Analysis Reveals Effects of Economic Downturn

By Benjamin Engle

Union College officials are closely monitoring the news of the economic crisis after the results of its internal financial stress analysis.

At the September meeting of the Executive Committee of the Board of Trustees, the Trustees decided to have the Finance and Administration staff conduct an analysis of the college’s financial weaknesses.

The stress analysis considered factors such as unemployment rates, stock market and credit market performance, and how Union families are being affected into consideration. In addition, the Finance and Administration department took into account the declining amount of wealth of its families and the potential for increases in financial aid need.

During the winter break, President Stephen Ainlay issued a message to the Union community regarding the state of the economy and its effect on Union. In his letter, Ainlay stated, “…Union College is by no means isolated from the effects of the economic downturn, and this has commanded a great deal of our time and attention in recent months.”

According to Diane Blake, Vice President for Finance and Administration, Union’s endowment, like most colleges and universities, has taken a hit. The value of Union’s endowment has declined by 25%, a drop of $100 million since June 30, 2008. At the end of the 2007-2008 fiscal year, the endowment was $400 million, however, because of the economic events, as of December 31, 2008, the endowment stood at $300 million.
Nevertheless, “Our endowment has performed better than most,” Ainlay wrote. “While we too have realized losses, we have consistently outperformed the S&P and composite index in 2008 year-to-date.”

Even though 15% of Union’s $130 million budget is comprised of income from the value of the endowment, Blake is optimistic, “The downturn wont hit us today, but it can hit us later. Our best hope is for the market to go up for the year ending June 30th.”
Because of the uncertainty of the market and the future value of the endowment, the President and Board of Trustees have delayed the budget presentation and approval process. In past years, the Board of Trustees has usually approved the next year’s budget at their February meeting. In order to ensure that they don’t make any rash or sudden moves, the 2010 budget will tentatively be approved at the May meeting of the Board of Trustees.

In preparation for next year’s budget, Blake and her staff are investigating various strategies that won’t affect Union’s day-to-day operations, however, they are being cautious. In preparation for next year’s budget, the college has set a hiring freeze and is not filling many open positions.

The Board of Trustees will analyze these different strategies at their February meeting, as well as make difficult decisions, including the fate of the new 35,000 square foot Peter Irving Wold Science and Engineering building to be built in the area between Olin, Science and Engineering, Schaffer Library, and Social Sciences
“We at Union are hesitant to act irrationally,” Blake stated. “We already maximize our resources and stretch the budget pretty far. We make sure we have the facts before we make decisions.”

Recently, college layoffs have spiked across the country. According to a December survey of over 200 public and private colleges and universities by the Chronicle of Higher Education and Moody's Investors, 11% of schools had laid off employees and an additional 26% of schools were considering layoffs. Locally, RPI has come under much criticism for laying off 98 employees in an effort to handle their economic problems. The Albany Times Union reported that RPI was the only capital region college to conduct layoffs so far.

According to Blake, Union is not considering following RPI by laying anyone off at this point.

“We value community and commitment. Layoffs [are] not on the table,” Blake said.
While Blake believes that any money lost in the endowment is a loss and is hard to recover, she is looking ahead relatively positive, “Budget 2010 will be a tight year but we do not expect a shortfall.”

Even though the 2010 budget is not expected to have a short fall, the Department of College Relations is working hard to ensure that Alumni giving stay stable. According to Nick Famulare ’92, Director of Alumni Relations, in 2008, there were approximately 8,300 donors to Union with a 41% alumni participation rate. During the course of 2008, Union took in approximately $27 million.

However, the economic problems have not spared Alumni giving.

“No question about it, like our peer colleges, the downturn has affected donor participation and gifts to the institution,” Famulare said.

According to Famulare, Union is behind in both donor participation and general gifts to the institution. Alumni are being more cautious because of the uncertainty of the economy and of their jobs. While Alumni are being more conservative in their giving, Famulare believes that donors will come back in a few months and may still donate when the economy improves.

Famulare is optimistic that Alumni and community donations will return to pre-downturn level, “Union has been around for over 200 years, with an annual fund that is one of the oldest in the country. Alumni have rallied before to support Union during troubled times and I am confident they will do so again.”

As President Ainlay stated in both his fall letter to the community and in December, he believes that Union is in a good position in the educational market place.

“…We will not jeopardize the quality of the Union experience or compromise in any way the health and safety of our community,” Ainlay wrote. “The bottom line is that, despite the economic downturn, Union remains strong.”

Originally published in Union's Concordy on January 22, 2009.