Financial Sustainability

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Financial Sustainability? Patrick F. Bassett,
NAIS President
Financial Survivability The Economic Meltdown
Brutal Facts vs. Unshakeable Beliefs Patrick F.
Bassett, NAIS President
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The Perfect Storm

• Higher than usual summer attrition and lower than
  usual enrollments resulting in a shortfall of
  students, in some cases up to fifty off budget.
• 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.
• Variable bond rates that have soared, in some
  cases, from 3 to 10, impacting heavily and
  unexpectedly the current year budgets debt
  service obligations.

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The Perfect Storm

• A 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 with children.
• 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.
• A chilling zephyr on feelings about ones wealth
  and capacity for eleemosynary giving.

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Impact on Enrollment Giving of a Weak
Economy Source Giving USA Spotlight (Issue 3,
2008)

• In the last forty years (1967 - 2007), for the
  six recessions (lasting six or more months)
  total giving to all charities rose on average
  6.2 (vs. 8.4 in non-recession years).
• The exception higher ed sector giving giving
  declined, -1 during short recessions and about
  -2 during recessions lasting over 8 months.
  Why?
• Importance of focusing message and targeting
  donors Marketing principles Its about them.
  Emotions first.

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NAIS Schools Holding On during Recessions
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NAIS Schools Holding On during Recessions
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NAIS Schools Holding On during Recessions
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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 Godbut tie your camel. Consider
  putting cash in FDIC-insured savings or brokerage
  accounts
• Debt-Financed Bonds
• Jeff Lewis (lewis_at_icemiller.com) Not a great time
  to begin a bond-financed campaign. 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.
• 4. Financial Scenario-Planning A Contingency
  Plan. A Disaster Plan.

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Scenario 1 A Contingency Financial Plan

• Contingency Financial Plan Income down 5-10
• Freezing of discretionary expenditures
• Postponing of renovations and replacements
• Doubling up of assignments to cover staff
  attrition rather than hiring replacements.
• Expansion of financial aid for current families
  newly demonstrating need.
• Recruitment strategy and admissions policy
  adjustments (whatever it takes to fill the school
  short of mission drift) acceptance of mid-year
  enrollments net tuition revenue discounting
  merit aid.

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• Contingency Financial Plan Income down 5-10
• What NOT to do (unless on the verge of collapse)
  
• Dont borrow more.
• Dont abandon your spending policy, taking a
  larger draw from the endowment that invades
  principal, since mortgaging the present against
  the future only exacerbates the factors that
  contributed to our problem in the first place.
• Dont publicly commit to unrealistically high or
  inappropriately timed capital campaign
  goals.

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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 studentsstaff, 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.

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Unshakeable Beliefs Counter Brutal Facts

• We have the freedom to act quickly and decisively
  when needed, since we are effectively independent
  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.

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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.

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Unshakeable Beliefs Counter Brutal Facts

• Within challenges, lie opportunities to make
• A paradigm shift (Scarcity and Privilege Peter
  Cobb) Whats 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.

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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.

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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.

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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?
• Team-learning?

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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?

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Financial Literacy Preparing Future Leaders
The Leadership Part Many of the people we need
to make all of his happen are in the room. Lets
get to work.
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Financial Sustainability/Survivability
The End! (Appendix Slides Follow)
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SSS Affordability Data Pressure on Incomes
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SSS Affordability Data Families Needing Aid
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SSS Affordability Data Families Needing Aid
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