Mid-Year Update

February 2, 2011

Good afternoon, everyone. Thank you for coming to this mid-year update and to the open house for Tomson Hall.

Patience and persistence are the two words I have used most often to describe the course our College has followed these last few years. During the most severe economic downturn since the Great Depression we have kept faith with our identity and mission as an intensely residential liberal arts college of the Lutheran church. We have continued to offer the programs that our students both seek and deserve and to recruit and retain a staff and faculty committed to delivering those programs at exceptionally high levels of quality. We have continued to advance our key strategic priorities, including increasing the geographical and racial and ethnic diversity of our students and diversifying the faculty and staff who serve them. We have cared for our lovely campus and its buildings, and we have made strategic choices about renewing and repurposing those buildings as opportunities to do so presented themselves. We have worked to tell the St. Olaf story in a compelling way to draw students, public attention, and support to what we do. While doing all this we have constrained our operating costs, constrained our price, and maintained our commitment to meet the demonstrated financial need to every student we enroll. These are not small accomplishments.

As a consequence of these actions, the College is positioned to continue to flourish in the near and long-term. Whether it will in fact do so will be determined in large part by the quality of the decisions we make about its future, for we are facing some big decisions. I will return to those decisions later, but first let’s take stock of what I like to call the vital signs.

St. Olaf depends upon tuition and fees paid by its students and their families for approximately 70 percent of the revenue that enables it to operate each year. We are a tuition-driven institution. Therefore, vital sign number one is whether our value proposition remains sufficiently compelling that students seek the experience we offer and that their families perceive value equivalent to the investment they make in that experience.

Good news: as of today, we have received 4,105 applications for the class of 2015, our largest applicant pool ever. Our last deadline was January 15th, but we will continue to receive applications over the next couple of weeks, so our record number of applications will, in fact, continue to rise for a while. As a result, our colleagues in admissions will have an applicant pool of sufficient depth and breadth so that the choices we make about who to admit can reflect our aspiration to have our classrooms and residence halls filled with engaged and engaging young people. These applicants come to us from 48 different states. (We’re missing Delaware and West Virginia. Help us out; call a relative or someone from college who has settled in these fine states.) Fifty-six percent of our applicants are from outside Minnesota. Notable increases can be found in the number of applications from Kansas, New Jersey, Arizona, Montana, New York, Massachusetts , Illinois, and Mississippi.

I am extremely proud of the fact that 751 of these students are domestic students of color; we enter this next phase of admissions decision-making with the largest number ever — a number that is 20 percent higher than last year — of domestic students of color considering our fine college. The stereotype of a St. Olaf student as a blonde, blue-eyed Scandinavian — and there’s nothing wrong with being such a person! — will linger for a while yet, but it, like most stereotypes, now runs counter to reality. We have also received applications from 411 international students, the largest number of international students in our history. That number is ten percent higher than last year. They come from over 80 countries. We also have in this pool a robust slate of candidates who are Lutheran, and/or legacy, and/or the first in their family to attend college. When all the dust settles, we will have enrolled approximately 30 percent of the class through Early Decision.

So, we have a unique opportunity at this moment to craft a class from this extraordinary pool that is both strongly connected to our historic constituencies and the most diverse in origin of residence and ethnicity.

Now, we do have a challenge, and that is to do all the things the enrollment division did so well last year in crafting the class but to do them in an environment where more people are considering St. Olaf this year at a time when we need to constrain our size. We need to hit every goal, including very ambitious financial goals, while simultaneously enrolling 75 fewer students than we did this past fall. That will not be easy, and for our friends in enrollment, it means, likely, offering admission to about 200 fewer students than we did last year.

Let us not be complacent. Just because a student has applied to St. Olaf does not mean she or he is determined to enroll. In fact, the more diverse and accomplished our applicants become, the more options they have. We are now transitioning from the recruitment phase of enrollment to the yield phase. Everyone in this room can help yield the new class of St. Olaf students. We have fine arts scholars weekend at the end of this month, followed by Buntrock Scholars Day in mid March and two Admitted Student Days in April; last year, over 80 percent of the students who attended one of the admitted student days enrolled at St. Olaf. That is extraordinary, and it speaks to your efforts to enroll the class. I ask everyone to continue to do what you already do so well — welcome our prospective families warmly when they visit. I know the admissions office appreciates you opening your classrooms and offices to prospective students and your attendance and participation in numerous events in the “yield season” that begins in about six weeks. Thank you in advance for that work.

Vital sign number two is how our operations are performing relative to the budget. In other words, we began the year with a spending plan, approved by the Board of Regents. The plan for fiscal 2011 was to spend $118 million to deliver our program. “Delivering our program” here means not only paying for all of the expense associated with operating the College — and the vast bulk of those expenses falls into two categories: compensation for staff and faculty and financial aid for students — but also generating sufficient revenue from our operations to make capital improvements. We are a nonprofit entity, but we cannot end each year with a zero balance on the bottom line of our financial statement because then we would not have the ability to build and renovate buildings, replace and upgrade technology in our classrooms and labs, and engage in other activities crucial to our ongoing success. A rule of thumb is that flourishing organizations like ours need to generate net operating revenue each year equal to five or six percent of their budget. Good news again: if our experience continues on its present course, we will end the fiscal year with about $7 million in net operating revenue, or just less than six percent.

How can this be? In part it is because of the continuous efforts of staff and faculty to be very careful about spending. We have been managing general departmental expenses, including travel costs well. Thank you! Despite the hard winter, the overall energy efficiency of our new spaces (Regents Hall and Tomson Hall), as well as the improved insulation installed as we have been replacing the slate roofs, is resulting in lower total utility costs than had been projected. Improved efficiency is the outcome we had hoped to achieve, but we underestimated the magnitude of the savings. This is what real sustainability looks like. There is a lot of loose talk around these days from institutions that have adopted sustainability as a marketing ploy without any corresponding results in the way they live their daily lives to match their rhetoric. Talk is cheap. We have invested in sustainability in our buildings, and the results speak for themselves. The largest expense saving has been the result of a higher number of administrative vacancies that are generating compensation savings. We know there are costs associated with vacancies and turnovers, but in the short run we do see lower than expected expenses, and that is helping our bottom line.

The uses for the operating revenue that we expect to generate this year relate mainly to what I call the “domino effects” generated by the addition of Regents Hall and the renovation of Tomson Hall. The Administration Building is going to be repurposed to serve the needs of advancement and of music. Preliminary demolition work is underway now. We are installing partitions to isolate the atrium and the rest of the building to the west from the older part of that space (where the registrar, dean of students, and business offices used to be) right now. We expect that remodeling that older part for Music will be done and that portion of the building will be ready in late fall, early winter 2011. Then we will turn to the atrium and the rest of the newer part of the building towards the goal of gathering all of the folks in Advancement and College Relations, who are currently scattered over four locations on campus, into one functional space by early/mid-summer 2011. Old Main, vacated when languages moved to Tomson Hall, will be ready for teaching again for the fall of 2011. We are still trying to determine an appropriate use for Steensland Hall, vacated when Off-Campus and International Studies and Asian Studies moved to Tomson. I asked a committee of the Wise and the Good to consider how best to use the undercroft of Boe Chapel when Religion departs for Old Main over the summer, and they have submitted a thoughtful and provocative set of ideas that we are mulling over in light of our other commitments and capital projects. Here’s some good news: people say that there is nothing as permanent as a “temporary” building, and the Old Main Annex would appear to be a case in point, but I can promise you that the modular buildings will start going away this spring, with the last to go about mid-September, 2011. That space will return to parking.

Vital sign number three is the amount of support other than revenue from tuition and fees that we can generate to support our program. Every dollar that we can generate from other sources is a dollar less that falls on the shoulders of our students and their families. We have two principal sources of such revenue: earnings from our endowment and gifts to the College. Good news again: we estimate the value of our endowment as of January 31 at $307 million. To put that in perspective, at its peak before the economic down turn, our endowment was valued at $334 million. At the end of February 2009 it had sunk to $219 million, and at the end of January 2010 it had risen to $277 million. Obviously, the trend is in the right direction, and it needs to continue that trajectory, but a key fact about St. Olaf that demands our continued attention is that our endowment per student — that’s the value of the endowment divided by the number of students it supports — is among the lowest of America’s leading colleges. Increasing that value is essential to securing the future of the College.

Here’s more good news: we are on track to meet or exceed our goal for total new dollars raised during this fiscal year to support the College. “Total new dollars raised” here means exactly that: new gifts. These might be gifts to the annual fund, gifts to the endowment, new pledges of future gifts, and new commitments of planned gifts. It does not include payments on pledges already made. As of today we have reached 68 percent of our $22 million goal for this fiscal year by raising $15 million. This is excellent progress.

This number does not include a very special gift that we received this week and which I am pleased to announce today: a $6 million planned gift from the estate of Klara Stockdal Johnson ‘38. Mrs. Johnson worked at Augsburg Publishing House for twenty-two years and was an active and generous member of Central Lutheran Church in Minneapolis. In 1980 she and her husband established the Eliot and Klara Stockdal Johnson Chair of Organ and Church Music at St. Olaf College, which is now held by our distinguished colleague John Ferguson. It is the responsibility of the Board of Regents to determine how any undesignated portion of that gift may be used, and that is doubtless a subject that will be discussed at their February meeting, but in any event this is a significant new resource to support our efforts on behalf of students.

We have not yet completed fundraising for this magnificent renovation of the old science building into Tomson Hall. The Board asked us to raise $10 million towards the total costs of the project. To date we have raised $6 million. I am delighted to tell you that Regent Martha Nelson and her husband Brock have just announced a $250,000 gift in support of this project, and I welcome the forward momentum that gift provides as we seek to reach the $10 million goal. In sum, I think it is fair to say that the College’s vital signs indicate reflect health, strength, and vigor.

This is a good thing, because we continue to face the same challenges that colleges, other non-profits, businesses, and American families are facing as the economy continues its comeback from the recession. The stock market is up, as we have seen, but unemployment continues to be high, and that creates income insecurity for families. Housing values remain low, and that affects the total wealth of families and, hence, their ability to borrow for college or other purposes. Private higher education faces unique challenges in addition to these, and you’ve heard me talk about them before. The main one is price. Many people believe, and I am one of them, that we are rapidly approaching the point where students and their families, no matter how much they believe in the value of the experience we offer and no matter how badly they desire it will simply be unable to bear the cost of a four-year education at a place like St. Olaf. On our side, as long as we remain committed to enrolling an economically diverse student body and to meeting the demonstrated financial need of every student we enroll, the cost of providing financial aid is going to continue to increase with our price and with families’ need to the point where we cannot generate enough net revenue in a year to operate the college. Enrolling enough students can be done, at least now. Enrolling those students and meeting our revenue needs gets tougher every year. The day may come when our price reaches the point where even enrolling the students will be difficult.

This is probably not a problem that is going to be solved by nibbling around the edges at St. Olaf or anywhere else. You can’t cut your way out of it. Instead, the solution is likely to involve things we haven’t tried yet to re-shape our basic cost structure. This is a subject that we are going to be talking about at length, and obviously we will want to approach it thoughtfully, mindful of our history, identity, and mission, but it is time to start the conversation.

We are making good progress on strategic planning. You will remember that a year ago we went to staff, faculty, students, Regents, and alumni and friends of the College and asked three simple questions: What are we good at? What should we be better at? What are the most important priorities for the College in the coming years? We received many thoughtful responses which were read with great care, the result of which was the formation of three working groups comprised of Regents, faculty, staff, and alums to consider the three priorities that were raised most often in those responses: what can we do to advance the academic excellence of the College, how can we enhance the St. Olaf experience more broadly construed to include all of those experiences outside the classroom that Oles value, and what can we do to insure that the value proposition we offer students and their families is sound and compelling? Those working groups have now submitted their reports, and the Board at its February meeting will consider them. I expect the outcome of that meeting to be a draft of a strategic plan that can be widely distributed to the St. Olaf family on and off-campus for comment and discussion. The goal remains to have a final plan ready for consideration and approval at the May 2011 Board meeting.

I am very encouraged by what I have seen of the planning process. You can come up with a long plan with lots of initiatives, if you want to; but the truth is that there is a small number of things that are crucially important to the long-term success of this college. If we can identify those things, devise strategies to advance them, and measure our progress regularly, we will be on a course to fulfill our responsibilities as stewards of this institution.

The search committee for our next Provost and Dean of the College, ably led by Professor of Physics David Nitz, is working hard and to good purpose with the assistance of our search firm, Storbeck/Pimental and Associates. We have received a number of intriguing applications, which the committee has begun to review. There will be many more applications in the days to come, and the committee will be in the position of selecting from an embarrassment of riches the person best suited to serve as our next Provost. The next major phase of the search will be interviews at an off-campus location with the most compelling of those applicants towards a goal of arriving at a manageable number for further, serious consideration. I am confident that we will have selected our new provost this spring.

We are not as advanced in the call process for our new campus pastor. As soon as interim break is over and the community has reassembled on campus, I will be convening a group to begin that process in earnest. You don’t replace Bruce Benson any more than you replace Jim May: you look for someone to build on their good work and to make their own mark on the office. We will find such a person as our next campus pastor.

I’d like to close with a few fun things. I invite all of you to consider attending the Black and Gold Gala February 19th at the Minneapolis Hilton. This event, sponsored by our Office of Alumni and Parent Relations, is a fundraiser for St. Olaf. It’s lots of fun. It’s a black tie, Norwegian sweaters optional kind of event. There’s a delicious dinner, opportunities to bid on a whole array of fun offerings ranging from a private showing of and ride in John Ferguson’s historic military vehicles to a private cooking class in your home with Matthew Fogarty, the inspired Executive Chef of Bon Appétit to a custom bench made by Gregg Menning to an original, handwritten, personalized limerick written by Garrison Keillor. I encourage you to come.

Farther down the road, I’m happy to announce that on Saturday, November 19, 2011 A Prairie Home Companion will be broadcast live from Skoglund. This is the annual Thanksgiving show and in addition to being lots of fun it will provide wonderful publicity for the College.

This broadcast will occur just twelve days before the beginning of the 100th performance of the Christmas Festival. I’m also pleased to announce that we will be televising that performance and streaming it to movie theaters around the country so that Oles and their friends from Boston to San Diego, from Seattle to Key West, from Oslo to Shanghai, will be able to share that momentous anniversary with us.

In a moment, we will adjourn and spend some time enjoying one another’s company and the environment created in this newly renovated building. Please feel free to wander about the building. There are four food stations in the building: in the first floor atrium (near the Dean of Students Office), the third floor east “lantern” on the Holland Hall side of the building, the third floor west “lantern” on the Mellby Hall side, and the admissions reception room on this floor. Please take the time to visit each of those spaces and learn to know this building. This is our students’ building, and I encourage you to try to experience it as they will. It is meant to provide them with space for their academic work, with resources to help them shape and navigate their college experience, and with direction as they leave the College. We have wonderful students. They represent our best hope for the future. You know that. I can’t wait for them to return to campus for second semester. This building will be as busy as a bus depot, as it should be.

Thank you for your good work on their behalf.

Sincerely,

David R. Anderson ’74