October 26, 2012 — Calvin College, which is owned by the Christian Reformed Church, will spend the next five years tightening its financial belt to ward off what could otherwise turn into a debt crisis in 2017.
That’s the year the Grand Rapids, Mich. college will face close to $9 million in annual principal and interest payments on a $116 million debt taken on in 2007.
Add to that rising health care costs, lagging salaries that need to be kept competitive, physical plant maintenance, and lower endowment spending, and the challenge becomes more daunting.
The new college president, Michael Le Roy, underscored that there is no current crisis; this year’s revenues will meet expenses. “But we can’t stick our heads in the sand and operate as usual,” he told The Banner.
That’s why the college is embarking immediately on an 18-month review plan that will allow the college to redirect about 10 percent of its spending over the next four to five years to meet the challenge.
Based on the college’s current budget of $103 million, 10 percent would be about $10 million.
“We are setting criteria for all services to be prioritized,” Le Roy said. That prioritization process will start at the department level, up through the levels of deans, directors, and vice presidents, and on to the college’s planning and priorities committee. Final recommendations will land on Le Roy’s desk at the end of 2013. His recommendations will go to the college’s trustees, with decisions being made in spring of 2014.
Le Roy refused to speculate on where cuts might be made, saying he didn’t want to circumnavigate the review process. “It may be that we find opportunities to consolidate. We need to look for opportunities to enhance revenue,” he said. “We know we cannot just pass the cost on to students and families. We know we need to reduce expenses to meet longer-term goals.”
Finance reporting systems also are being updated. “We need real-time accuracy in this environment. We can’t just go year to year,” Le Roy said.
Le Roy noted that investment returns have been flat or even negative for much of higher education in recent years. “We were involved in higher-risk investments like hedge funds,” he said.
That investment strategy also included some risky real estate deals. Henry De Vries, vice president for administration, finance, and information services at Calvin, and Samuel Wanner, until recently the college’s director of financial services, co-wrote an article about those acquisitions earlier this year called “Wise Buys,” published online by the National Association of College and University Business Officers.
In that article they wrote: “It is critical to note that such real estate deals can be risky and complicated, and they raise a number of implications beyond property and income tax concerns. . . . Such endeavors are not for the faint of heart, nor for the impatient, since ample time is required to vet each deal with institution leaders and stakeholders.”
They noted in the article that the deals were financed in part through taxable bonds.
Last week the college’s board of trustees approved hiring a fiduciary investments advisor to review and implement a new investment policy with lower risk and a different diversification strategy. In addition, all real estate holdings will be evaluated, and those that aren’t making money or hold little strategic value for the college will be sold.
At the same time, the board also is looking at long-term strategic planning.
“It’s really about what kind of institution Calvin wants to become,” Le Roy said. “One of the challenges of being Reformed is believing in the value of all things. But the college doesn’t have the capacity to do all things. We have to decide what we’re going to focus on and be realistic about what we can’t do.”
Whatever the outcome of the belt-tightening and the strategic plans, Le Roy said he is committed to being open and transparent both within and outside the college.
“We’re in this together,” he said—“faculty, staff, students, and the denomination.”