Though amounts of endowment and levels of dependence on it vary considerably among Presbyterian theological institutions, as a denominational group PC(USA) schools are the best endowed of all theological schools in the United States. This gives them great educational strength and stability and enables them to attract superb faculty and excellent students. But it also links their well-being to economic conditions. As everyone knows, in the last several years, those conditions have been very difficult.
Presbyterian Church (U.S.A.) seminaries also draw support from other sources. They depend on generous annual gifts from individuals, foundations and churches. They receive support from the PC(USA)’s Theological Education Fund (TEF). And they charge tuition, though in many cases tuition revenue is offset by a generous allocation of student aid. (Even with this provision, many students have to borrow to finance a theological education.) When financial markets turn downwards, however, all these other sources are affected too.
“Most of the foundations and many of the individuals that normally support the seminary have also been affected by falling markets,” says Carnegie Samuel Calian, president of Pittsburgh Seminary. “Not only do they have less money to give, but they also have more requests to consider during downturns in the economy.” Raising tuition is not “a realistic option,” notes Calian, “because many of our students are already burdened with debt. Any significant increase in tuition would have to be tied to an increase in financial aid.”
The Problem
All Presbyterian seminaries have been adversely affected by the decline in financial markets. Since October 2000, for instance, San Francisco Seminary has seen a drop of 26 percent in the value of its endowment, only 10 percent of which has been restored in the turnaround in recent months. Princeton Seminary’s “draw-down,” the amount of endowment yield it can spend each year without eroding the endowment’s earning potential for the future, has declined 11 percent over the past two years and resulted in large budget cuts.
Dean David Wallace reports that the value of the endowment of Johnson C. Smith, which had reached a value of $4 million, now stands at $3.5 million, and the amount available for spending each year has declined by a significant amount.
“At the same time our endowments are down, enrollment has grown dramatically from 33 seminarians to a record 50 this past academic year,” says Wallace. “Any institution would be thrilled with an increase in enrollment of 50 percent. Since many of our students depend on financial aid, we are concerned. It would be a tragedy for future leaders of the church to be turned away due to lack of funds.
“If it had not been for the TEF, we would have folded when the downturn started. Twenty-one percent of our operating budget comes from this source.”
Johnson C. Smith, San Francisco and Princeton are not alone. Loss of endowment value and decline in spendable funds are a general problem, affecting all Presbyterian seminaries regardless of size, financial stature or location.
When endowment revenue is down, the budget must still be balanced. While there are “no quick fixes,” according to Theodore Wardlaw, president of Austin Seminary, seminaries have come to realize that the patterns of operating that worked well during the financial boom of the 1990s will not sustain them for the future. To compensate for less endowment support of their programs over the short term and to ensure financial viability over the long term, seminaries are focusing on raising revenues, lowering operating costs and seeking more contributions.
Boosting Revenue
Seminary tuitions are low, and it is tempting to try to solve financial problems by raising them. But unless financial aid is also increased, a move that cancels the financial benefit of tuition hikes, students will have to take out more educational loans to pay the increased tuition. High debt levels are counterproductive in the long run. They may discourage graduates from entering ministry or impose additional financial burdens on low-paid new pastors and the hard-pressed congregations that employ them.
“We see our fairly low tuition-pricing as part of the way we serve the church and operate as stewards of the larger church’s resources,” says Cynthia Campbell, president, McCormick Seminary, Chicago. At the same time, most acknowledge that the number and size of financial aid packages and merit scholarships as well as special services to students have been affected by the recent economic downturn.
Rather than raise tuition to increase revenues, many seminaries are looking at ways to generate income from non-tuition programs and services. San Francisco, for example, has increased revenue from conferences and housing. Louisville Seminary is also, says Patrick Cecil, its vice president for finance, “placing greater emphasis upon generating revenue through our auxiliary facilities and services, which is a preferred option over increasing tuition.” Austin intends to provide revenue-generating, non-degree educational offerings on campus, at non-campus venues and online for non-ordained church staff, lay leaders and church sessions as well as ordained professionals.
Cutting Costs
The most common strategy to address budget shortfalls resulting from less endowment income is to lower operating expenses.
“The goal, of course, is to hold the line on expenses without having an impact on academic program or mission,” says McCormick’s Campbell.
Lowering personnel-related expenses is widespread. At some seminaries, salaries have been frozen; at others, salary increases are modest. Consolidating administrative functions and workforce reductions are proving necessary as well. Many seminaries are not filling positions vacated by retirements and resignations.
“A number of faculty searches have been put on hold,” says John Gilmore, vice president for business affairs at Princeton. “We’ve also changed our employee medical insurance provider at a cost savings and passed more of the cost of medical coverage on to our employees.”
Other cost-cutting efforts are focused on developing new efficiencies with technology, outsourcing, migrating from print to electronic media, reducing travel and sharing services and facilities with neighboring educational institutions. McCormick, for example, now shares a campus with the Lutheran School of Theology in Chicago.
Spending cuts have resulted in balanced budgets for 2003-2004 at most institutions. However, says Pittsburgh’s Calian, “the problem is far from solved. High quality theological education comes at a cost, and we must develop a sustainable funding model to support it.”
Aggressive Fundraising
Pursuing increased donations to both the endowment and annual funds is another way to compensate for less support from current endowment.
McCormick Seminary’s recently completed capital campaign raised gifts and pledges totaling slightly more than $26 million, half of which represents new gifts to the endowment for faculty chairs and scholarship.
“In the coming years,” says Campbell, “we hope to increase our annual fund significantly, with the particular goal of funding all our need-based financial aid.”
Similarly, Austin has launched a $25 million capital campaign in connection with its centennial year. The development office has expanded to include a staff member who has primary responsibility for annual giving. And the seminary intends to be more active seeking annual fund named-scholarships that provide full tuition for a student.
Presbyterian seminaries further benefit from income provided through the Theological School Endowment Fund (TSEF). Managed by the Presbyterian Church (U.S.A.) Foundation (800/752-6594), TSEF accepts gifts and bequests to support the entire theological education enterprise of the PC(USA).
“Until recently, we have been able to survive on small gifts made directly to Johnson C. Smith,” says Wallace. “Now that we are faced with a bad economy, we especially appreciate those gifts and are working to increase them. Still, it will take an increase in endowment along with more frequent, larger gifts to improve our financial picture over the long term.”
New approaches to endowments
Not just Johnson C. Smith, but all seminaries will always need endowments. The question is how to decrease dependence on them and to plan better for lows and highs.
Louisville Seminary reports that it has diversified its investment portfolio with good results. Though its endowment value decreased in 2002 by 5.1 percent, this loss was less than some other investors’. Other strategies focus on spending. “We have adopted a technique that provides some protection against market fluctuations,” says Barbara Wheeler, president, Auburn Seminary, New York. “Rather than choose a fixed spending rate (many institutions use a standard rate of 5 percent) to apply to an historical rolling market value average, at Auburn we take from the endowment only what we took the year before, plus inflation. We started this some time back, when our spending rate was low. This means we don’t have big run-ups in spending when the market goes up, but we also don’t have to cut sharply when it goes down.”
This past February, three members of San Francisco’s board of trustees funded a study by Auburn’s Center for the Study of Theological Education to ensure San Francisco Seminary’s financial future.
“The study took an in-depth look at the spending and income history of San Francisco and projected future scenarios based on different market growth levels,” says Scott Schaefer, vice president for finance and administration at San Francisco.
“As our board, faculty and budget managers reviewed the findings, we saw the financial picture of the seminary over the next two decades. The result was immediate action by the board to set realistic spending goals, reduce income from the endowment and set up a task force to balance the budget for 2004-2005.”
“While we are reducing spending by several hundred thousand dollars per year over each of the three years in which the most difficult cuts are required, this challenge has given us the opportunity to sharpen our focus on our core mission,” says Phil Butin, president of San Francisco Seminary. “We are allocating our resources to those programs and areas which are most crucial to that mission.”
“The silver lining to the budget ‘crisis’ is that it forces us to review our priorities and mission,” concurs Princeton’s Gilmore. “By adjusting to the new fiscal realities, we keep our spending rate at a responsible level, allowing us to continue to meet the needs of future generations of seminarians without sacrificing them for the sake of those who attend our schools today.”
