1. Patrick F. Bassett, NAIS President bassett@nais.org Financial Survivability

5. http://www.nais.org/resources/movi e.cfm?ItemNumber=151365 Film Clip

6. Financial Sustainability? Patrick F. Bassett, NAIS President The Economic Meltdown – Brutal Facts vs. Unshakeable BeliefsUnshakeable Beliefs

7. 1.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. 2.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. The “Perfect Storm”: Six Factors in Confluence. What Shape is your Strategic Plan in?

8. 3. 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. 4.Demographics Changing: 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. The “Perfect Storm”

9. 5.Affordability Disappearing as Tuitions Skyrocket: 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. 6.Wealth Declining: A chilling zephyr on feelings about one’s wealth and capacity for eleemosynary giving. Harbor during the storm…. Lessons from the past. The “Perfect Storm”

10. NAIS Schools Holding on during Recessions Recession Years (in Red) Avg EnrollmentAnnual Giving per Student 1968-69339 $ 170 1969-70345$ 147 1970-71337$ 150 1972-73347$ 203 1973-74359$ 220 1974-75361$ 203 1975-76360 $ 173

11. NAIS Schools Holding on during Recessions Recession Years (in Red) Avg EnrollmentAnnual Giving per Student 1979-80387 $ 267 1980-81390$ 420 1981-82397$ 313 1989-90403$ 862 1990-91408$ 875 1991-92414$ 907

12. NAIS Schools Holding on during Recessions Recession Years (in Red) Avg EnrollmentAnnual Giving per Student 2000-01487$ 1,248 2001-02485$ 1,273 2002-03482$ 1,343

13. Prior YearNumber Average FunnelSchoolsInquiriesApplicantsAcceptEnrollees 2009-09112972427814396 2007-0899671428714697 2006-0796575428214599 2005-0696779728014799 2004-0595181927814998 2003-0491685628515098 2002-03805929311155103 2001-02899975318151103 2000-018351061329153104 1999-008091038319154106 1998-99855991296148103 1997-98869998296147102 Early Indicators: SSS & SSATs tracking

14. Enrollments in StatsOnline Reporting Schools Year # Schools Totl EnrolmentAvg Enrolment 2001 1,218 551,944453 2002 1,688 744,342441 2003 1,534 627,230409 2004 1,523 606,551398 2005 1,656 660,479399 2006 1,492 645,916433 2007 1,491 650,895437 2008 1,468 670,139456 2009 1,493 681,762457

16. An NAIS Overview Framework There are no “one-handed” economists: 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.

17. An NAIS Overview Framework There are no “one-handed” economists: 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.

18. An NAIS Overview Framework 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.

19. The Financial Crisis - Immediate First Steps 1.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." 2.Cash: “Trust in God…but tie your camel.” Consider putting cash in FDIC-insured savings or brokerage accounts

20. The Financial Crisis - Immediate First Steps 3.Debt-Financed Bonds: Hearing some 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.lewis@icemiller.com 4.Financial Scenario-Planning: A.) Contingency Plan: Income Down 5% - 10% B.) Disaster Plan: Income Down 20%

21. Scenario 1: A Contingency Financial Plan - Income Down 5% - 10%: Recommendations from the field. Cut Expenses (Except Increases for Financial Aid): 1.Freeze “non-defense spending”: i.e., put a hold on discretionary expenditures. 2.Postpone capital expenditures: e.g., capital renovations and replacements. 3.Double up assignments to cover staff attrition rather than hiring replacements.

22. Scenario 1: A Contingency Financial Plan: Income Down 5% - 10% Cut Expenses (continued): 4.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;

23. Scenario 1: A Contingency Financial Plan: Income Down 5% - 10% 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”). 5.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.

24. Scenario 1: A Contingency Financial Plan: Income Down 5% - 10% Cut Expenses (continued): 6.If you anticipate being down for longer than the current year, beyond steps 1 -5, consider a)Moderating tuition increases b)Moderating salary increases (e.g., making COL+ raises contingent upon achieving balanced budget enrollment projections)

25. Scenario 1: A Contingency Financial Plan: Income Down 5% - 10% Increase Income: 7.Use net tuition discounting to grow enrollment without adding staff. 8.Strengthen advancement messaging and cultivation to raise more money. 9.Fully utilize the school’s physical capital (expanding use of campus) 10.Exploit the schools intellectual capital (creating related businesses-online courses, tutoring services, boarding program for international students, etc.)

26. Scenario 1: A Contingency Financial Plan: Income Down 5% - 10% Higher risk options (to avoid if possible): 11.Borrowing more (risking exacerbating debt service demands: if necessary, “borrow from yourself,” using reserves and endowment with a formal payback schedule). 12.Abandoning your spending policy, taking a larger draw from the endowment that invades principal, (risking jeopardizing standing with donors) 13.Committing publicly now to very ambitious capital campaign goals (risking timing and attainability issues)

27. Scenario 1: A Contingency Financial Plan: Income Down 5% - 10% What are what Harvard’s Jim Honan invites, the “deeper conversations” and "beyond the usual" responses? Or James Surowiecki’s “wisdom of the crowd?” 1.? 2.? 3.? 4.? One school’s plan: rather than cut back, spend endowment and use aggressive merit aid to grow school enrollment and program as competitors contract.

28. Scenario 2: A Financial Disaster Plan Disaster Plan: Income down 20% or more. 1.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. 2.“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. 3.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.

29. “Unshakeable Beliefs” Counter “Brutal Facts” 1.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. 2.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. 3.Industry leaders 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. (Faculty, trustees, and parents need reassurance: high anxiety levels.)

30. “Unshakeable Beliefs” Counter “Brutal Facts” Within challenges, lie opportunities to make… 1.A dramatic commitment school by school to sustainability financially, environmentally, demographically, programmatically, and globally. 2.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.

31. “Unshakeable Beliefs” Counter “Brutal Facts” Within challenges, lie opportunities to make… 3.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.

32. The Leadership Part: Many of the people we need to make all of his happen are in the room. Let’s get to work.

33. Financial Sustainability/Survivability The End!

34. Benchmark Schools (2008- 2009) Grade K Tuition Grade 3 Tuition Grade 6 Tuition Grade 8 Tuition Starting Teacher Salary Highest Teacher Salary Mean Salary Median Salary School 1 $15,382 $16,082 $31,662$75,625$58,693$55,739 School 2 $10,350$10,650$10,950$11,150$28,000$48,045$39,286$40,565 School 3 $14,500 $14,700$15,000$33,391$65,755$51,518$51,239 School 4 $13,640 N/A$58,275$42,271$42,790 School 5 $15,800 N/A $31,600$44,400$38,720$42,800 School 6 $9,475$9,750 $20,000$40,000$30,000$31,929 Our School $12,980 (5/7)* $12,980 (5/7) $13,680 (3/6) $30,500 (4/6) $47,950 (5/7) $37,081 (6/7) $36,400 (6/7) Benchmark School Comparison: 2008-2009 *( our school/pool) = Our School Rank Small School Case Study

35. Our School: Enrollment Scenarios 2009-2010 Enrollment 190 (Worst Case) 210 (Most Likely) 225 (Best Case) GradeSections# StudentsGradeSections# StudentsGradeSections# Students PK118PK118PK222 K226K228K230 122412281230 211822222225 322432283229 4118422042 5118522052 611861206121 711171 7113 811581 81 190210225

36. Forecast Budget Scenarios 2009-2010 TOTAL STUDENTS190210225 Lower School:Middle School 145:45155:55168:57 % Tuition Increase 7% $ Tuition Increase +$920:$990 LS Tuition 13900 MS Tuition 14850 REVENUE Total Tuition Revenue 268375029712503181650 Tuition Discount -47500 Sibling Discount @$500/child -55500 Financial Aid 15%/Total Revenue -402563-445688-540880 Other Revenue 710730 Total Revenue288891731332923248499 EXPENSES General (+3%) 1164052 Salary (+3%) 1824187 Medical Benefit (+15%) 273700 Insurance (+5%) 28350 Mortgage Interest -24250 Total Expenses-3266039 Net-377122-132747-17539 Depreciation 208727 Mortgage Principal -185634 PPRSM 14000 Lease -15000 Med Plan Capitalization -10000 Asset -20000 CASH FLOW +/--385029-140654-25446 Mitigation Options: Expense Cuts: Professional Development 50K Leadership Stipends 25K TIAA Contribution 35K Marketing 15K Salary @ 210 2x35K = 70K @ 190 5x35K = 175K Close 1 Building: @190 55K TOTAL: 195 to 355K Revenue Enhancement: Summer Camp +15K Fundraising