When Knox went online this term, it lost out on $2.7 million from students in room and board fees.
The pandemic and the loss of revenue comes when Knox was already grappling with an operating budget deficit, last reported in November at $4.5 million.
As the virus persists, the effect of the pandemic on the college’s financial health remains a developing matter as the school continues to receive new information and unroll cost-saving measures. In light of the unknowns and in light of the cuts and guidelines Knox has followed through so far, senior staff are confident Knox can emerge from the pandemic financially secure.
“I think we can look at the Spring Term as being a bit of an anomaly but certainly we have to plan for the fact it might not,” said Knox Vice President of Finances Paul Eisenmenger. “And can we weather that storm? Yes we can. Does it make things snug? Yes it does but, again, it is not an existential threat to us by any means.”
Retaining enrollment and employees
Like most higher-education institutions, Knox depends upon tuition revenue. A significant drop in student enrollment from Winter to Spring Term could have endangered the school’s financial well-being.
However Eisenmenger said Knox saw 10 more students enrolled this Spring than the budget actually planned for. Tuition revenue remained level and the effective rush to convert classes online proved instrumental in retaining students into the Spring.
Eisenmenger also said that a portion of the $2.7 million loss in room and board revenue was displaced by the reduced costs of supporting a significantly smaller population of students on campus.
Still, the relief in utilities and food expenses are not enough to make up for the financial pressures that the pandemic has placed on the college. In a newsletter addressed to Knox alumni, parents and friends on April 13, President Teresa Amott said the school would have to make “difficult decisions.”
Knox normally employs around 472 people, including faculty and staff. Approximately 55 employees were informed by April 14 that their jobs would be cut or furloughed. Most of the reduced staff supported on-campus housing, such as dining services. Eisenmenger said the cuts and furloughs were driven by the coronavirus and the reality that there were less students on campus that needed support.
“If we’re staffed to feed 1,200 (students) and you only have 165, I mean you just have to make adjustments there,” Eisenmenger said. “It’s just not good financial stewardship not to.”
Under Illinois state law, unemployment benefits are financed for by the former employer. As a result, Knox will continue paying, to some extent, its former employees who are eligible for unemployment.
Eisenmenger said Knox wants all its employees to return. But how many employees Knox can afford to rehire in the future depends upon how many students Knox will have on campus in the Fall.
“If we have back to a healthy number then I would be as eager as anybody to send what we call ‘recall notices’ and get back here and to resume what we had going four months ago,” Eisenmenger said. “But it is going to be enrollment driven and we probably won’t know our situation on that until mid to late summer at the earliest.”
For the employees that do currently remain on staff, Eisenmenger said it is unlikely Knox will provide hazard pay. Eisenmenger said Knox acknowledges and appreciates custodial and food-worker staff but that unlike police or hospital service workers, there is a smaller volume of students and ongoing unknown exposure at Knox.
“If we still had 1,200 students on campus and there was a higher risk then I think there’d be some traction for that (hazard pay). But right now we’re just trying to address it with good social distancing and good cleaning protocols and good safety measures as best we can,” Eisenmenger said.
Cuts and CARES
Knox has not only reduced staff but it has reduced how much money the college contributes to employee’s retirement funds.
In an email addressed to the campus on April 28 Amott said, “all of the likely scenarios suggest a significant drop in revenues for FY21 (Fiscal Year 2021), and therefore, additional cost saving measures need to be taken.”
In the email, Amott said the Executive Committee of the Board of Trustees approved decreasing the percentage of an employee’s salary the school provides towards the employee’s retirement account from 6% to 3%.
This arrangement is known as a 403(b) contribution plan and over the course of one year Eisenmenger said the reduction will equate to $425,000 – $460,000 saved by the college and consequently not distributed among eligible staff.
The cut went into effect May 1. Amott said it is temporary and easily reversible. In 2013, the last time Knox cut their 403(b) contribution in half, it was reversed within 18 months.
“Some schools are completely doing away with it,” Eisenmenger said. “We chose to try to keep some match in place but yet at the same time acknowledging that there are just areas we have to look at costs and make these kinds of decisions.”
Amott is also seeing a reduction in compensation. In the same April 28 email, Amott announced she would ask the Board of Trustees to lower her salary by 20% for the foreseeable future. Seeing that Amott announced in early March she plans to retire come June 2021, it is likely the Knox president will keep the pay reduction to the end of her Knox tenure.
Amott said that other members of Senior Staff have committed increasing their donations to the Knox fund as well.
Outside of its internal finances, Knox received approximately $1.3 million in federal aid from the CARES Act, a federal law passed at the end of March to support people and institutions affected by the pandemic.
Eisenmenger said Knox will split the federal funding in half and spend it in two ways. The first $644,000 will be funneled directly towards students affected by the coronavirus. The second portion will go towards COVID-19 related expense costs.
Knox identified and reached out to students during the end of May who were eligible for financial support from the CARES Act. The money was distributed based on need and students with low-expected family contribution received up to $1,200 directly into their bank account.
The other half of the grant may be spent in the form of purchasing more PPE for staff or investing in improving Knox’s online infrastructure—such as purchasing more bandwidth—to support the virtual learning environment.
Eisenmenger said Knox is mainly in uncharted waters. It remains unknown what other cost-reducing measures the school will need to take, just as it remains unknown when the school can alleviate the cost-reducing measures it has already taken.
The trajectory of the virus, advice from health experts and feedback from students and faculty after Spring Term’s completion will help senior staff understand how to position the school moving forward. Eisenmenger said Knox wants to have as much information as possible in order to discern the best action and so decisions will unfold through the summer months.
One measure that is not being considered is an additional increase to student tuition, Eisenmenger confirmed.
Before the pandemic hit, Knox announced that student fees would be increased by 3.28% for the 2020-2021 school year, adding $1,908 to the Knox price tag. Eisenmenger said the increase was standard compared with other Midwestern colleges and that tuition increases happen most years to meet rising costs.
Eisenmenger affirmed that providing an accessible education is Knox’s primary goal. In spite of the present financial pressures Knox is facing, there will not be additional price increase to the hike announced Winter Term
In the face of the budget deficit and the pandemic, what keeps Knox in a fit financial position is its endowment—a special pool of money sourced by donations and returns from investments in the stock market. The endowment funds various salaries and grants on campus; it helps plug the gap when Knox’s expenses surpass its revenue.
Knox has a larger endowment than most schools its size. At the end of December, it sat at $177 million. After COVID-19 sent the stock market plummeting in March, the endowment came in at about $152.6 million.
While the reduction appears significant, Knox’s current endowment is leagues ahead where it sat a decade ago. Over the past eight years, it has grown by about $86 million. Plus, Eisenmenger said the stock market has seen some rebound. At the end of April, the endowment came in at $164 million.
“The endowment is still a healthy endowment. We just here, too, have to try to steward those resources and conserve them as best we can. The market volatility is probably something that could be with us for a while,” Eisenmenger said. “But I think overall we weathered the storm that we saw in the markets in March.”
Eisenmenger said that 70% of the endowment’s investments are in stocks and equities and the other 30% is more “conservative,” though Eisenmenger said Knox’s stock portfolio is not aggressive by any means. The percentage of earnings Knox can spend from endowment investments is capped by the Board of Trustees.
In May, the Investment Subcommittee of the Board of Trustees will meet with Knox’s financial advisor from T. Rowe Price, the college’s investment consulting firm. Eisenmenger said the subcommittee will listen for new information and advice but there has been no discussion at this time to change the mix of investments or the percentage of earnings Knox can spend.
While its endowment is considered one of Knox’s greatest pool of resources, the school does not have unlimited discretion to how the money is used. Donors often place terms which enforce restrictions on where their money can be spent.
In spite of the pandemic, Eisenmenger said Knox will not override donor restrictions without their consent and so far has not needed to pursue that measure.
“There is always a potential for us to maybe revist with some donors if we find ourselves needing to broaden or untether some of the restriction categories but right now we have not had to look to do that,” Eisenmenger said.
Knox’s past and the future
The financial pressures the pandemic has placed on Knox are the same pressures all higher education is currently grappling with. Jonathan Powers—a member of the Executive Board and an economics professor specializing in competition who has taught at Knox for over 20 years—remembers a time when the conditions of Knox’s financial jeopardy were unique to the college.
Powers said that in the early 2000’s Knox was facing significant financial duress because the school had spent too large a percentage of its endowment during the 1990’s.
“Our endowment spending rate through much of the 90’s was double digits, 10% or above. A ‘good’ endowment spending rate—and I am putting ‘good’ in air quotes here—would be 5%. That’s kind of a target,” Powers said. “I believe the most recent budget, we’re (Knox) authorizing is 7.5%.”
Then Knox President Roger Taylor ‘63 collaborated with the school’s dean and chief financial officer to significantly reign back endowment spending. Powers said Taylor also oversaught expanding the student body from 1,000 to 1,4000 students.
Powers said Knox emerged from the challenges of the early 2000’s on stronger ground. He is hopeful Knox can emerge the same from the pandemic.
“Partly, the preparation is taking two elements. One is to the degree that we can get costs under control in a way that doesn’t impact the students’ experience,” Powers said. “And then, work to attract more students. So while the number of students is shrinking, we have got to try and do a better job at getting them here rather than just going to new markets like in the Southwest.”
Knox faces challenges from the pandemic but also its budget deficit, which has been created in part by a decrease in the national birth rate, providing less college bound students and more competition amid higher education.
Despite the present loss of $2.7 million in room and board fees, Powers said the pandemic could help Knox realize this early 2000’s approach of enlarging the student body while managing the school’s costs.
Powers thinks one effect of the pandemic may impart on education is show students the importance of face-to-face interaction. As a result, small schools like Knox—schools designed for small, intimate face-to-face interaction—may end up better positioned to attract students.
“This is a college that changes lives and I think that happens on the campus,” Powers said. “So in that sense, when you think about people, high school students right now who are learning in a remote environment as well, I think they’ll see the value of classes and, ‘Gee I’d rather go to a school where the largest class is 50 students and most of my classes are 18 students or so. Rather than go to that large university where I’m gonna be one in 300 in a lecture hall.”
Whether Knox will be able to emerge from the pandemic stronger than before remains to be seen, just as when exactly students will be able to return to the Knox campus to take advantage of its intimate setting.
But given the school’s hefty endowment, the prospect of receiving more federal aid and the opportunity the pandemic poses to advocate for the Knox experience, Powers said he is not too worried about the school’s future.
“COVID is going to have—I mean it has had—huge impact on so many things that I would say, among the worries that I have from COVID, the future of Knox College is not high on the list,” Powers said.