This is the time of the year when schools across the country are preparing, reviewing, and, perhaps, finalizing budgets for the coming school year. Consequently, it’s also the time when many schools see how many students have registered to attend for the coming school, and then make the decision as to whether the school will continue to exist, potentially informing parents they must choose a different educational environment for their children for the next school year.
In years past, school administrators have shared some of their thoughts and feelings after the decisions were made. “If only we had more financial aid to offer,” and “We allocated all our financial aid to those families that applied early, and then didn’t have any to give to those families who applied after the deadline to apply had passed” are phrases I heard routinely amid the typical reasons of declining enrollment, shifting demographics, and rising expenses which every school points to as rationale for closure.
So how much more financial aid did they need?
“$10,000 would have been great, because we fell 5 students short of our goal. We could have offered those 5 students an average of $2,000 each, but we didn’t have any more financial aid to award. We raise financial aid through our fundraising and development efforts, but it just wasn’t enough.”
Solution: Create a budget line for it, and add $10,000 to it. If there are 100 children in the school, it would increase tuition by $100 per student.
But that means that families who pay in full for their children will also be paying for the financial aid that’s given to other students.
Yes! How about that!
Doing so is rooted in Scripture:
“Our desire is not that others might be relieved while you are hard pressed, but that there may be equality. At the present time, your plenty will supply what they need, so that in turn their plenty will supply what you need. Then there will be equality, as it is written: “He who gathered much did not have too much, and he who gathered little did not have too little.”” – 2 Corinthians 8:13-15
Doing so might also change the way you need to budget, too. Let’s say you decided to put $100,000 of financial aid in your budget, and your fundraising and development efforts only raised $70,000 to fund that line. You end up $30,000 short. However, if you raise $70,000 of “financial aid from development revenue” this year, and hold on to it so it can be used for next year’s financial aid applications, adding an additional $30,000 as a “financial aid from tuition” expense line would only increase tuition by $200 for your 150 student school, and you’d have a total of $100,000 to award. It’s the balancing act. Raising tuition by $200 per student may cause parents to worry, but you MUST tell them that you have over $100,000 in financial aid funds to award…and keep reminding them that there are financial aid funds available.
Funds raised during the current year should be held so that they can be used for merit scholarships and need-based financial aid the following year. If you’re currently raising funds through events and appeals, and they’re used to fund the current school year’s budget, there are 3 to 5 shifts which need to be made in how your “tools and processes” need to work, and they need to work together as a system. A small shift in the way you’ve always done things can have a substantial impact on solidifying your school’s finances. It’s the way that systems work, and why systems thinking, rather than just process thinking, is so important to a school’s future today!
As for endowment funds, these are usually sustained by gifts which come from planned giving activities. But you can still budget for funds from operational revenue to be channeled to start an endowment for your school. While it could be a place where your “reserve” funds could go, since you can use the interest generated from an endowment, such a structuring needs to receive approval from your board, since funds contributed to the endowment’s “corpus” are usually irrevocable. In other words, if you start an endowment, the money that’s put into the endowment remains there, and only the revenue generated from the investment can be used. The only way the funds donated to the endowment can be used is if the endowment is dissolved.
If you’re getting into creating an endowment, and funding activities of the school through planned giving, then you’re going to need an Advancement person to identify those individuals that have the ability to leave a legacy by contributing funds to your school from their estate, so that when they pass on, they can be memorialized by their support of your school. Reserve funds, which should be 10% of your school’s budget, would then need to be kept in an account separate from the operational revenue of your school. And note how an article focused on Asset Management just jumped into the world of Development.
“But 10% of your school’s budget?” you may be asking. When budgeting for a household, it’s usually a good practice to have 3 months of income in reserve/savings in case of emergencies. That’s about 25%. Condominium Associations are required to hold 10% of their budgets in reserves for emergencies. Those are what reserve funds are…funds in reserve for emergencies. They’re an organization’s “savings account.” While 10% might be a steep step to take right off the bat, start at 5%, then work toward increasing it. “But won’t that raise tuition?” It probably will. And that’s one of the issues schools are facing today. One may think it’s rising tuition, but in many cases, it’s improper budgeting practices. “But how do we reduce tuition if expenditures like reserves and financial aid are being added?” Bring in more students, since that brings in more revenue. “But enrollment is declining.” That may be true, but who “owns” the task of making sure more and more parents are visiting the school, and crafting ways of getting more and more community members, prospective parents and alumni continually engaged with the activities of the school? If you don’t have a person – or several people – who have that type of designated responsibility for the school, it must be understood that they’re necessary positions for today’s tuition-charging institutions. “But won’t adding those people as employees make operating expenses increase even more?” Yes – and when one answer impacts a series of other processes, that’s when you know your dealing with a system…and the article on Asset Management just jumped into the world of Enrollment.
This is systems thinking. It’s difficult. We like “linear” and “process” thinking which are directional in nature. We don’t like systems thinking, primarily because we’re not trained to do it. If there’s no one that “owns” a critical process of a system, all processes are left to function on their own, and they’re all declining (like revenue, advancement income, enrollment, and marketing activities to reduce expenses), all the great student achievements won’t be able to turn the school around from a sustainability standpoint.
All elements of the system need to be identified, and all the elements need to be working together. If you leave out just one element, ignore just one element, or just don’t work on one element by choosing to ignore it while you work diligently and indefatigably on the other ones, what happens? #systemfail And that means #schoolclosure.
© Michael V. Ziemski, SchoolAdvancement, 2015-2021 (Original Publication Date: 20150321)