Proposed Budget and Forecast for 5 Years, Board of Trustees Meeting January 28, 2009

Keep class size low Attract great students Hire the best teachers Keep morale high Pay them well Keep parents happy Grow endowment Increase financial aid Be more affordable Increase enrollment Balance the budget Teach Chinese Keep up with technology Be more green By Corey McIntyre, Chief Financial Officer National Association of Independent Schools

Generative thinking- How does a Board leave the legacy of a school “built to last?”  How would the School’s thinking about this question change as a result of the current, sustained economic downturn? NAIS Financial Sustainability along five continua  Environmental  Global  Demographic  Programmatic  Financial

Market Position and Pricing Affordability Tuition Dependency Staff Salaries Program and Staff Class Size Facilities, equipment, and technology Debt Giving Alternative Revenue streams NAIS recommends that schools have frank conversations around these 10 continua or position points.

Acknowledge the current economic environment, Anticipate slow recovery Thus budgeting needs a longer term view Finance Committee goal for : - 5- year Budget for

Tuition Faculty Salaries Cost Reduction Endowment Spending Rate Enrollment Westminster Fund giving Capital Maintenance & Reserve renamed -PPRRSM Provision for Plant Replacement, Renewal and Special Maintenance Financial Aid

Tuition 3.5 % Faculty Salaries3.0 % Endowment Spending Rate: -target rate move 4% to 5% -net of debt & land 5.3% -net of campaign & interest expense6.2% Financial Aid 5 % PPRRSMAdd $100,000 Cost reductions$500,000 - $800,000 Enrollment Add 15 students (15 X $20,000 = $300,000)

Tuition:( 1% = $330 k) Proposed increase 3.5% Prior two years:6.5 % & 6% Remains with in range of peers Faculty Salaries:(1% = $200 k) Proposed increase3.0% Prior two years: 5% and 5.5% At or above cost of living Aligns with Teaching for Tomorrow campaign

Pres. Clarkson met with faculty and staff in Dec. - explained financial conditions - goal: no employee cuts due to economy no salary freeze or reduced benefits maintain positive morale Division heads in detailed search for savings Campus wide reduction efforts in energy savings Administrative team leading: - Sr. Admin team requested personal salary freeze

Westminster’s Response To Hard Economic Times

RevenuesPercent of AOB Tuition 67% Westminster Fund & Restricted Gifts 7% Endowment Support 18% Interest Income 2% Auxiliary Income 6% Total 100%

Expense CategoriesPercent of AOB Instruction & student services – 85 % wages & benefits 57% Financial Aid 6% Institutional Support 16% Facilities 14% Auxiliary 7% Total 100%

ExpensesDollars (millions) Wages & Benefits Instruction & student $25 Wages & Benefits Administration & operations 10 Instruction and financial aid 5 General & Administration 4 Plant & auxiliary 6 Total $50

supporting student initiatives to conserve energy, reduced: 8% to 18% over the past several months streamlined and automated the application and reenrollment processes through our website moved student account billing and payment on-line improving operating efficiency of the energy management systems renting facilities when appropriate reduced dependency on and cost of water by digging wells that provide irrigation to all athletic fields implemented campus wide ‘green’ cleaning, saving both time and money reduced facilities grounds staff by one through attrition

Workload data is a moving target with many models for how faculty or administrators divide their time between teaching and non-teaching responsibilities. Faculty workload in the different divisions is hard to compare, but it is necessary to understand and quantify with regard to thinking about a financially sustainable model and equity issues.

Class size categoriesNumber # Students/ FTE in ES 5.7:1 #Students/ FTE in JHS 7.2:1 #Students/ FTE in HS 7.3:1 Ratio of Total Number of Std to Total Number of Class Sections (JHS & HS) 13.8

DON’T Freeze salaries Reduce employee benefits Display angst

DO Take this opportunity to foster stewardship of resources Reassure teachers and parents that your school’s mission will continue to be delivered at the highest level

Tuition Faculty Salaries Cost Reduction Endowment Spending Rate Westminster Fund giving Capital Maintenance & Reserve renamed: PPRRSM -Provision for Plant Replacement, Renewal and Special Maintenance Enrollment Financial Aid

Spending at 4% using ‘Yale’ formula (10+ years) Incremental 1% change = $600 k ( in 2010 only ) Recommend: temporarily move from 4% to 5% 20% market drop: 5% target = 6% net of land/debt Return to 4% with economic recovery Current draw appropriations above spend rate: - Campaign expense$ 500 k to $600 k - Bond interest$1,000,000 Higher Ed and Schools statsaverage 4.6%

Propose no change in budget (flat) Remain at $2,800,000 in 5 year budget 08-09: $275,000 below YTD goal for cash & pledges  Cash collection behind as solicitation later in ’08  If goal cannot be met in 08-09, other cuts in and may need to reduce budget for No significant donor change since downturn A few donors requested delayed payment schedule

Higher education industry norms average 3% of replacement value ($132 million) to maintain facilities Annual: avg. capital investment $ 2 million capital need at 3% norm $3-3.5 million avg. depreciation $ 4.5 million Campus sf. grew 1/3 since 2000 (200,000 sf.) without increase in capital maintenance budget Student tuition does not cover the use of the buildings and equipment.

Revisit strategic cap of 1825 Proposed budget includes: 2010 – attempt to add 15 students to – attempt to add 15 students to 1845 Enrollment in ‘07, ‘ 08 and ‘09: at our 1815 budget Anticipate meeting goal based on applications and inquiries received to date

Proposed budget increase 5% Incremental 1% change$30 k Anticipating much increased need: - due to economic downturn - changes to standard aid formula - average increase $3,000/ recipient projected by NAIS 5- year budget increase: 4% for 4 more years

Caution:5 year model tool for forecasting less less precise for future years 1 Year budget approved annually year by year Many thanks to Roz Brewer and Paulino Barros for assisting in building budget model

Find the optimal class size that is financially sustainable given the School’s model Attract great students Hire the best teachers Keep morale high Pay them well Don’t fret if parents sometimes complain Grow endowment Increase financial aid to meet the School’s socio-economic diversity objectives Be more affordable Develop an enrollment plan that meets the School’s strategic objectives Balancing the budget will be easier Don’t teach ‘Chinese’ unless it fits into the school’s mission Keep up with technology, but evaluate its effectiveness Be more green By Corey McIntyre, Chief Financial Officer National Association of Independent Schools

Three essential questions from NAIS 1. What key areas of the School’s financial structure need attention? 2. What is the rate of change needed to solve the challenge in each area while remaining in financial equilibrium? 3. If financial equilibrium is not achievable, what other budget areas may require sacrifice in order to meet the desired future, or which revenue sources need to be targeted for growth?