1. SAIS Economic Forum Stephen Robinson, President Southern Association of Independent Schools

2. Factors of Concern Enrollments (Tuition Revenue) Endowments/Investment Earnings Fund Raising (Annual Fund, Capital Campaign) Managing/Trimming Expenses Planning for a multi-year downturn Managing the Response

3. Southern Association of Independent Schools Lessons From the Past (based on NAIS data) Recession Years (in Red) Average Enrollment Annual Giving per Student 1968-69339 $ 170 1969-70345$ 147 1970-71337$ 150 1972-73347$ 203 1973-74359$ 220 1974-75361$ 203 1975-76360$ 173 1979-80387 $ 267 1980-81390$ 420 1981-82397$ 313

4. Southern Association of Independent Schools cont. Lessons From the Past (based on NAIS data) Recession Years (in Red) Average Enrollment Annual Giving per Student 1989-90403$ 862 1990-91408$ 875 1991-92414$ 907 2000-01487$ 1,248 2001-02485$ 1,273 2002-03482$ 1,343

5. Southern Association of Independent Schools Confirm the Mission Schools that tend to survive crisis are schools that remain completely committed to their mission. The first step to approaching the current crisis should be a thorough discussion of the mission. All strategies should be developed by the board and administration in concert with the mission.

6. Southern Association of Independent Schools Know the Demographics What is the pool of students you depend on and what is the future of this pool? What is the employment prospect for your current school families? Is there another pool from which to recruit new students? Do you know if your school families will really be hurt from the current crisis?

7. Southern Association of Independent Schools Increase Perceived Value Families make decisions to enroll based on ability to pay and the perceived value or your school versus the perceived value of the alternative.

8. Southern Association of Independent Schools Enrollment Coefficient (EnC) High Ability - 10 - 9 - 8 - 7 - 6 - 5 - 4 - 3 - 2 - 1 - 0 Low Ability Ability to Pay Perceived Value of Your School Perceived Value of Alternative School High Value - 10 - 9 - 8 - 7 - 6 - 5 - 4 - 3 - 2 - 1 - 0 Low Value High Value - 10 - 9 - 8 - 7 - 6 - 5 - 4 - 3 - 2 - 1 - 0 Low Value

9. Southern Association of Independent Schools Increase Perceived Value Families make decisions to enroll based on ability to pay and the perceived value or your school versus the perceived value of the alternative. What can you do to enhance the value of what your offer your school families? Economic crisis also affects negatively the alternate options to Independent Schools.

10. Southern Association of Independent Schools Increase sensitivity to retention Follow-up with all families that do not renew their contracts and invite them to discuss their financial hardship. Retention is everyone’s responsibility: Remind your faculty and staff of this fact and go the extra mile to serve your families. Do not assume that all current students are planning to reenroll.

11. Southern Association of Independent Schools An NAIS Overview Framework Taken from Pat Bassett ’ s presentation “ Financial Survivability ” Acknowledge and reconcile yourself functioning in a climate of uncertainty. Recognize that each school faces many unique circumstances, so no generalities will apply to all. Hope for the best but plan for the worst: Create three financial contingency plans: best case, worst case, most likely case.

12. Southern Association of Independent Schools An NAIS Overview Framework Taken from Pat Bassett ’ s presentation “ Financial Survivability ” Don’t waste the motivation of crisis to fast-forward to a more financially sustainable future: trim fat and waste; dry-dock programs that no longer are viable; go green fast; moderate tuition increases and spike financial aid; grow school in down market by aggressive net tuition discounting or merit aid. Communicate to your constituents about school finances, the value proposition, and the importance of giving.

13. Southern Association of Independent Schools Immediate First Steps Taken from Pat Bassett ’ s presentation “ Financial Survivability ” Endowment: Sit tight and ride out the storm. "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

14. Southern Association of Independent Schools Immediate First Steps (cont.) Taken from Pat Bassett ’ s presentation “ Financial Survivability ” Financial Scenario-Planning: A.) Contingency Plan: Income Down 5% - 10% B.) Disaster Plan: Income Down 20%

15. Southern Association of Independent Schools Scenario 1: A Contingency Financial Plan - Income Down 5% - 10%: Recommendations from the field. Taken from Pat Bassett ’ s presentation “ Financial Survivability ” 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.

16. Southern Association of Independent Schools Scenario 1: A Contingency Financial Plan: Income Down 5% - 10% Taken from Pat Bassett ’ s presentation “ Financial Survivability ” Cut Expenses (continued): Go Green FAST: Recommendations from the NBOA and NAIS list serves 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;

17. Southern Association of Independent Schools Scenario 1: A Contingency Financial Plan: Income Down 5% - 10% Taken from Pat Bassett ’ s presentation “ Financial Survivability ” 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 to meet increased need of current and future families.  Maintaining or increasing admissions, marketing & development budgets.

18. Southern Association of Independent Schools Scenario 1: A Contingency Financial Plan: Income Down 5% - 10% Taken from Pat Bassett ’ s presentation “ Financial Survivability ” Cut Expenses (continued): If you anticipate being down for longer than the current year, beyond steps 1 -5, consider  Moderating tuition increases  Moderating salary increases (e.g., making COL+ raises contingent upon achieving balanced budget enrollment projections)

19. Southern Association of Independent Schools Scenario 1: A Contingency Financial Plan: Income Down 5% - 10% Taken from Pat Bassett ’ s presentation “ Financial Survivability ” 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 (expanding use of campus) Exploit the schools intellectual capital (creating related businesses-online courses, tutoring services, boarding program for international students, etc.)

20. Southern Association of Independent Schools Scenario 1: A Contingency Financial Plan: Income Down 5% - 10% Taken from Pat Bassett ’ s presentation “ Financial Survivability ” Higher risk options (to avoid if possible): Borrowing more (risking exacerbating debt service demands: if necessary, “borrow from yourself,” using reserves and endowment with a formal payback schedule). Abandoning your spending policy, taking a larger draw from the endowment that invades principal, (risking jeopardizing standing with donors) Committing publicly now to very ambitious capital campaign goals (risking timing and attainability issues)

21. Southern Association of Independent Schools Scenario 2: A Financial Disaster Plan Taken from Pat Bassett ’ s presentation “ Financial Survivability ” 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 to 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.

22. Southern Association of Independent Schools “Unshakeable Beliefs” Counter “Brutal Facts” Taken from Pat Bassett ’ s presentation “ Financial Survivability ” 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.

23. Southern Association of Independent Schools “Unshakeable Beliefs” Counter “Brutal Facts” Taken from Pat Bassett ’ s presentation “ Financial Survivability ” 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.

24. Southern Association of Independent Schools “Unshakeable Beliefs” Counter “Brutal Facts” Taken from Pat Bassett ’ s presentation “ Financial Survivability ” 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.

25. Southern Association of Independent Schools Recommendations from NBOA Based on a presentation by: Sarah P. Daignault, Executive Director National Business Officers Association

26. Southern Association of Independent Schools Is there a bubble in Independent Schools? Long-term school growth spurred by: 1. Growth in housing prices and financial market values. 2. Increases in consumer borrowing. 3. Increases in the prosperity of high-income households. 4. Increases in the number of children in high-income households.

27. Southern Association of Independent Schools What Should Schools Do? Reduce costs or scale of operations:  Eliminate non-performing sectors.  Sell off particular divisions or assets.  Maintain mission: Do not lose the school’s identity.

28. Southern Association of Independent Schools Find New Revenue Sources Use or rent existing resources more intensively – evenings, weekends, summer. New customers – Adult Ed? Exec Ed? If you are already doing this – to do more you have to get way outside the box.

29. Southern Association of Independent Schools Enhance Brand Compete by specializing more or targeting particular markets. Take advantage of loyalty and parents’ commitment to education.

30. Southern Association of Independent Schools Entertain Crazy Ideas Merge with competitor. Corporate sponsorships. Shared services; consortiums.

31. Southern Association of Independent Schools Signs of Trouble If you are struggling to fill the school. If you are borrowing money to fund operations. If your mission is unclear.

32. Southern Association of Independent Schools Principles to Guide the Response Students come first - we must maintain quality of the education. Long term financial sustainability of the organization is imperative. Remain strong in areas of long term importance to the organization - admissions, development - and not make capital cuts so dramatic that it is hard to catch up.

33. Southern Association of Independent Schools Potential Actions Ask staff about finding savings. End Silo-type problem solving – use the expertise you have. Multiple budget scenarios for the coming year, at different levels of enrollment and different levels of endowment return. Senior management MUST lead by example.

34. Southern Association of Independent Schools Your job: Big Picture Is it more important to be full or to admit the right students? Understand the long-term ramifications of potential decisions. Assess all decisions in light of mission and culture before you act. Take care of your people – older faculty, parents – now and later.

35. Recommendations from Independent School Management (ISM)

36. Southern Association of Independent Schools Hard Economic Times: Dos and Don’ts for Private-Independent Schools Taken from Ideas & Perspectives Vol. 33 No. 14, an ISM Publication DO continue to do strategic planning/strategic financial planning. DON’T violate the published and marketed tuition gradient shown by your current strategic plan/strategic financial plan. DO continue to work hard on building your faculty culture, focused on professional growth.

37. Southern Association of Independent Schools Hard Economic Times: Dos and Don’ts for Private-Independent Schools (cont) Taken from Ideas & Perspectives Vol. 33 No. 14, an ISM Publication DON’T reduce the budget line dedicated to faculty professional growth and development. DO reduce staffing, if opportunities present themselves and conditions allow, by means of attrition. DON’T reduces staffing by dismissal (except for cause). Do continue to increase tuition, at a minimum, at a rate consistent with your prior estimate of inflation.

38. Southern Association of Independent Schools Hard Economic Times: Dos and Don’ts for Private-Independent Schools (cont) Taken from Ideas & Perspectives Vol. 33 No. 14, an ISM Publication DON’T freeze salaries. DO utilize your cash reserves, as needed. DON’T borrow money from lending agencies. DO keep to your (renegotiated) debt-retirement schedule. DON’T reduce employee benefits.

39. Southern Association of Independent Schools Hard Economic Times: Dos and Don’ts for Private-Independent Schools (cont) Taken from Ideas & Perspectives Vol. 33 No. 14, an ISM Publication DO take this opportunity to foster stewardship for your school’s resources. DON’T display angst. DO reassure teachers and parents that your school’s mission will continue to be delivered at the highest level.

40. Sacred Cows Taken from “The Nine Sacred Cows of Financial Management” by Littleford and Associates

41. Southern Association of Independent Schools Nine Sacred Cows of Financial Management (Littleford and Associates) The key to achieving the school’s goals and yet balancing the budget and controlling expenses, especially in a time of economic downturn, is to know how to balance the “Sacred Cows.” How do Independent Schools analyze these tradeoffs and make appropriate financial management decisions that support the mission and vision of the School? How can these decisions be made promptly, effectively and decisively when the era of scarce resources and tight budgeting is facing us?

42. Southern Association of Independent Schools Income Source Sacred Cows (Littleford and Associates) Tuition and fees. Total school enrollment. Giving of all kinds. Profit Centers. Class size.

43. Southern Association of Independent Schools Expense Sacred Cows (Littleford and Associates) Salaries Plant Program Financial Aid

44. Southern Association of Independent Schools In Summary It is a general consensus that:  Independent Schools tend to weather national economic crisis.  Schools must “stay the course” and remain “mission focused”  When cuts are necessary, schools should do so with a surgeon’s precision so as to minimize the negative impact of community morale.  Schools should move forward with planned tuition increases.  Schools should expect more financial aid requests.  Schools should view this time as a positive opportunity to examine areas in which waste can be trimmed and schools can be made more financially sustainable.  Schools should maintain a high value for quality faculty and make cuts in faculty and professional development as the last alternative.

45. Southern Association of Independent Schools Stephen Robinson, Ph.D., President Southern Association of Independent Schools steve@sais.org (404) 227-2770