To: Wellesley College Faculty and Staff
From: President Paula A. Johnson
Re:Confronting a New Financial Reality
Date: May 29, 2020
As this unprecedented semester draws to a close, I want to share with you my thoughts on the significant financial challenges we face and the work we need to do in the months ahead.
The pandemic crisis has had a deep impact on Wellesley’s finances. We must address this situation with a heightened level of urgency—and a willingness to make fundamental changes to our operating model to ensure our strength and excellence as an academic institution now and in the future.
Confronting a new financial reality
It is important to remember that Wellesley had an existing structural deficit before this crisis. While we have continued to innovate in our academic program and invest in student life, our operating budget has consistently exceeded our revenues, challenging our ability to support the increasing financial needs of our students and make the capital investments necessary to maintain our residential and academic buildings and energy infrastructure. Over the past several years we have made important strides toward closing that gap, but we had much more work ahead of us to guarantee Wellesley’s financial sustainability.
Then COVID-19 hit, and that gap turned into a chasm. We expect the financial impact from decreased revenues from room and board, potential decreases in fundraising, and increased financial aid needs of our students to total between $15 million and $50 million. This amount depends largely on our ability to have students back on campus.
We have already implemented a number of short-term measures, including salary and hiring freezes as well as pay reductions for senior leadership. Summer furloughs will be starting next week, and I want to take this opportunity to acknowledge staff members who are affected and assure you that you remain valued employees and important members of our community.
While we may need to enact additional temporary measures to address our challenges, I want to focus today on some of the longer-term changes we must make if we are to adapt successfully to this new financial reality.
One significant decision we have made is to modestly reduce the size of the student body over the next four to five years. The Board of Trustees and a group of senior leaders including myself, Andy Shennan, Debby Kuenstner, Joy St. John, and Piper Orton, had reached consensus on this change before the pandemic. The size of Wellesley’s student body has drifted upward over the years without a long-term strategy, accompanied by an expansion in our academic program.
We believe we can better meet the needs of our students while maintaining our need-blind admission policy and our commitments to diversity, equity and inclusion, and inclusive excellence if we decrease the size of the student body; this change will also result in increased endowment dollars per student. These outcomes will strengthen Wellesley and ensure continued, and even heightened, excellence even as we face demographic headwinds as the college-age population decreases significantly in the years to come.
Wellesley is up against some unique challenges compared with many of our elite liberal arts college peers. While our endowment funds per student are significantly lower than that of our closest peers, the size of our academic program is comparable. At the same time, our students’ financial aid needs and our deferred maintenance needs are much greater. These factors put significant pressure on our operating budget and require some important changes.
This year we accepted a slightly smaller class than last year to avoid the overcrowding in the residence halls we experienced last fall. We are in the process of analyzing what a modest decrease in the student body would mean for the size of the College’s academic program, administrative staff, and infrastructure and over what period of time we would need to make these reductions.
Completing work essential to our future
Another significant decision we have made together with the board is to take on an additional $150 million in debt. With these funds, we can maintain sufficient cash flow despite projected serious financial losses, allowing us to complete the Science Center, the peaker plant, and critical repairs to our residence halls. However, even at favorable rates, this debt will add $4 million of debt service to the operating budget going forward.
I believe these projects are essential to our future and our continued excellence for many reasons. First, it would be extremely expensive to postpone or stop construction on our Science Center. More importantly, doing so would hurt our ability to recruit talented students and faculty and ensure our continuing leadership in STEM education.
Our investment in energy-saving measures such as the peaker plant will enable us to manage energy costs and still make important progress toward reducing our carbon footprint. Ongoing investments in our residence halls are essential if we are to provide our students with a first-rate residential experience. We cannot continue to be in a situation where students can be displaced by a severe rainstorm. Several of our academic buildings are also in serious need of repair and will require renovation in the years ahead.
Some of you have asked whether we can tap into the endowment to cover financial shortfalls due to this crisis. There is a common misconception that endowments can be accessed like bank accounts. In reality, endowment spending is limited for two primary reasons: First, Wellesley’s endowment includes multiple individual funds established by many different donors over time. More than two-thirds are restricted for specific purposes identified by the donors. Second, the endowment must provide financial support in perpetuity, and the oversight and spending policies are designed to preserve intergenerational equity. Drawing additional significant funds from the endowment at this moment would both reduce the earnings distribution now, when we need it most, and for future generations.
We believe the impact of COVID-19 will be with Wellesley for many years to come and will create a new financial reality for the College that we cannot address with a one-time draw on the endowment.
The board has asked senior leadership to develop a plan by October for reducing the size of the student body and the operating budget. As we develop this plan, we will consult closely with the Budget Advisory Council (BAC) and other appropriate committees of Academic Council. We are grateful that the BAC will meet over the summer in order to move this work forward. The strategic planning working groups will keep Wellesley’s financial reality front and center as they plan for the future. We will provide updates on this plan to Academic Council and Administrative Council in September.
Our work in the months ahead will be essential to ensuring the continued excellence of the College. If we are clear about the challenges we face, and we meet them with optimism, courage, and imagination, I have no doubt that we will chart a path forward that will lead to a stronger, more excellent and more prepared Wellesley