Presentation Notes Is Financial Sustainability a Pipe Dream? Lessons Learned from an E.E. Ford-Funded Study presented by David S. Lourie, Head of School St. Anne’s-Belfjeld School VAIS Business Offjcers Institute April 10, 2015 There’s no silver bullet, only silver buckshot. From the Darden School Case Study Schools we interviewed were less worried about the quality of the product they ofgered; their concern was having the fjnancial backing to sustain the educational experience they ofgered. “Most of our governance is not about the academic programs and their soundness,” one board member remarked, “but fjnancial management.” All of the school leaders we interviewed expressed concern about the sustainability of their schools’ fjnancial models. They believed the 2008 recession represented a turning point for the independent school industry - it seriously afgected the fjnancial condition of many independent schools and some had not yet fully recovered from it. “From the moment I stepped into the classroom until 2008, it had been the Golden Age of independent schools in the United States,” one school leader said, “And then it all changed.” They also believed that the prevailing economic model of independent schools had really depended on a booming economy; changing economic conditions meant independent schools would have to change with the times. Purpose E.E. Ford Grant Proposal: “What school has fundamentally changed its fjnancial model to ensure long-term fjscal strength so that our schools are healthy and delivering on their mission for the next 50 years? Many have made changes at the margins, cutting a program or stafg, but none have actually changed the model. Furthermore, many of the schools that have made marginal change have done so in response to the recent crisis, not from a position of strength.” Sweet Briar: A Case Study The Dangers of Tuition Discounting How Sweet Briar’s Board Decided to Close the College So, the suggestion that the problem at a school like Sweet Briar is one of “pricing strategy” only holds up if the school is ofgering most of its tuition discounts on the basis of “merit” - or, theoretically, to win students otherwise fully capable of paying higher tuition away from other schools. However, to the degree that No part of this publication may be reproduced or transmitted in any form or by any means – electronic, mechanical, photocopying, recording, or otherwise – without the permission of St. Anne’s-Belfjeld School.
• • • • • • • • • • this is the case, then the real underlying problem is the quality of the product the school is ofgering (and possibly trading area demographics if you are a regional school). If you can’t win students to your product on a tuition-neutral basis, then ofgering fewer discounts certainly won’t increase net tuition revenue either. The march down the tuition discount curve, in this case, just refmects the reality of the school’s price/value infmection point. Where the discounting is provided on the basis of economic need, the pricing strategy argument is obviously moot. The assertion in the article that the college should have considered ofgering lower nameplate tuition and lower discounts belies the notion that these two levers are ofg-setting, unless one believes that the school doesn’t know the value of its product in the marketplace and is simply underpricing it for a given capacity level. And given that the negotiation around each student represents an independent market test, and the fact that Sweet Briar was not fjlling all its capacity notwithstanding its discounting, I doubt that this is the case. I think this is another article that wants to whistle past the graveyard on the real question – has the cost structure of many schools simply grown to exceed the value proposition they ofger? E.E. Ford Workshop Participants Collegiate School, Richmond, VA Savannah Country Day School, Savannah, GA Hawken School, Gates Mills, OH St. Anne’s-Belfjeld School, Charlottesville, VA Lovett School, Atlanta, GA St. Catherine’s School, Richmond, VA Norfolk Academy, Norfolk, VA St. Stephen’s & St. Agnes School, North Cross School, Roanoke, VA Alexandria, VA Essential Questions Is our school on a sustainable fjnancial path? What are the greatest threats to our fjnancial sustainability? What structures exist in our school that make systemic fjnancial change diffjcult? What diffjcult decisions must be made to ensure our school is thriving in 10 years? 20 years? What can we learn from peer schools? Is there a tuition “price point?” ~or~ When does the value proposition run out? How high can fjnancial aid go? ~or~ Is there a limit to how much can we discount tuition? What is the sustainable role of philanthropy? Are we prepared to weather another recession? When is the next recession coming? No part of this publication may be reproduced or transmitted in any form or by any means – electronic, mechanical, photocopying, recording, or otherwise – without the permission of St. Anne’s-Belfjeld School.
• • • • • • • • • • • • • • • • • • • Enrollment & Attrition Maintain enrollment (at most, modest, incremental growth) Continued (hyper)focus on maintaining small class sizes and student:teacher ratios Tuition increases in the low- to middle-single digits Reducing attrition is essential Various reasons for attrition: moving, public schools, fjnancial concerns are most prominent Financial Aid Financial aid applications and awards have increased Net tuition growth vs. gross tuition growth Average tuition paid per student: 85% Compensation Mean and median faculty salaries have increased* Percentage of overall operating budget dedicated to salaries and benefjts: ~75% Barbell efgect of faculty tenure emerging Millennial generation => compensation philosophy and expectations Debt & Endowment All participating schools are carrying long-term debt Endowments are growing Average cost of debt: 3.5% Non-Tuition Revenue Decrease in and less dependence on unrestricted annual giving (<5% of operating) Changing expectations of key donors, i.e. “venture philanthropists” Auxiliary income is < 7% of operating Endowment income is < 5% of operating No part of this publication may be reproduced or transmitted in any form or by any means – electronic, mechanical, photocopying, recording, or otherwise – without the permission of St. Anne’s-Belfjeld School.
• • Marketing All participating schools compete, at least in part, on the basis of “brand.” What distinguished your school from your competitor schools? Character development 7 Academic ofgerings 5 Large size 5 Student/teacher relationships 5 Arts program 4 Athletics 4 Higher tuition 3 National merit candidates 3 Community service 2 Extracurricular activities 2 Chapel 1 College counseling program 1 Other 1 What are your school’s “untouchables,” i.e. those items that your school is unwilling to change? Class size 1 Student/teacher ratio 2 Enrollment 3 % of students receiving fjnancial aid 2 Under-enrolled courses 1 Athletic ofgerings 3 Arts ofgerings 3 Employee medical benefjts 0 Employee non-medical benefjts 0 None 3 No part of this publication may be reproduced or transmitted in any form or by any means – electronic, mechanical, photocopying, recording, or otherwise – without the permission of St. Anne’s-Belfjeld School.
• • • • • • • • • • • What are the most signifjcant threats to your school’s fjnancial sustainability? Demographics 4 Rising tuition 7 % of students receiving fjnancial aid 1 Competitive salaries & benefjts 2 Ability to attract, hire, retain faculty 1 Deferred maintenance 2 Public school competition 4 Private school competition 1 Students leaving for boarding schools 0 High attrition 0 None 0 Other 0 Summit Takeaways Maintain enrollment, not grow Resistance to growing class size Tuition increases continue to outpace CPI Net tuition increasing Faculty well-compensated Barbell efgect with faculty tenure (new generation of teachers) Long-term debt service Inconclusive fjndings re: giving Inconsistent value-added distinguishing features Non-negotiables vary . . . except faculty Non-tuition revenue is modest The Big Debate Do we raise tuition to ensure that our wealthiest families are paying what they can afgord (i.e. charge what it really costs) and increase fjnancial aid? ~or~ Do we address afgordability with more modest tuition increases in the hope of attracting more full-pay families? No part of this publication may be reproduced or transmitted in any form or by any means – electronic, mechanical, photocopying, recording, or otherwise – without the permission of St. Anne’s-Belfjeld School.
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