Trustees to Discuss Next Year’s Operating Budget and $6M Spending Gap Phillips Academy’s Board of Trustees will assemble this weekend to finalize next year’s budget. Next year’s operating budget will be the main focus of the Trustees’ meetings, which will span from Friday morning to Saturday afternoon. The Board of Trustees will continue to confer with senior administrators this weekend about budget cuts. For the 2009 fiscal year, which began last October and will end this September, Andover had a budget of approximately $88 million. Problems arose, however, when the school over-projected the budget for the 2009 fiscal year. “We had a projected budget based on the assumption of endowment growth, when in fact the endowment fell,” said Nancy Jeton, Special Assistant to the Head of School. After this year’s budget had been projected, the endowment dropped by 20 percent. “This created a spending gap of eight percent, which equals six million dollars,” said Jeton. “The Board of Trustees and senior administrators determined that we need to reduce the operating budget by six million dollars…by the end of fiscal year 2011,” wrote Head of School Barbara Chase in a recent letter to students, faculty, staff, parents and alumni. The Trustees will receive an update on the status of the endowment from Amy Falls, Chief Investment Officer, on Thursday morning. Falls oversees all of the school’s investments. “The Trustees are going to consider how much of the income from the endowment they want to draw, and how much they are going to reinvest,” Jeton said. Money drawn from the endowment accounts for 40 percent of the school’s operating budget. In the 2009 fiscal year, 4.2 percent of the endowment was drawn to cover budget expenses. The Board will consider whether to withdraw more money from Andover’s endowment or to cut expenses in order to decrease the operating budget. Another 40 percent of Andover’s budget comes from tuition. This year, tuition increased by two perecent, a rise from $39,100 this past year to $39,900 for this upcoming year. The Trustees can also reduce Andover’s operating budget by cutting expenses. In her email, Chase wrote that the school has already slowed the pace of renewal and capital improvement projects, such as building renovations. Andover has invested eight to nine million dollars, about 10 percent of the budget, on facilities renewal per year over the past 10 to 12 years, according to Jeton. In the fiscal year 2009, Andover spent $9.2 million on facilities renewal. “For what we hope is a very short period of time, facilities renewal will be reduced,” said Jeton. “We have spent aggressively in the past years, so we feel we can afford to take the foot off the accelerator temporarily.” “We’re working with [the Trustees] to make operations as efficient as possible,” Jeton continued. Chase wrote that the budget changes were designed to streamline “our operational and business costs, with a goal of running the school more efficiently.” The Trustees will, for the first time, meet with Andover’s Campaign Steering Committee, a newly formed group for Andover’s ongoing capital campaign. The committee is comprised of 12 parents and alumni and six Trustees. The Campaign Steering Committee will discuss the current state of the capital campaign with the Trustees on Friday morning. According to Jeton, the capital campaign is still in its silent phase. To date, Andover has raised $172 million, slightly over half of the amount that the committee hopes to raise. Although the campaign’s funds are separate from the operating budget, they too have been impacted by the economic downturn and will be addressed this weekend. The renovations of Paresky Commons and the Addison Gallery are both projects that are not connected to the operating budget. They are funded by the capital campaign and overseen by the Campaign Steering Committee. According to Secretary of the Academy Peter Ramsey, Andover has raised about half of the money required to repay the loan that funded the construction of Paresky Commons. Meanwhile, the fundraising for the construction portion of the Addison renovation is within a million dollars of completion. The school is continuing to work with potential donors to raise the remaining money. In addition to the finalization of next year’s budget, the Trustees will be voting on new members of the board. The Alumni Council will also meet with the Board of Trustees this weekend. Academic Departments Tighten Budgets, OPP Freezes Hiring The spending gap in the operating budget for the upcoming fiscal year has forced PA departments to find ways to reduce spending. Andover had planned its budget, assuming that the endowment would grow. But the endowment dropped by 20 percent, creating a six percent shortfall in the school’s operating budget. Several academic departments have restricted their budgets in response. Instead of eliminating courses or releasing faculty members, many departments are looking to other options. Peter Merrill, Head of World Languages, has offered stipends to teachers who are willing to take on an extra section, instead of hiring new faculty. Merrill said that although Temba Maqubela, Dean of Faculty, has “given [me] the okay to request hires…there is a push to consolidate sections.” Merrill gave an example of when an opening in the Spanish department left multiple sections without a teacher. But after a rearrangement of sections, only one class was left without a teacher. This allowed Merrill to ask a current faculty member to take on the extra course in exchange for an additional stipend. “[This technique] has worked in the past,” said Merrill. He added that, because hiring new teachers requires additional salaries and benefits, it is much more efficient to give extra sections to teachers who are already in the department. “When there’s a bigger budget, you can just hire what you need to make sure sections are at their optimal size,” said Merrill. Maqubela said, “Rest assured that there will be no erosion of the quality of the Andover academic experience.” The Office of the Physical Plant (OPP) has issued a hiring freeze and is taking various other methods to cut back on costs. According to Michael Williams, Director of Facilities, the OPP budget for physical renewal was cut by six million dollars last fall and current vacancies within the department are not being filled. “As of last fall, we cut the [OPP Physical Renewal budget] from nine million dollars to three million dollars,” he said. Williams said that cutting this budget was “one of the few things we could do very quickly in response to the economic downturn.” In the short term, the budget cut will cause OPP to cut any unnecessary renewals. “We will have to defer some of the work to the more distant future,” said Williams. This means that there will be no renovations of dorms, and Andover will not take on any new capital projects. Nancy Jeton, Special Assistant to the Head of School, said that discussions on these projects will occur during this weekend’s trustees meetings. OPP reduced their project management staff after the initial announcement of budget cuts last fall. Looking forward, Williams said that he anticipates a “hiring freeze except in exceptional cases.” There are currently four vacancies in the Office of the Physical Plant that will not be filled. The reduced budget has also impacted staff salary. OPP staff members will receive the same salary that they received last year, whereas the salary system usually functions on an increasing scale based on the number of years a staff member has worked at Phillips Academy and the state of the economy. Members of OPP are also working to reduce overtime costs. “Borrowing money from the construction fund is a great way to buy time,” said Williams. But he added, “failing to [continue the regular renewals] will begin to diminish the academy.” Williams predicts that these budget cut backs can only be sustained for a “finite period of time, at most a few years.” According to Williams, it will soon become necessary for PA to begin reinvesting in the plant. Williams predicted that once a new, long term solution has been found, the trustees working with the budget will need to find six million dollars from the endowment in order to streamline operations for OPP. Academic departments have also been trying to become more efficient in spending. Suzanne Buckwalter, Chair of the Math Department, said her department is looking “for ways to be more frugal with our department dollars.” “We are able to offset the decrease in funding by delaying some equipment renewals for a couple years until the school is in a better financial position,” said Kevin Cardozo, Chair of the Chemistry Department. Merrill said that the way the department decides on new hires has become more conservative. Currently, Merrill has staffed enough faculty to cover the sections that the World Language Department had last fall, with the assumption that they may have fuller sections. “We are looking to solutions that allow us to hire pieces of certain workloads,” said Merrill.