Dear Nazareth friends,
The fiscal year ended June 30, 2013, reflects the College’s continuing discipline in managing its finances in a time of significant challenges to higher education. Demographic trends in the Northeast, combined with continuing economic challenges, contributed to enrollment shortfalls impacting the College’s operating budgets. As the enrollment impact became clear in fall 2012, a number of actions were taken to reduce current year expenditures and to establish a sustainable financial model for the years ahead. Also during this fiscal year, the College experienced a rebounding of its endowment values and thoughtfully refinanced some existing debt to take advantage of the current low interest rate environment. The accompanying financial statements reflect the combination of these near-term budget actions and the longer-term treasury management activities of the College.
In light of the changing landscape for higher education, in spring 2012 the president convened two groups to conduct a strategic analysis of both academic and administrative programs at the College with a focus on reducing costs for students. Each group was chaired by a vice president and comprised of representatives of the faculty and staff. In remarks to the community, the president noted that in the coming years, quality and innovation will need to be achieved through redeployment of existing resources, collaborations, and restructuring the ways we deliver our programs and administrative services. New and creative thinking about how we deploy our human, financial, technology, and space resources will be critical to implementation of the Naz 2020 Strategic Plan and the College’s future. The work of these committees, together with the commitment of the senior leadership team, resulted in a series of actions taken to reduce expenditures and increase effectiveness, both for the current year and into the future. Actions taken included reorganization of administrative departments, elimination of certain open positions, implementation of a voluntary retirement program, and finally a reduction of the workforce to meet established targets. While these actions were difficult for the community, they were essential to enable us to continue to provide an excellent educational experience for our students. The College ended the year with a modest operating budget surplus and an expense base more appropriately sized for the coming years.
In spring 2013, the finance team at the College moved to take advantage of the current low interest rate environment. Approximately $18 million of existing borrowings were refinanced, generating more than $1 million of interest expense savings over the remaining years of these obligations. As part of this process, the College made presentations to both Moody’s Investor Services and Standard & Poors. Both organizations reaffirmed Nazareth’s existing credit ratings with a “stable outlook” and made note of the fiscal discipline evidenced by the budgetary actions taken. In today’s turbulent debt arena, the confirmation of the College’s ability to steward its resources represents a valuable external endorsement.
The College’s endowment portfolio had a total return of 12% for the year ended June 30, 2013, outperforming its policy allocation performance target of 9.7%. Managers across almost all categories outperformed their asset class benchmarks. Over the ten year period, which includes the economic downturn and recovery, the College now has an average annual return of 7.5%. This return preserves the purchasing power of the portfolio, balancing the needs of today with the desire to preserve a solid financial future for the College.
Capital gifts to the College totaled $2.2 million in FY13. This category includes gifts to the endowment fund and also gifts for major capital projects, such as the expansion of Carroll Hall to establish the Wellness and Rehabilitation Institute. Finally, the rise in interest rates has impacted the valuation of certain long-term liabilities that the College reflects in its financial statements. Last year, the College recorded a $3 million reduction in net assets due to falling interest rates. This year, a slight increase in these rates reverses that effect, resulting in an increase in total net assets of $3.4 million. While these fluctuations are beyond the College’s control, their impact on our valuation of assets and liabilities is real and can be a significant component to the overall change in the College’s financial position.
The combined effect of the College’s results of operations and its nonoperating activities described above has resulted in an increase in total net assets of approximately $8.9 million. This growth, largely attributable to investment activities and interest rate fluctuations, combined with important capital gifts to the College, will position the College well to respond to the changing external landscape.
Margaret Cass Ferber
Vice President for Finance and Treasurer