Navigating Financial Sustainability: Strategies for Independent Schools

1. Financial Sustainability? Patrick F. Bassett, NAIS President Financial Survivability: The Economic Meltdown – Brutal Facts vs. UnshakeableBeliefs Patrick F. Bassett, NAIS President

2. The “Perfect Storm”: Six Factors in Confluence. What Shape is your Strategic Plan in? • Enrollment Shaky: Higher than usual summer attrition and lower than usual enrollments resulting in a shortfall of students, in some cases up to fifty off budget. • Financial Aid Demand Growing: Current families of higher incomes starting to demand and qualify for financial aid as tuitions have skyrocketed while family salaries remain flat and equity in homes and investments tanks.

3. The “Perfect Storm” • Debt Service Rising/Endowment Income Falling: Variable bond rates that have soared, in some cases, from 3% to 10%, impacting heavily and unexpectedly the current year budget’s debt service obligations. Debt:Endowment ratios under water. Income from endowment plummeting. • Demographic Downturn: In the number of school-age children in many locales where independent schools are located as housing stock and cost of living become prohibitively expensive for young families.

4. The “Perfect Storm” • Tuitions Skyrocketing: A climate of caution where even families with substantial dual incomes fear a job loss could bring financial catastrophe, making independent school tuition, heretofore considered a necessity, all of a sudden considered a discretionary luxury. • Wealth Disappearing: A chilling zephyr on feelings about one’s wealth and capacity for eleemosynary giving. Harbor during the storm…. Lessons from the past.

5. NAIS Schools Holding on during Recessions

6. NAIS Schools Holding on during Recessions

7. NAIS Schools Holding on during Recessions NAIS Annual Conference Financial Sustainability Track: Developing Multi-year Financial Scenarios; Going Green and Saving Green; Assessing Your Financial Condition; Non-Dues Revenue; Demographics and Marketing in a Time of Economic Uncertainty; Reality Economics: What Does That Future Look Like?; School Investments; Managing Enrollment During Difficult Times.

8. The Financial Crisis - Immediate First Steps • Endowment: Sit tight and ride out the storm. Financial Consultant: "Investments have historically yielded positive results to investors who bought when others were fearful, sold when most others were euphoric, and stood their ground when the situation was unclear. While past performance does not guarantee future results, one defense against short-term fear is long-term confidence." • Cash: “Trust in God…but tie your camel.” Consider putting cash in FDIC-insured savings or brokerage accounts

9. The Financial Crisis - Immediate First Steps • Debt-Financed Bonds: Talk of school bonds not being marketable and banks calling in the loans. Jeff Lewis (lewis@icemiller.com)Not a great time to begin a bond-financed campaign…. (If you do—go with a strong bank’s letter of credit.) For those that are already impacted by the credit crunch and related fall-out, there is not a single source of guidance: Remain in close contact with banking partners, bond counsel, and government regulators. • Financial Scenario-Planning: A.) Contingency Plan: Income Down 10% B.) Disaster Plan: Income Down 20%

10. Scenario 1: A Contingency Financial Plan - Income Down 10%: Recommendations from the field. Cut Expenses (Except Increases for Financial Aid): • Freeze “non-defense spending”: i.e., put a hold on discretionary expenditures. • Postpone capital expenditures: e.g., capital renovations and replacements. • Double up assignments to cover staff attrition rather than hiring replacements.

11. Scenario 1: A Contingency Financial Plan: Income Down 10% Cut Expenses (continued): • Go Green FAST: Recommendations from the NBOA and NAIS listserves and the field… • implement dramatic conservation strategies (the 3 Rs of reduce, re-use, and recycle); • re-structure athletic and field trip travel schedules; • adopt policies to reduce electricity and oil/gas consumption; • incentivize use of public transportation and ride-sharing;

12. Scenario 1: A Contingency Financial Plan: Income Down 10% Cut Expenses (continued): • Go Green FAST (continued): • listen to your business manager and maintenance director and environmental science faculty on other savings possibilities; • see NAIS’s piece on “100 Ways To Go Green and Global”). • Cut deeply enough to spend less overall while… • Expanding financial aid budgets • Maintaining or increasing admissions, marketing & development budgets.

13. Scenario 1: A Contingency Financial Plan: Income Down 10% Cut Expenses (continued): • If you anticipate being down for longer than the current year, beyond steps 1 -5, consider • Moderating tuition increases • Freezing salaries

14. Scenario 1: A Contingency Financial Plan: Income Down 10% Increase Income: • Use net tuition discounting to grow enrollment without adding staff. • Strengthen advancement messaging and cultivation to raise more money. • Fully utilize the school’s physical capital. • Exploit the schools intellectual capital.

15. Contingency Financial Plan: Income down 5-10% Higher risk options some would avoid if possible: • Borrowing more (exacerbating debt service demands) • Abandoning your spending policy, taking a larger draw from the endowment that invades principal, (potentially jeopardizing standing with donors) • Committing publicly to very ambitious capital campaign goals (confronting timing and attainability issues)

16. Scenario 2: A Financial Disaster Plan Disaster Plan: Income down 20% or more. • Make a heroic commitment to maintain full services, to the extent possible, the Katrina model of being the one safe harbor in the storm for kids and parents. • “Right-size” the school: Downsize staffing = “rightsizing”: toward a more financially sustainable ratio of students:staff, a one-time opportunity to prune the shrub so it can grow back strongly. • Necessity being the mother of invention, under dire circumstances the idea of merging neighboring independent schools together begins to look more attractive and less impossible.

17. Contingency Financial Plan: Income down 5-10% What are what Harvard’s Jim Honan invites, the “deeper conversations” "beyond the usual" responses? Or James Surowiecki’s “wisdom of the crowd?” • ? • ? • ? • ? • ?

18. “Unshakeable Beliefs” Counter “Brutal Facts” • We have the freedom to act quickly and decisively when needed, since we are effectivelyindependent of government or church in our governance and finance. • We have the capacity to act with resources behind us since we have intellectual, physical, and social capital, unmatched by any other PS-12 segment. • We have confidence our schools “will not only endure but prevail,” since history is on our side: If any institutions are “built to last,” it is independent schools.

19. “Unshakeable Beliefs” Counter “Brutal Facts” Within challenges, lie opportunities to make… • A dramatic commitment school by school to sustainability financially, environmentally, demographically, programmatically, and globally. • A transition from our truculent insistence on independence to a more efficient openness to interdependence as we collaborate with other schools and other sectors to market ourselves, to share resources, and to co-create 21st. C. schools.

20. “Unshakeable Beliefs” Counter “Brutal Facts” Within challenges, lie opportunities to make… • A paradigm shift (“Scarcity and Privilege” –Peter Cobb): What’s “required" in the architecture of our schools and in the architecture of our lives”? To recognize that “to live life abundantly, this generation of young people does not need to live” wastefully, and “to live life richly, this generation of young people does not have to consume” ceaselessly.

21. Financial Literacy: Preparing Future Leaders Sampling of School Programs: • Saint Andrew's School (Boca Raton, FL): Frontiers of Science & Technology, a project-based class to produce an invention: technical writing; patent proposal; marketing plan. • Greenhill School (Addison, TX): microeconomic theory --markets, taxation, and social issues like health care, poverty, and the environment; macroeconomic theory --fiscal and monetary policy, investment, and international trade; the math of finance & economics (calculus techniques to compute producer and consumer surpluses; Gompertz curves to compare rates of growth; Lorentz curves to look at income and production distributions, statistics & regression analysis). • Westminster Schools (Atlanta, GA): Coursework in and center for philanthropy.

22. Financial Literacy: Preparing Future Leaders • Linsly School (Wheeling, WV): Economics (entrepreneurship, personal finance, the stock market game, and starting a business) • Holton Arms (Bethesda, MD): 8th Grade "Paycheck Project"; AP Economics; upper school "Investment Club"; "Financial Literacy Club" (run by an alumna in the financial services field). • Choate (Wallingford, CT): Macroeconomics, Microeconomics, International Economics. The International Economics Olympiad. • Tampa Preparatory School (Tampa, FL): Macro economics: SimCity 2000 and the stock market game; design a prospectus and present to venture capitalists--on a business of choice. • Sayre School (Lexington, KY): Financial Literacy (Don Jacobs Personal Financial, Legal, and Civic Seminars - six seminars on earning, owing, spending, investing, saving, and giving, with guest speakers and mentors.

23. Financial Literacy: Preparing Future Leaders The Leadership Part: • Leadership training: part of “first curriculum” (deliberate) or “second curriculum” (opportunistic, “teachable moments”)? • What model of leadership are we teaching? • Conventional, leader-as-hero and “positional authority” model? • New leader-as-coach model, the “influential authority” style that the world of the workplace and the public square seem increasingly to respect and demand? Leader as moral exemplar. • Team-learning?

24. Financial Literacy: Preparing Future Leaders The Leadership Part: • Katrina and the “crash of 2008” reveal the failure of leadership at all levels: government, private sector, non-profits. • Will independent schools, long known for producing leaders, consciously address this change and teach and model leadership accordingly?

25. Financial Literacy: Preparing Future Leaders The Leadership Part: Many of the people we need to make all of his happen are in the room. Let’s get to work.

26. Financial Sustainability/Survivability The End!