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Wild market fluctuations caused record losses last week and then a record one-day gain on Monday. Freezes in credit markets have put America’s financial institutions in near panic. The ability of institutions to obtain loans and even make payroll has been put in question, but prudent accounting practices have allowed Winona State University and Saint Mary’s University to avoid excessive anxiety in these troubling times, at least for now.
Institutions of higher education often are insulated by hard financial times. Universities’ habits of having low debt obligations make them attractive to lenders even in tight credit markets, and when workers are laid off in a recession, they often enroll in college, giving schools continued business.
But even universities have not been able to fully avoid the impacts of this year’s economic mess. For example, the near failure of Wachovia, one of the nation’s largest banks, caused it to put restrictions on a short-term investment fund that many private universities use to pay short-term expenses.
But according to officials at SMU and WSU, neither utilizes that fund, neither has had problems making payroll and neither have had to make significant changes to protect their endowments. Building projects planned in central and western Winona are still moving ahead.
Officials are concerned, but for now, they are watching and waiting.
Insulated from the crisis
The U.S. Federal Reserve announced Sunday that Wachovia would be acquired by Wells Fargo. And some higher education institutions were put on edge when the Connecticut-based Commonfund was alerted late last month the Common Fund for Short Term Investments would be closed — a fund many universities use to pay for short-term expenses such as salaries and construction projects.
Minnesota has 17 colleges and universities invested in the fund. But both WSU and SMU have avoided the mess. None of the schools in the Minnesota State Colleges and Universities system, which includes WSU, will be affected, system spokeswoman Melinda Voss said.
WSU president Judith Ramaley sent an announcement to students and faculty Monday, addressing possible concerns about the institution’s financial health.
“As we enter this period of uncertainty, we are in good financial shape,” she wrote. “Our enrollments are at an all-time high. Our reserves are sound.”
Saint Mary’s University has a conservative financial approach, particularly with its investments, said the Catholic school’s vice president for communication and marketing Bob Conover. The school does not invest in the Commonfund, instead pooling endowment money through the Christian Brothers Investment Services.
The university does not borrow much, Conover said, and has very low debt obligations. Well under 2 percent of SMU’s yearly operating budget goes toward debt payments, Conover said. The school doesn’t make risky investments, he said, and has had 30 consecutive years of balanced budgets.
“The picture here is that we have been relatively insulated from the current financial crisis,” Conover said.
Holding down the hatches
Although Wachovia’s turmoil and its subsequent effects on higher education have not yet caused major harm to Winona’s universities’ current finances, it did hamper one school’s drive to raise more money.
WSU, currently engaged in its first-ever capital campaign, learned recently that one of its most important donors will not be able to give as much as he had hoped.
The individual, who has given to the school for decades, had a significant amount of money invested in Wachovia stock, said WSU vice president of university advancement Jim Schmidt. The company’s bad fortune has shrunk his dividend payments from that investment to the point he must pare back on donations, Schmidt said.
“He was heartbroken,” he said.
Still, the $10 million capital campaign has been a success, though Schmidt admitted WSU does not yet know if philanthropists will start to tighten their belts. In anticipation of possible financial turmoil, the finance committee for WSU’s foundation expanded the investment diversification of its endowment when the Dow was over 14,000 points, Schmidt said.
Meanwhile, WSU is going ahead full-steam with one element of the capital campaign, an Integrated Wellness Complex that will mix space for fitness, sports, classrooms and research programs. The $19 million project is being funded through $7.1 million of student fees, $8.4 million in state money and $3.5 million from the campaign, including a newly announced six-digit donation by Merchants Bank.
The funds for construction already have been secured, Schmidt said, and bids should be coming in during the next few weeks. The school is optimistic about the current climate for construction bids, he said, and is hopeful that it will have more money than it thought for additions and amenities for the building.
Still, the university is aware of the current financial climate and is keeping its eye on Wall Street.
“We are concerned about the campaign,” Schmidt said.
SMU’s endowment is small compared with other comparable schools, Conover said, and the school does not depend on it for day-to-day operations. The approximately $35 million fund is used primarily for scholarships and financial aid, while the school’s yearly budget is based primarily on tuition, causing the school’s financial viability to be based on enrollment, and not the markets.
“Market fluctuations don’t impact us the way they might impact another school,” he said.
The school has a long-term plan to either build a new science building or create a large addition to its current, antiquated facilities. What impact financial seesaws have on the project remains to be seen because it is in the early stages and the school has only recently publicly solicited donations. Even if gifts are slow to materialize, the building will be constructed, just maybe later than SMU had hoped.
“We are going to be prudent with the way we approach the building project, but we are going ahead with it,” Conover said.
Focus on the family
The schools’ finances may be currently secure, but both are concerned about how students and their families may be impacted in a possible recession. Some students have been left wondering if they’ll be able to afford higher learning, after a lack of liquidity in the credit market threatens their ability to obtain loans at Minnesota colleges.
Several lenders have dropped out of the student loan market this year, but both WSU and SMU have enough lenders offering federally backed loans that students won’t have the carpet pulled out from under them, officials said.
If donations toward WSU’s capital campaign dry up, scholarships at the school may be impacted, as $4 million is earmarked toward student aid. But much of the fundraising already has been accomplished during the campaign’s silent phase. Donors gave $6.4 million as of Aug. 1, some of which was already disbursed to scholarships.
SMU will continue to make aid available at its current levels, Conover said. The school is concerned about families facing economic hardship, and it will be “flexible and compassionate” with those heavily impacted.
“If we have a concern (about the financial crisis), our concern is for the individual circumstances of the families that are sending their students here,” Conover said.
Students continue to be able to obtain loans for SMU, he said. So, for now, the school is taking a similar approach to financial aid as it is for other monetary concerns: Hold steady, wait and see.
Nolan Rosenkrans may be reached at (507) 453-3519 or at nolan.rosenkrans@lee.net.
The Associated Press contributed to this report.
