Campus / News / January 14, 2009

Economic recession shrinks endowment

As the country sinks into its bleakest economic situation since the Great Depression, investors are losing millions of dollars on the stock market. Knox is no exception.

The Knox endowment has shrunk by nearly 30 percent in the past year and a half. Still, Vice President for Finance Tom Axtell is “optimistic” about our ability to recover, and confident that students will not see any significant cutbacks around campus as a result.

The Endowment

An endowment is “a pool of financial assets…that is intended to support the institutional mission,” said Axtell. The intention is that earnings from the endowment be used to support the college while the bulk of the funds remain unspent, so that future generations will continue to benefit from it. At Knox, the investment subcommittee of the Board of Trustees oversees a team of professionals that manage Knox’s investments in the financial markets.

But, as we all know by now, the stock market worldwide has plunged dramatically and continues to slide. On June 30, 2007, the endowment had its highest year-end market value in the history of the college, valued at just under $80 million. By Dec 1, it had tumbled to $52.3 million (see graphs.) This represents a drop of 27 percent.

Axtell expects the total will bounce back somewhat by the time the end of December value is calculated.

“If you surveyed the universe, I bet there would be a lot of folks who would love to have survived that period of time with a 20 percent reduction. It’s a terrible thing, but in relative terms, there are a lot of investments that are a lot worse. It eventually will recover. The big question is how long will it take,” said Axtell.

Axtell believes Knox can weather the storm. Aside from postponing consideration of capital projects like the remodeling of Wallace Lounge, which had been planned into this year’s budget, students should not see any reduction in the services they receive from the school, including financial aid, until at least the summer.

“We don’t treat financial aid as an expense line that we want to cut,” said Axtell. This position is informed not just by loyalty to the student body but also by the bottom line: if students lose financial aid and have to transfer or drop out as a result, the school loses tuition money in the end.

Tuition is the biggest source of income for the school, seconded by private gifts.


Private gifts come in the form of donations earmarked for specific purposes and the Knox Fund, which is money that can be used immediately. Vice President for Advancement Beverly Holmes said the Knox Fund is down eight to nine percent from where it was last year.

“Right now, our focus is the Knox Fund,” said Holmes. “We’re down but we’re definitely not down as significantly as you might think.”

Holmes said Knox was ahead of schedule in fundraising until the middle of November. The fiscal year is half over and the Fund is at about 43 percent of what it was last year. The Knox Fund is also experiencing a decline in donors.

Holmes said some people cannot give as much because they are struggling to stay ahead of the economy.

“We have an exceedingly high donor loyalty rating,” said Holmes. “It will be easier to get smaller gifts. I’m really excited by the number of donors who have been giving the same amount as they did in the past.”

Some colleges have cut back on asking alumni for donations, but Holmes said Knox plans to continuing fundraising. Because Knox already had a steady annual program for fundraising, it was already organized to ask for donations by the time the economy dipped.

However, the travel budget has shrunk, which means less face-to-face contact with potential donors. Holmes said she still plans on reaching out to donors through phone calls and e-mails, especially to thank those who have already donated. The Knox Magazine will also continue to be published.

In addition, Knox will release a new publication later this year. The President’s Report will summarize the last eight years of the college to show what the college has accomplished and help people understand the direction the college is going.

“The rest of the year we’re really going to have to work on fundraising. You have to stay out there,” said Holmes. “Every gift counts.”

The future

Part of the reason Axtell expects Knox to survive the slump involves the way the school manages budgets, which is unusual among educational institutions. Traditionally, departments receive a budget at the beginning of a fiscal year. If that department does not spend all of its money that year, it is taken as a sign that they did not need that much money in the first place, and the next year’s budget is reduced. This philosophy leads to a lot of last-minute impulse shopping, as Knox club leaders can surely attest.

At Knox, Axtell has created a “dynamic budget process” that allows departments to take what they need while finding savings where they can, with no threat to future budgets. The idea is to reward, or at least not penalize, individual departments for helping the school as a whole.

“The first year we adopted this protocol, we found more savings than we needed. We plowed the savings back into the areas that generated them…I sat with the other VPs and said, ‘Well, you’ve got $20,000 in your area, what do you want to do with it?’” Axtell said.

“It’s done very consciously on purpose in case we run into a year like this,” Axtell said. By eliminating the standard culture of use-it-or-lose-it, Knox has maintained a balanced budget for the past eight years.

Between dynamic budgeting, repurposing the money that had been set aside for Wallace Lounge, and systematically spending less of the endowment each year, Axtell says we may be in better shape than “the [institutions] we like to compare ourselves to.” Though many schools are wealthier than Knox on paper, he says they likely lack a flexible budgeting process, which might hurt them in the end.

“The point is that having lived through and developed ways to be flexible and reallocate resources and have budget responsibility widely dispersed…we had all the processes we needed to deal with [the recession].”

So when will it end?

“If I knew that, I probably wouldn’t be here. Nobody knows,” said Axtell.

Laura Miller

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