Middlebury College seeking to even its fiscal keel, eliminate operating deficit

MIDDLEBURY — Middlebury College’s endowment has grown to an estimated $1.2 billion, according to David Provost, who joined the college as its executive vice president for finance and administration a year ago. And in a few years annual interest from that endowment should allow the college to better pursue goals that will directly benefit students, such as increasing financial aid and improving already well known language, environmental and international schools.
But for the next few years Provost said that interest income will be also devoted to another important target: bringing the college’s annual operating budget of roughly $270 million into the black. Disbursement of interest on the endowment is limited by a college board of trustees policy to 5 percent annually in order to preserve the principal.
“I came in last January with the focus to return the college to financial stability,” said Provost, who previously held a similar position with Burlington’s Champlain College. “The last few years the college has had an operating loss. Even though $50 to $65 million has been taken out of the endowment each year, the college has still been losing money in operations of the institution. We are on a four-year path back to get that to break even and truly be at a 5 percent endowment withdrawal.”
According to a college press release the Middlebury endowment supports all of Middlebury’s schools, including the undergraduate college, Middlebury Institute of International Studies at Monterey, its language schools, Schools Abroad, Bread Loaf School of English, Bread Loaf Writers’ Conferences, and School of the Environment.
Provost is not singing the blues about the institution’s financial health — it’s just that he said Middlebury could focus its resources more efficiently and serve its students better.
“It’s how we spend money today, and could we be spending it better in the future?” he said. “It’s not that once we hit that break-even point that we don’t have money available. We do. I’m trying to bring the organization to say how can we be spending it better that will actually make the student experience better and a Middlebury education that much more distinctive.”
Provost and college administrators have taken several steps to curb an operating deficit that he said peaked at $22 million in 2016.
“This past year we got it down to $13.7 (million),” he said. “The goal this year is hopefully to get it down closer to $10 (million).”
One cost-saving step was already planned when Provost arrived, and he helped put it in place: requiring students to swipe ID cards to enter dining halls. Security was lax, and “Riding the Panther” was code for non-student visitors to help themselves at college dining halls.
Provost said food costs have already gone down significantly in the past year.
“Students didn’t have to swipe when they came into the dining halls, but neither did anyone else,” he said. “I can’t look at a student at Middlebury and say you have to pay more so we can feed others.”
Provost also asked each department to cut costs by 4 percent. The facilities department achieved it by switching some of its energy use to less expensive natural gas, for example.
“Department by department it’s getting people to think a little differently. Middlebury is seen as a very wealthy institution, but we have to operate within our own means. And the last few years we weren’t operating within our own means,” he said.
Provost, who replaced Patrick Norton in the college’s top finance job, made one change quickly — Middlebury no longer operates 51 Main Street, its former downtown restaurant.
“If we had a hospitality program I would have been the first to say from a curriculum and academic standpoint, giving our students hospitality experience, we should own a restaurant,” he said. “We were losing between $200,000 and $250,000 a year, and being in a business we had no right to be in. So I said why not find a partner who actually knows what he’s doing in running a business.”
In another cost-saving move, Middlebury saved money on administrative and financial software by sharing the purchase cost (more than $6 million) and ongoing expenses ($3 million a year) with Champlain and St. Michael’s colleges. Provost said more savings are possible in the future through shared financial employees, while he will also look to enhance revenue by better marketing the college’s assets, such as its ski areas, Bread Loaf Campus in Ripton, and golf course.
“Those are things that don’t change the student experience,” Provost said. “That’s the goal.”
Unlike, for example, the county’s public schools, Middlebury College does not carry a deficit from year to year. It taps its revenue sources — its $68,000 a year comprehensive fee paid by full-tuition students, donations, specific fund-raising campaigns, and endowment interest — to balance the budget.
The endowment’s performance has certainly helped deal with the deficit spending, at least after what Provost said was a 4 percent investment interest loss in the 2015-2016 fiscal year. The college’s fiscal years run from July 1 to the following June 30.
“Last year was a really favorable year, coming off from really not a great year the year before,” Provost said. “In fiscal year 2017 (ending this past June 30) it was a 13.8 percent return. So that produced nearly $130 million of investment returns.”
But college officials do not want the endowment to help finance an operations deficit: They would prefer to use the interest generated to improve the institution.
“In the short term the positive investment returns hopefully allow us to achieve some of those goals quicker. Longer term, there are discussions at the board level of where should we be investing strategically,” Provost said.
Provost said the board and “groups across campus” are now discussing a number of areas into which the college should invest its resources, with agreement on “spending more on financial aid to make a Middlebury education more accessible to a broader group of people,” and an ongoing discussion centered on the “Envisioning Middlebury” strategic plan that will develop other priorities.
Language, global and environmental initiatives will be the focus, he expects, plus digital fluency and an effort to develop different ways to deliver and “lever the existing curriculum that we have.”
Clearly, though, financial aid remains important. Currently 44 percent of Middlebury’s 2,500 undergraduate students receive aid, with an average grant of $46,000, most of which comes from its operating budget, Provost said. And in turn, the endowment helped fund that aid.
“The endowment right now, biggest chunk is scholarships,” he said.
At one point college officials were worried about Congressional plans to change the national tax code, but the final bill passed in December should not affect the college too drastically. The formula adopted for endowments puts Middlebury under the taxation threshold, although one change, a provision that taxes colleges if they refinance tax-exempt construction loans to seek lower rates, could have an impact.
“The original draft of the House bill would have significantly affected Middlebury,” Provost said. “All in all, we’re breathing a sigh of relief.”
Overall, Provost is confident Middlebury can make its spending more efficient and make better use of its endowment, while also improving the college and its students’ experience.
“We have good fortune here. We have a large endowment, and we don’t want for much. I’m coming from a perspective of coming in from an institution that didn’t have an endowment,” Provost said. “Every dollar spent I had to view as a dollar I had to ask a family to fund. I’m trying to bring the culture of student-first in how we spend money to Middlebury.”
Andy Kirkaldy may be reached at [email protected].

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