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Posted 12.02.05

Budgetary Reliance on Endowment to be Reduced

Wesleyan will reduce its budgetary reliance on endowment over the next five years as part of a strategic effort to increase the size of the endowment. At the same time, it will spend more on fund-raising activities with the expectation of substantially increasing revenues, and it will invest a higher proportion of new gifts in the endowment.

According to "Engaged with the World," the strategic plan adopted by the trustees last spring: "One of our highest priorities will be to support a growing proportion of essential and predictable costs (faculty salaries, financial aid) through the endowment. Over the long term, this will increase our budgetary flexibility and reduce our dependence on tuition. We must take every opportunity to increase the endowment through new gifts, careful stewardship, and successful investments."

While trustee policy has allowed a 5.5 percent annual draw from the endowment to support the operating budget, two special, additional draws were instituted in the past few years. The first of these, a roughly 0.4 percent draw this year, has been used to build and sustain the Wesleyan's fund-raising organization. The second, approximately 1.5 percent, represents gifts invested alongside the endowment through the so-called Campus Renewal Fund and drawn down each year to pay debt service on the bonds sold to build and renovate campus facilities. Together, these draws total 7.4 percent, a level that conflicts with Wesleyan's goal to build the endowment and its plan to borrow in future years to finance additional facilities.

Accordingly, at their November meeting, the Board of Trustees reviewed scenarios for reducing the total draw to 5.5 percent and endorsed an administrative proposal to phase it down over five years to produce approximately $5.6 million in cumulative savings. This five-year plan is intended to allow for targeted reductions in the operating budget, as well as a restructuring of the Campus Renewal Fund to meet debt service obligations without a period of co-investment.

"While we will be faced with difficult decisions about the budget we are acting from a position of overall financial strength, said President Doug Bennet. "We can be deliberate and strategic about our choices, thanks to the efforts of the volunteers and staff who have built our fund-raising, improved our investment performance, and identified operating efficiencies. I am confident that we have the financial discipline and the support to strengthen Wesleyan for the long term."

Bennet and Interim Vice President for Finance John Meerts have met with faculty, staff and student groups to explain the change in financial practice. Meerts has invited members of the community who have suggestions concerning operating efficiencies to contact him. The Office of Finance and Administration will establish a Web site to solicit such suggestions and report on their implementation.

At the same meeting at which it was decided to reduce the University's total endowment draw, the trustees also endorsed a plan to invest roughly $3 million in new resources in fund-raising activities. These funds, to be raised through donations, would augment fund-raising, alumni events, communications, and administrative support in order to accelerate the growth of Wesleyan's annual gift revenues. Specific plans for this investment are being developed in consultation with the CORE Group, a firm that uses aggregate fund-raising data from more than 50 top private colleges and universities to provide normative recommendations on the allocation of resources to maximize the return on investment. According to CORE Group projections, Wesleyan's anticipated investment could yield $26 million per year in additional gift resources in 10 years.

Wesleyan has set a goal of increasing the rate of its investment of gift revenues into the endowment. During the current fiscal year, the University will invest gifts equal to 1.5 percent of the total value of the endowment. That percentage will grow incrementally beginning in FY 2007/08, reaching 3 percent in FY 2013/14.
 
By Justin Harmon, director of University Communications