Financial Situation

Hampshire suffers from its relatively small endowment, due to its youth as an educational institution. Its history is fraught with worrisome financial situations, ever since it came into existence. Although the large majority of its operating budget on a given year comes straight out of student tuition, it still works to ensure that students receive enough financial aid. To learn more about paying for Hampshire, see the Finance page of the Guerilla Guide.


 * This page still needs: information on endowment size, investment policy and surrounding controversies, projects other than ongoing costs that are being funded (such as the new photo building, the housing project, and so on).

Financial Information
You can find out the salaries of the top administration (including Ralph Hexter, Mark Spiro and Steve Weisler), as well as impressively detailed financial information, by going to www.guidestar.org, searching "Hampshire College," and clicking on "IRS 990." Registration is required, but free.

Updates on Financial Situation
Date: August 17, 2009

To: Hampshire College Community

From: President Ralph Hexter

Subject: Update on budget

I write to update you on the budget for this academic year. The news is not as positive as I might have hoped even a few weeks ago. My communication today is intended as an unvarnished description of the situation and how it will affect us, of the steps we have taken to address it, and those that we will together have to work out and implement as we proceed to strengthen our remarkable institution in challenging times. The upside is that while our challenges are sharp we are already moving to meet them head on. The response will involve us all. As an institution we are youthful, resourceful if not highly resourced, astonishingly resilient, and innovative. We must call on all the "change DNA" we can muster as we move forward.

Let me describe to you the current situation. As you know, last spring VPFA and Treasurer Mark Spiro offered several presentations to campus audiences in which he discussed the great uncertainty we faced as we tried to plan the 2010-11 budget. As a young school that relies for its income much less on endowment than the other private liberal arts schools among the Five Colleges and other long-established colleges across the land, our operating budget was but slightly affected by the fall in the equities markets. We are, however, much more deeply and directly dependent on income derived from tuition, room, and board, and specifically what remains of that revenue after we fund financial aid. Given the unpredictability of our net revenue, VPFA Spiro developed and presented a series of retrenchment scenarios to model the kinds of responses we could make once we knew how severely the recession would affect our enrollment. How many students would be here? How much total financial aid would we be providing?

In the face of such unprecedented uncertainty, we adopted an approach that would keep options open until September, when we would definitively know how much we would net from our financial aid offers. In the meantime all we had were projections, and although we trimmed and slimmed in many areas to address imbalances in long-term budgeting, we did not want to take more severe measures that, come September, might prove to have been unnecessary. Although the pattern and pace of applications and later acceptances gave us some nerve-wracking moments in May and again in early July, it looked entirely plausible that we might be able to preserve the modest increases in staff and faculty salary pools we so wanted to give even as other colleges and universities had ruled them out or were in many cases mandating furloughs, layoffs, or both.

However, by late July ever more refined accounting of yield patterns among new students who had paid their deposits combined with the total financial aid required for a historically large set of continuing students, whose aid packages are only finalized in June, produced considerably more sobering net revenue projections. In sum, the total financial aid budget grew well beyond what we had anticipated, indeed well beyond that projected by the professional consultant that Admissions and Financial Aid had relied on for many years. This is an indication of how confusing and unprecedented the current market is. To be precise, our current estimate of financial aid expense in 2009-10 is about $24.8 million, which amounts to $3.1 million over our original projections of last winter or about $2.2 million more than our spring projections. As this suggests, we had been revising the projected amount upward over the course of the year, all the time working to find savings to fund the projected increases in need. It was in this context that we took the 7% cut to non-personnel general operating budgets that was anticipated in most of the retrenchment scenarios. This was one of the first steps in responding to the demands of the budget and beginning to close the gap in the operating budget for 2009-10. What we need to do now is prepare a budget that can balance.

Elements of uncertainty remain, not least because we will not know final revenue figures until the census date in October, although by mid-September we should have a highly reliable figure for net revenue and thus a clearer picture of the amount that must be wrung out of the budget. VPFA Spiro is currently working to address a projected deficit of $1.7M, a number that you should understand is something like a "snapshot" and will be revised as enrollment and figures change. Still, it gives us a framework as we begin to craft a solution and confront some very difficult decisions. Do we reduce the deficit by not setting aside an operating reserve on the scale we had planned? It may appear that this year we cannot afford this best practice, yet not having such a reserve might prove even more costly - the perennial problem of "insurance." Another crucial area in which we must balance short- and long-term demands is deferred maintenance. As you know, our plan is to increase annual spending for maintenance to the point that the maintenance inventory stops growing and we can begin to gain on the accumulated deferred maintenance deficit, which the history of the college has left our generation to resolve. Do we halt progress in this area, progress that we have just begun to make and when we are still far short of our goal? It is not possible to over-emphasize that for the long-term health of the institution we must exercise discipline in this regard. If we eliminate the increase this year, we must work even harder to catch up next year. It is a hard choice.

Yet even if we reduce the deficit through these and other means, we would still anticipate a shortfall of about $1M. (Again, please note that this is but a current best estimate and subject to revision.) To close this gap, we must reduce our overall compensation budget. This will be necessary to balance annual operating budgets until we have effected realignments that will let us solve the long-standing structural issue of campus maintenance and address what appears to be a national trend in rising demand for financial aid.

Clearly, and despite the fact that we all want to see salaries rise, it will not be possible for me to recommend salary increases to the Board of Trustees. But that alone will not be sufficient. I see no responsible way of closing the remaining budget gap and addressing the structural needs that we have inherited without a reduction in positions. As difficult as it is, senior administrators will again be evaluating structures and positions of every kind across the college. In some instances we will be able to achieve structural realignment through attrition; in other cases that may not be sufficient. As we develop and consult on the possible responses and move from planning to implementation, I will ask that we keep the total experience of our students uppermost in mind.

Let me answer two questions that are sure to come up. First, we do not anticipate instituting mandatory furloughs. Let me take this opportunity to reiterate my deep gratitude for the strong response across campus to the voluntary furlough programs and financial aid contributions. The money these returned was significant in helping the overall budget picture. Second, although we cannot increase the salary pools, we will fund promotions and grade changes.

I know that this is a painful moment for the college. Please know that we would not consider such difficult measures were they not necessary for the welfare of the college. I regret that the provisional nature of some of this message will likely raise anxiety. I have communicated what I know at this time. We will be sharing details as soon as we possibly can. To present this material in greater depth, we will be scheduling a series of informational meetings at which Vice President Spiro, other members of the administration as appropriate, and I will be available to answer questions. The time and place of the first of these meetings will be announced soon.

Retrenchment, reorganization, realignment - whatever the word, it is difficult, at times even painful. It is no comfort to realize that many colleges and universities, large and small, including flagship state universities and elite institutions, are having to slash budgets, cut positions, mandate furloughs, or all three. And from a certain perspective, we at Hampshire have a very good story to tell. We can proudly state that from the moment the sharpness and depth of the recession became apparent, the college resolved to do everything in its means to ensure that students from the broadest range of socio-economic backgrounds could consider our distinctive approach to education. By December 2008 we had cancelled application fees, and we continue to make the application fee free for all those who apply on line (roughly 98%). We also urged continuing students whose financial situations had changed to come forward to see if a needs reassessment was called for. As we admitted and funded our incoming class, we went the extra mile in committing financial aid dollars. All this brought us to the point where this fall, our total campus population will consist of roughly 1420 remarkable students, a group so large that we will have to house some of them in dormitory space at Amherst College. Preliminary numbers indicate this might be our entering class with the highest percentage of students of color, a happy result of our financial aid investment.

To achieve this, however, in today's economy required us to raise our already generous financial aid budget sharply. Obviously, Hampshire does not have the endowment to sustain such extraordinary levels of financial aid in the long run, although you can be sure that we will be working double time to accelerate the rate of growth of our annual fund by emphasizing our need for more financial aid dollars. But there are other steps that we simply must take to change the equation as we go forward. We do not yet fully understand all the forces at work in the market, or even fully where we stand in the minds of prospective students and their families and friends, but recent reports show traditional student inquiries about admission to Hampshire significantly lower than in the recent past. It now seems clear that some challenging enrollment trends do not seem to be one-year perturbations. Indeed, they appear likely to accelerate unless we step up to address them immediately.

It is for that reason that even as we tighten our belts in some areas, the long-term health of the institution mandates that we not delay strategic investment in more effective recruiting efforts. The additional dollars targeted for more intentional and robust marketing and recruiting are not great in the scheme of things; they reflect the comprehensive assessments of our consultants and will be used in a careful and calibrated manner. But they are essential investments for our future.

We all need to be involved as we ask some key questions: Are we describing our college and its mission accurately and in terms that can be grasped by prospective students and their parents? What do we know about our target market? Indeed, whom do we seek to recruit? But it is not simply a matter of improving recruitment strategies, marketing analysis, and communications, critical though each of these steps is. We will also all have to engage in examining what we do and how we do it and in asking whether we can do it better. The various processes now underway - the Wabash Task Forces, the Retention Task Forces - and those just launching - Governance Task Force, Strategic Planning - are more than ever imperative. They involve hard work on the part of many, and I thank all those who have been or who will be participants. Ultimately, these processes will involve us all. Together, we will be able to realize the ultimate goal: reinvestment for a vibrant future.

I have no doubt that our engagement in all stages of the process, from retrenchment and realignment to revisioning and reinvestment, will make Hampshire even stronger and more effective. We have a great tradition to preserve, to enhance, and to make ever more accessible to the next generation of students. The faculty especially, in the spirit of the visionaries who founded the college and working with our new Vice President for Academic Affairs and Dean of Faculty, must help us imagine and implement a new pedagogy and appropriate supporting structures to translate the essence of a Hampshire education into a twenty-first-century framework. If we can do this successfully we will provide a vision as new, as original, and as transformative in the world of higher education as our educational innovation was at our founding. Nothing could be a greater way to celebrate and honor our first forty years.

Impact of 2008 Financial Crisis
The financial crisis had a relatively small immediate impact on Hampshire College, Mark Spiro sent out the following missive following the Common Fund Asset Freeze, which delivers a deeper explanation of the immediate impact:

"On Tuesday, the Commonfund froze the distribution of assets in its Short Term Fund, a fund that manages the day-to-day liquid cash for many colleges and universities, including Hampshire. In fact, the fund was established expressly for this purpose and had been used by the college since 1975. The Commonfund provided no warning, nor any indication, that the fund was in trouble. When we queried the fund about its subprime mortgage holdings in an email exchange on 18 March 2008, fund director Mark Fitzgerald assured us that these holdings represented only 6.3% of its portfolio and that its reserve balance "should provide...the necessary cushion to weather this storm."

In taking action yesterday, Commonfund was responding to the decision of Wachovia Bank, N.A., as trustee of the fund, to liquidate and distribute its assets due to the change in its own status. To prevent a run on the assets and uneven distributions that would have compromised the ability of many small colleges to operate, the fund announced that it will parse subsequent distributions. Institutions will be able to withdraw funds equal to 10% of the value of each school's balance immediately, while the remaining 90% will be placed in a second tranche for later distribution according to the following rules based on the maturity dates of the underlying holdings: liquidation of 28% by the end of this week, 57% by 12/31/08, 64% by 3/31/09, 68% by 3/30/09, and 74% by 12/31/09. The fund has not commented on distribution of the remaining 26%.

We were fortunate to receive an email from Prime Buchholtz, our endowment manager, on September 15th suggesting that we exit the fund in favor of other investment vehicles, though there was no particular sense of urgency in their communication. PB also provided its analysis of the fund, including holdings of non-agency mortgage-backed securities at 12% of the portfolio, versus the 6.3% reported earlier by Director Fitzgerald. At that point, we asked PB to recommend an alternative investment vehicle, and they began to research possibilities. In the interim, under the guidance of Director of the Budget Jerry Bohdanowicz, the Finance and Business Office withdrew approximately $7.0 million of its $10.2 million in cash from the fund and deposited it in the Bank of Western Massachusetts. We withdrew at the maximum rate allowed by Wachovia prior to the freeze. Subsequent maturities of Commonfund holdings since Tuesday generated additional liquidity thereby allowing the college to withdraw an additional $1.1 million since the imposition of the freeze. The balance of frozen college funds today is approximately $2.1 million.

Based on a snap survey of our peers, we were ahead of the curve in aggressively withdrawing our funds. Many institutions - we suspect most - left their liquid cash in the Commonfund. Since there was no advance warning, the liquid funds of these schools became illiquid, and the operations of many institutions may suffer.

The college's cash flow remains strong with $8.1 million available today, and although access to the remaining $2.1 million may be delayed, we do not foresee any difficulties in meeting our payrolls or other financial obligations. We intend to move the liquid balance to a money market mutual fund that invests solely in short-term U.S. Treasury securities. PB has recommended the Federated U.S. Treasury Cash Reserve Fund through Federated Investments, a fund that appears to afford the needed flexibility and security. While this fund is not FDIC insured, we believe that these securities represent the most stable instrument available to the college.

Going forward, the Board may wish to consider a formal policy to guide the investment of operating cash. This policy might provide criteria for assessing funds, managers, risk tolerance for the fund portfolios, returns, and other relevant variables.

These are the nuts and bolts of a complex situation, and I wanted to be sure that you had the facts as we see them."

However, the longterm effects of the economic downturn are worrisome. As Hampshire is heavily dependent upon tuition, having fewer students who are able to pay full or larger portions of the tuition will make it more difficult for the college to operate from year to year, much less undertake much-needed long-term improvements. Hampshire In The Economic Downturn Ralph J. Hexter, President

November 20, 2008

Dear Parents, Family Members, and Friends:

This letter should reach you shortly before Thanksgiving. It comes with best wishes for a meaningful holiday. The ongoing turmoil in the world’s financial markets and the sharp downturn in economic activity worldwide will have led many of us to wonder, in this season of thanks, just how long and dismal the period of austerity will be, and just how profoundly, in an environment of new economic realities, we will need to change our expectations and brace for an uncertain future. At Hampshire we are asking these same questions, and the answers we have found, many of them at least, are reassuring for the college’s present and its future.

As many of you know, Hampshire opened its doors in 1970, enjoyed several years of a robust national economy, but then, as an institution not five years old, endured the prolonged recession that affected the country, especially the Northeast. Later on in that decade, the young Hampshire College struggled with the rest of the United States to weather a period of double-digit inflation. The housing slump of the late 1980s and early 1990s affected us as well. I revisit this history not to depress you further—far from it. I write to remind you that Hampshire’s entire history has been one of struggle and endurance. When times are lean, the college, led by my predecessors both in the presidency and on the board of trustees, has had the courage and the discipline to make wise budgetary decisions to make ends meet for the academic program and to keep funds available for students in need of financial aid. Of course, the college made trade-offs, to which I will return later in this letter.

Now, as I have settled into my fourth year as Hampshire’s fifth president, I look back on the college’s history with pride and with resolve—resolve that I can draw on the lessons of the past to augment the expertise of administration, staff, and faculty here today to guide the college through yet another challenging period.

I begin by reporting that the college’s finances are sound. Our audited financial statement for FY 09, available online shortly, shows an institution without red flags that signal even mild distress. Our annual fund has been growing steadily for the last four years, and, most gratifyingly, the support we rely on from our alumni and friends continues even during these difficult times. Our endowment has suffered less than those of many other colleges by virtue of its relatively modest size and by the board’s cautious investment of principal. Hampshire is not a “rich” institution. It never has been and will not be for many years to come, so the college knows how to stretch every dollar: we excel at this, in fact!

But we are rich in the resources that matter most: talented, engaged students and committed faculty and staff. These are the institutional strengths that are at the very core of Hampshire, and that the college’s budgets during the country’s recession will be dedicated to preserving. Should there be a need for the college to trim its budgets, as there may well be, we will look for places to cut that do not affect funds available for financial aid or the quality of students’ essential education experience. And even as we will almost certainly have to delay or scale back improvements and augmentations we had planned, we will not do so in the critical area of financial aid, for either continuing or new students. And we will continue on course to ensure that key support systems—advising, student services, instructional technology, for example—are strong and intact.

We will likewise continue to comb the budget for cost efficiencies and savings. Earlier this year we realized both greater efficiency and enhancement of services when we entered into a collaborative arrangement with Mount Holyoke College for public safety. We are bidding our contracts for services and benefits such as employee health insurance more aggressively than ever, and are consequently realizing savings there as well. Although we have not announced a freeze on hiring—as many other colleges have—we are scrutinizing every position that becomes vacant to see if there is a possible reconfiguration of responsibilities that could reduce or eliminate the need for that position. We expect every part of the college to think and act strategically about hiring. We do not, for the short term, anticipate growth in the number of positions at the college, and, if we are able to achieve a modest reduction, through retirements and reassignments, we will pursue those steps. Finally, we are actively looking with our colleagues across the Five Colleges for new opportunities for collaboration and partnership, and even our wealthiest neighbors seem motivated in ways they have not before.

Earlier in this letter I wrote about the trade-offs my predecessors made when the national economy was in trouble. One that was available to them—postponing maintenance on what were then new or relatively new buildings—is, regrettably, not available to me. If Hampshire is to remain the vibrant and strong college that it is, it must maintain prudent budgeting for its aging physical plant and infrastructure. For years the college has renovated, refurbished (and, in some instances, simply made do with) its aging buildings. At the same time, in a manner of speaking, we have stockpiled renewal projects that now must proceed. So, Hampshire will continue to fund the still-too-modest deferred maintenance fund it established a few years ago. This will require discipline and reduced funding for all but the most critical programmatic needs. This is what we must do to honor Hampshire’s scrappy, bold past and to preserve its promising and healthy future.

Most importantly, I want you to know that all of us at Hampshire are working not just to respond to a crisis but to use the very real challenges before us all to make even more meaningful the visioning and planning processes on which we have embarked. I feel deeply that the values Hampshire embodies—critical analysis, standing courageously for one’s convictions, and empathy and respect for individuals and communities, especially those who have been most often excluded—are needed more urgently than ever, nationally and around the world. I believe as well that it is precisely the education Hampshire offers, where we ask our students to balance growing self-reliance and independence of thought with action in and for community, that best prepares our graduates for a world that will ask precisely those things of us all, ever more insistently and with ever higher stakes.

I encourage those of you with access to the Internet to visit my page on Hampshire’s web site (http://www.hampshire.edu) for periodic updates about the college. I will keep you informed of changes, if any, to the plans outlined in this letter. A quick check of the Web site will also let you learn about the intellectual and creative projects Hampshire’s exceptional students and faculty continue to pursue. In the meantime, I offer my best wishes for all of the upcoming holidays.

Sincerely, Ralph J. Hexter President

Endowment Fund Reinvestment
By Nancy Kelly

On February 7, 2009, the Hampshire College Board of Trustees accepted the report of its investment committee, which earlier had voted, without reference to any country or political movement, to transfer assets held in a State Street mutual fund to another fund. Based on a comprehensive review of the State Street fund by the investment committee, college administrators, and an outside consultant, the College found that this fund held stocks in well over 200 companies engaged in business practices that violate the College’s policy on socially responsible investments. These violations include: unfair labor practices, environmental abuse, military weapons manufacturing, and unsafe workplace settings. The review also led the Board of Trustees to vote to revise its 1994 socially responsible investment policy to bring it up-to-date with current standards and best practices, and, pending revision, to suspend that policy.

The review of the State Street fund was undertaken at the request of a sub-committee of the investment committee, to address a petition from a student group, Students for Justice in Palestine. The investment committee’s decision, however, was based on the consultant’s finding that the State Street fund included the 200-plus companies engaged in multiple violations of the college’s investment policy; the decision expressly did not pertain to a political movement or single out businesses active in a specific region or country.

History
In the 1980s, Hampshire College went through a very difficult financial period. The Long Range Planning Committee put together a report which gave a series of recommendations for improvement, and the Krukowski Report put forward marketing recommendations which were highly controversial at the time.