Trustees Anticipate Endowment Losses

Phillips Academy’s Board of Trustees convened at their annual winter meeting last weekend primarily to discuss the school’s budget plans for the next fiscal year. Financial Aid The Board of Trustees adjusted the financial aid budget for the upcoming year. A large part of the budget will be used to uphold the newly instituted Need-Blind Financial Aid Initiative, ratified in November 2007. The Board plans to support need-blind admission so long as the economy does not decline any further. “If we stay where we are and things start to get better, we expect to maintain the need-blind policy. If they deteriorate further, we may have to reevaluate,” said Steve Carter, Chief Operating and Financial Officer. But Carter added, “Andover still has the ability to take the most qualified students that apply.” Endowment Andover’s endowment is down by 22 percent as of December 31, 2008, according to Amy Falls ’82, Chief Investment Officer. Falls presented the state of the endowment to the Board of Trustees last weekend. A central focus of the meeting was to plan ahead in anticipation for future economic hardships. Carter estimated that the 22 percent decrease in the endowment is equivalent to about $150 million. The school’s last official evaluation in June 2008 placed the endowment at roughly $780 million. According to Oscar Tang ’56, President of the Board of Trustees, 40 percent of the school’s revenues come from the endowment. “The endowment is a critical asset for the school and it supports a substantial component of the budget,” said Falls. Andover’s endowment runs on a trailing three-year average, which means that the percent of the endowment used by the Trustees for the fiscal budget has not yet been factored into the endowment’s percent loss. “The amount we take from the endowment is not immediately changed by a drop, but at some point in the future there will be a 22 percent decline and the amount that we get from the endowment will be significantly lower,” said Tang. “We’re trying to adjust our spending patterns before the whole effect of this 22 percent decrease hits us,” said Carter.Budget Cuts The Board of Trustees decided to cut the campus renovations budget by two-thirds, reducing the $9 million previously allocated for reconstruction projects to $3.1 million. The Board of Trustees made this decision “so that the endowment stays as large as possible,” said Carter. The Trustees also decided to reduce the physical renewal budget, since Andover has already undertaken two major renovation projects—Paresky Commons and the Addison Gallery of American Art. The cost of the Commons and Addison renovations have totaled $52 million, funded in part by the endowment, said Carter. “We’ve done a lot of work over the past 14 years. We decided that we could take a break,” said Carter. These budget cuts give the Board of Trustees “the opportunity to plan more closely, and time to make more permanent adjustments for future years,” said Tang. Other budget cuts made anticipation of the endowment’s 22 percent drop included a $500,000 reduction in the Technology Department and a $300,000 reduction in the school’s goods and services, including food services and construction materials. In December, Phillips Academy issued bonds worth $40 million to keep Andover in a comfortable cash position. Falls stressed the importance of cash in the endowment because it allows for more flexibility and freedom to experiment with other investments. “We entered this [economic] downturn with a very substantial amount of cash in the endowment,” said Falls. Despite the drop in the endowment, Falls said that the endowment is well diversified between different markets, including oil, real estate, hedge funds and bonds. Composition of the ?Student Body Jane Fried, Dean of Admission, also presented the Board of Trustees with the analysis of the Composition of the Student Body Report, a year and a half-long research initiative by a committee with administrators, students, faculty and staff. “The purpose of the report was to analyze the makeup of the student body and to see that it is what we want it to be, in terms of diversity, range of interests and socio-economic interests,” said Tang. Fried said that the Admissions Office has been trying to broaden the range of students at Andover by gradually increasing the diversity of students’ regional backgrounds.Other Business The Board of Trustees also finalized student tuition for the 2009-10 academic year, as well as faculty and staff compensation. The increase in tuition marks the lowest increase in 15 years, “in recognition that all families have been affected in one way or another by the current economic situation,” said Carter. Faculty and staff compensation was not changed, since “there is enough money in the compensation budget to keep it constant, without jeopardizing any other funds,” said Carter. The Board of Trustees decided to set an additional meeting date on March 16, outside of their three annual meetings, in order to further adjust the budget based on changes in the economy. “We’re having an extraordinary board meeting on March 16, and by then, the administration will have been working on some of the long term adjustments made at this meeting,” said Tang. The Board of Trustees also attended a celebratory dinner reception, where they recognized eight teachers who were presented with accolades.