September 2, 2010
With our opening banquet tonight, St. Olaf begins its 136th year of operation. Patience and persistence have guided and sustained our college since 1874, and they have been particularly important attributes for us during the last two years as the recession caused business, government, education, and individuals to recalibrate everything from their aspirations to their operations. Guided by our clear sense of who we are and what we do, sustained by the prudent stewardship of the college’s resources by everyone here tonight, and buttressed by our commitment to excellence in everything we do, St. Olaf College continues to thrive. Here’s a report on the state of the College at the beginning of its 136th year.
Any such report has to begin and end with our students. On Saturday 847 first-year students will arrive. We admitted 57 percent of the 4,000 students who applied and yielded just under 37 percent of those admitted. Our yield on offers of admission increased by an extraordinary 2 percent over last year, which both accounts for the size of the Class of 2014 and demonstrates what a strong position we have claimed in the landscape of higher education. About one quarter of the class was admitted under our two rounds of Early Decision. Half the class is from outside Minnesota, representing 43 states, and there are 28 four-year degree-seeking international students in the class. Here’s a way to think about geographic diversity that makes that number come alive: with very few exceptions related to the fact that we’re not ready to house men and women in the same room at St. Olaf, every student from Minnesota in the entering class will have a roommate from outside Minnesota.
The entering class is one of the most gender-balanced in the last 25 years: 51 percent are women, 49 percent are men. It’s not, of course, our responsibility to see that every student at the college has a date, but it is nice to know that that is at least a mathematical possibility. Here is a very important number: 15 percent of the class, or 123 students, are domestic students of color. That’s the largest number in our history. It has grown by at least a percent in each of the last four years, and it will continue to grow as we approach what many call “critical mass”: that’s a sufficient representation of students — in our case students of color — at the college so that it is not exceptional to be from an underrepresented group. Rather, it feels as though our diverse students firmly occupy a place and have a presence on campus that is essential to how we perceive ourselves and how others experience our community.
There are three numbers we monitor as proxies for keeping the culture as the college continues to evolve. Thirty percent of the students in the entering class are legacy students, which means they were preceded at St. Olaf by a family member. Forty-two percent of those who chose to identify a religious affiliation self-identified as Lutheran, and 15 percent are the first generation in their family to attend college. All of these numbers have remained steady from last year.
Here’s a scary number: One in five of the students in our entering class earned a perfect 4.0 grade point in high school. Their average class rank is the 87th percentile, the median ACT is 29, and the median SAT is 1320, up 20 points from last year. Thirteen percent of the class ranked either first or second in their graduating class. But the key thing about these students, of course, is that they affirmatively chose to learn in this community, in an environment where the ultimate questions are always on the table. Conversation dominates our college, and these students want to join the conversation.
Seventy percent of the revenue that provides our annual operating budget derives from net tuition, room, and board fees paid by our students and their families. We are a tuition-dependent institution. It is vital that we meet our tuition revenue targets each year. Quite frankly, the number of students we enroll is less important than the net revenue the students who do enroll bring with them. I am happy to report that the net comprehensive fee revenue per student in the Class of 2014 increased. This is an essential trend if we are to continue on the path of financial sustainability.
It is time for us to look back at our enrollment results for the past few years and declare victory. We can generate at least 4,000 applications a year. We can enroll a national student body. We can enroll a significant portion of the class early decision. We can notify all of our non early decision students of our admission decision on the same day in the spring without worrying that they will have defected to less selective colleges that operate on a rolling admissions model. We can drive our accept rate down and our yield rate and our net tuition revenue up. Our summer visits in admission this past summer are up 11 percent over the previous summer, and a campus visit is the strongest predictor of a student’s likelihood to apply. We do not have to live in fear of not making the class. For these reasons, I have asked our friends in the enrollment division to adopt the following goal for this year: to enroll a Class of 2015 that exhibits all of the characteristics of the Class of 2014 except for one: it is smaller.
Now, it takes a whole college to enroll a class. Many of you here tonight played an important role in enrolling the Class of 2014 by participating in admissions panels, talking with prospective students, preparing the campus for visit days, and in many other ways. This was very well done. Thank you.
The college’s overall financial situation is sound. We recently received one of the best available third-party endorsements of that statement when the rating service Moody’s visited campus in connection with our bond issuance. You may have seen this news on our Web site: our bond rating was raised from A2 to A1. While the bond rating certainly focuses on the financials, it also reflects Moody’s opinion of the institution’s strength in the market, its clarity of mission and identity, its ability to execute its strategies, its leadership, and its governance. Only five schools that Moody’s has rated this year have received an upgrade, while 22 have been downgraded. This was a very good outcome.
Our recent bond issuance does not mean that we have taken on more debt. Rather, the Board of Regents made the decision that it was time to replace our variable rate debt with a fixed rate. We have approximately $80 million of debt, and until recently it has been split about evenly between a fixed and variable rate. The variable rate debt has been very kind to us: we budgeted for a scenario in which it rose to 5.25 percent, but in fact for the past two years it has been hovering below half a percent. This is one of the principal reasons why we have been able to end the fiscal year each of these past few years with very respectable net operating revenue. But, as one of our board members observed, “pigs get fat, but hogs get slaughtered,” and the board, convinced that interest rates will rise, took advantage of the opportunity to get a low fixed rate of less than 4 percent. In the short run we will forgo some months of that alluringly low variable rate, but in the long run we expect to benefit from the predictability and savings of a low fixed rate.
I mentioned a moment ago that we have in recent years been ending our fiscal year with healthy net operating revenue. That’s the total amount of money that’s left at the end of the year when we add up all of our revenue and subtract all of our expenses. Gordon “Gus” Donhowe ’51, formerly the CEO of Fairview Health Services, used to say, “No margin, no mission.” In other words, even as a nonprofit, if you can’t generate positive net operating revenue each year, you won’t have the resources necessary to accomplish your mission. Your bottom line can’t net out to zero. How otherwise would you fund new and replacement equipment, building renewals and improvements, or pay off debt? A rule of thumb is that a healthy organization should be able to generate net income equal to 5 to 6 percent of its operating budget, which in our case would be approximately $7 million. We ended this past year with approximately $10.7 million on the bottom line.
You are perhaps thinking to yourself, “How did we do that?” and “Where will that money go?” We did it through once-in-a-lifetime low variable interest rates; a recalculation of our actuarial liability for post-retirement health care; and simply exercising care with our budgets. The money will go into capital improvements. We have a schedule of repairs and renovations to our buildings based upon their age and condition. It is not fully funded, and most likely some things will need to be replaced sooner than expected, but we are drawing close to being able to say what, very frankly, few institutions can say: that we are going to be able to preserve and enhance one of our greatest assets — namely our campus — by funding timely and necessary replacements and upgrades to our existing equipment and buildings. It is not our goal to maximize our net operating revenue, but it is our goal to have a bottom line solid enough to strengthen and sustain our college over the long term.
Our endowment stands at $277 million. That’s down from about $330 million before the recession but up from $219 million at the depth of the market. It has been bouncing around between $270 and $280 million depending upon the day during the recent market recovery. It will fund about 10 percent of the operating budget for this coming year.
There are three things I’d encourage you to take particular note of during this coming year. The first is that we are preparing to undergo reaccreditation by the Higher Learning Commission during the 2012–13 academic year. Reaccreditation happens every 10 years for colleges and universities, and the process is carried out by regional accreditors operating under the authority of the U.S. Department of Education. Accreditation is essential to maintain because without it an institution cannot receive federal financial aid dollars. Our accreditation agency approached us and invited us to be part of a pilot program to test a new form of accreditation. The old model had institutions spending a year and thousands of person hours compiling a voluminous self-study that, in our case, documented what everybody already knew, which was that we are a credible place. This was followed by a visit by an accreditation team, their report, and so on and so on. In the new model, an institution demonstrates its credibility as an organization in a two-part process: (1) an annual electronic review of key data points — admissions, retention, degree completion, financials, curriculum, degree requirements, and so forth; and (2) a “Quality Initiative” that — unlike the old self-study — can become something useful to the institution going forward. This initiative might be an attempt to increase retention, or a plan to cut costs through collaboration with a neighboring institution, or a plan to grow enrollment. The institution and the accreditors agree upon a new initiative that the institution proposes and the institution then undertakes it with the accrediting agency watching. There’s a discussion at the end about what was learned, how improvement was measured, and then accreditation is confirmed.
We agreed to be guinea pigs for this new model because it seemed likely to be more helpful and interesting than the old one, and so the process is under way. Paula Carlson is chairing a committee that also consists of Jo Beld, Susan Canon, and Kevin Crisp to oversee this process, to stay in dialogue with the accreditors, and to complete the process.
So what is this new initiative? It is the second thing I encourage you to keep an eye on this year: the Main Street Project. Very simply, this is a project to re-think the ways we prepare students for life after St. Olaf. Are we doing enough to ensure that students leaving the college have a plan for their future that takes account of their passions and their abilities, that prepares them for rich and full lives, and that will set them on a path toward financial independence? This project comes out of a very practical concern: a St. Olaf education represents a substantial investment by our students and their families, probably second only to their investment in their home. They have to believe, when they make this investment, that after graduation students will be admitted to graduate or professional school or find a job that will enable them to live on their own and pay back their student loans, or go in some other direction that leads to independence and fulfillment.
This project takes its name from the hallway that runs through the renovated old science building — Tomson Hall — with admissions at the west end by Mellby Hall and the Center for Experiential Learning at the east end, by Holland Hall. In between the entrance point and the exit point, college happens. If we are going to continue to have a commanding place in the higher education market and command the price for a St. Olaf experience that we command, we have to attend to how we prepare our students for their future. Steve McKelvey in math is chairing a steering committee that consists of Bruce Benson, Bruce Dalgaard, Janice Roberts, Paula Carlson, Nathan Soland, Michael Kyle, Roz Eaton-Neeb, Mary Emery, Ted Johnson, and student Samantha Sickbert ’11 that is promoting a discussion about this question, and you will be hearing from them.
The third important conversation occurring this year is the strategic planning process. Last January that process began when we surveyed faculty, staff, students, and a selection of alumni asking three simple questions: what are the College’s greatest strengths? In what areas could it improve? And what should be our top priorities in the next five years? The responses were many and thoughtful. They were distributed on campus and reviewed by the board. Fundamentally they fell into three propositions: that the excellence of the academic program is the foundation of the college’s strength, that the ways in which students shape and are shaped by the community outside of class constitutes another essential aspect of the college, and that the college needs a resource base commensurate with, and thus capable of supporting, its programs. The board did an “environmental scan” that solicited the views of alums who are leaders in business, finance, and government about what external threats to the college might lurk in the current economic and political environment. The Board of Regents has created three working groups consisting of faculty, staff, regents, alumni, and students to reflect upon these topics and to propose concrete steps the college could take in response to the feedback we received. These groups are the Academic Excellence working group co-chaired by Regent Larry Rasmussen ’61 and Provost Jim May; the St. Olaf Experience working group co-chaired by Regent Martha Arvesen Nelson ’73 and Dean of Students Greg Kneser; and the Value Proposition working group co-chaired by Regent Kris Johnson ’73 and Treasurer Alan Norton. As these groups begin their work you will be hearing from them and invited to contribute to their discussions. The goal is to have a completed plan adopted at the spring meeting of the Board of Regents.
Although you don’t engage in strategic planning just so that you can then have a campaign — because a strategy is something you should have in any case — I think it’s safe to say that the plan will likely recommend various initiatives that are not currently in our operating budget and that they will form the basis of the next comprehensive campaign for St. Olaf for which we are already laying the groundwork.
A quick word about buildings. The renovation of Tomson Hall will be completed in December 2010. Departments and programs will relocate there during December and January. The plan has been to fund half of the $21 million cost of renovating Tomson Hall with gifts and the other half with the capital budget. We are still about $4 million short of our goal for that project.
Old Main will be the object of our attention beginning in 2011, and we will begin preparing what is now the administration building for advancement and for music practice rooms. Still unknown are the future uses of Steensland Hall and the lower floor of Boe Chapel. All of these projects, including at least half of Tomson Hall, will be funded out of the capital improvement budget that I discussed earlier.
I end this talk where I began: with our students. The potential they represent to advance knowledge, to serve in the professions, in government, in the church, on nonprofit organizations, to form and nurture communities and families is breathtaking. They are smart, ardent, open, hopeful, energetic. They present themselves to us this fall, as they do every year, looking for knowledge, for advice, for guidance, for role models, for encouragement. They are in our hands and in our care. And though it may not seem like it at every moment of the day, they represent our best hope for the future. They are on their way. You can hear their distant thunder.
I thank you now, in advance, for the many things, great and small, that you will do for them this coming year, and I look forward to being with you at our college’s great celebrations of their abilities and accomplishments: athletic contests, dance and theatre productions, recitals and concerts, Christmas Fest, Honors Day, and finally Commencement. It will be another great year at St. Olaf College, and we mark the beginning of it with a banquet.
Bon Appetit!
David R. Anderson ’74