hoping investment returns were going to bounce back. Our financial statements didn’t have the financial clarity and transparency that they needed to have — and that they will have going forward — about the interplay between investments, income and debt.”
Nothing was fraudulently handled, Le Roy said, but the consolidated financial statements distorted the reality of the budget. The new system will separate investments and returns from the operating revenues and expenses.
“Going forward,” he said, “we’re going to have much more transparent operating statements, so we can have a clear understanding of our position (on) financial investments.”
In addition to investments, Le Roy also attributed the financial challenges facing Michigan colleges and universities to increasing health care costs, competitive student recruitment and the reduction in the number of college-age students in the Midwest.
“If you’re going to be a college president these days, the golden era of endless tuition increases and lots of resources in higher ed is over,” he said. “It’s not fun, but having real good information and real good people and being able to make decisions is crucial. We have that at Calvin.”