The college started the 2011-2012 fiscal year with a $3.6 million budget deficit, or about 9 percent of the overall budget, according to Vice President for Finance Tom Axtell.
But, Axtell said, the fiscal year will end with a balanced budget due to the nature of the budgeting process at Knox. The college uses a dynamic budget, which is altered at the end of each fiscal quarter to adjust for savings that have accumulated throughout that time period.
“This isn’t where we will end up; it’s where we start,” Axtell said.
Over the last 12 or 13 years, Axtell said, the college has been able to eliminate the deficit about half the time through expense reduction, increased tuition revenue and fundraising and that is the best way to go about it.
Axtell said if balancing the budget is not achieved through those means, the Board of Trustees has authorized the use of unrestricted bequests and reserve funds, “if all else fails.”
“One way or another, either a graceful way, or an ugly way, or a really ugly way, at the end of the year it’ll be balanced,” Axtell said.
Axtell said the college has started with a budget deficit for as long as he has been working here, since the 1999-2000 year. Before his time at Knox, he said the typical budget would be made at the beginning of the year and never be changed after that.
Axtell said this is one of the largest starting budget deficits in a while, and much of that can be attributed to the endowment-spending rate (ESR), which is determined by the Board of Trustees.
Axtell said the ESR was 16.6 percent his first year, and it averaged to about 12 percent during the preceding decade.
“That’s totally unsustainable,” Axtell said. “The immediate issue was how to get our largest financial asset, our endowment, to a sustainable rate …. The corpus of your current endowment, the purchasing power, ought to remain at least constant over time.”
In the early 2000s, there was a series of heavy budget cuts to most departments in an effort to get that spending rate down and preserve the endowment. This year, the Board of Trustees approved a five percent ESR, which Axtell said is generally accepted as a proper rate of spending.
At the same time, Axtell said there is a compensation initiative for faculty and staff, who have had to endure pay-freezes for much of the last decade. In other words, the amount of the endowment the college is authorized to spend is decreasing, while it is trying to spend more on compensation, which, among other factors, is the source of the relatively large deficit.
“We have had a pretty good track record,” Axtell said. “But 3.6 [million] is a pretty big number. I guess I would be surprised if we could eliminate that deficit totally by year’s end just from more operating revenue than we anticipated, and it would take an awful lot of expense reductions that may actually be detrimental to the institution moving forward.”