Decreased value of endowment funds force local private schools to trim projects

[The Times]

Decreased value of endowment funds force local private schools to trim projects
Sunday, January 18, 2009
BY RYAN TRACY

Along with Princeton University and other top-tier institutions, local private schools are scaling back financial plans after witnessing the value of their endowment funds plummet during a national recession.

At the Lawrenceville and Peddie Schools alone, endowment value has dropped a combined $100 million since June 30, with the schools reporting losses of 17 and 22.6 percent respectively during the final two quarters of 2008.

The value of Rider University's endowment also dropped by about 34 percent from January through November of last year, a loss of $20 million.

Though not on par with the $4 billion that Princeton says its endowment might lose during the fiscal year that ends in June, the investment losses have forced some local schools to search for ways to cut spending.

As a result, construction projects, new hirings, and other so-called "non-essential" expenses are on the block.

Endowment funds are the saving accounts for many institutions and often make up a significant portion of the revenues needed to support yearly spending.

At Peddie, for instance, an endowment contribution typically covers about 35 percent of the revenue side of the Hightstown preparatory school's operating budget, according to an e-mail from school spokesman Sean Casey.

In order to "preserve capital and provide time to better understand the depth and breadth of the economic downturn," Peddie has decided to delay two planned construction projects on campus, Casey wrote.

The school will also "defer all non-essential campus maintenance and improvement projects and add no additional faculty and staff members for the coming school year," he said.

Peddie will complete work already under way on a new swimming pool and synthetic turf field, but put off a new grandstand, a new fitness and wellness center, and improvements for energy efficiency at its Ian H. Graham Athletic Center.

A faculty housing project will also be delayed, Casey said. Mercer County records show the school was planning a new headmaster's house fronting South Main Street along with at least four carriage-style homes.

Peddie's move follows a decision by Princeton to trim $300 million from a $4 billion capital plan late in 2008.

The Ivy League university delayed construction of new neuroscience and psychology buildings, scheduled for this year, until 2010. Other projects, including a satellite location of the Princeton Art Museum, were removed from the capital plan, which runs through 2016.

Rider and Lawrenceville, both located in Lawrence, also said they are weighing whether to cut plans for future projects.

"We will complete all construction projects under way," including the two-building West Village dormitories for 152 residents, scheduled to open in June, "but will review the timing and scope of future planned projects," said Dan Higgins, Rider's executive director of communications, in an e-mail.

"Rider is carefully reviewing position needs in light of the economy, and filling a limited number of essential vacancies. We expect reduced expenditures for travel and professional services as well as in other budget categories," Higgins said.

An e-mailed statement from Lawrenceville portended similar fiscal restraint.

"Right now, all current expenditures are being carefully examined and future spending initiatives will be an important topic of discussion at the school's next board of trustees meeting. Nothing will be finalized until the late spring," said Lisa Gillard Hanson, the preparatory school's director of public relations.

One aspect of education budgets that appears safe is financial aid to students, which several school officials said remained a priority regardless of any spending pinch.

Resources for "current and prospective families" is Peddie's "first priority," Casey said.

At Princeton, where endowment contributions make up about 45 percent of the school's operation revenue, President Shirley K. Tilghman has recommended the school seek its lowest increase in tuition and fees -- 2.9 percent -- since 1966.

Princeton's "fiscal year 2010 scholarship budget is projected to increase from this year's $92 million to $104 million, an increase of 13 percent," said university spokeswoman Emily Aronson, also in e-mailed comments.

Aronson said the increase would boost the percentage of Princeton students on financial aid from 56 to 58 percent.

Yet as unemployment rises and many Americans grapple with shrunken savings accounts, more families might be asking central New Jersey's private schools for financial aid, putting more pressure on school officials to accommodate existing and prospective students.

There is "probably going to be a greater need for financial assistance, and we're all preparing budgets that will take that into account," Olen Kalkus, headmaster of the Princeton Academy, an all-boys school for junior kindergarten through eighth grade, said recently.

Asked about the nature of their endowment investments, both Lawrenceville and Rider depicted a diversified portfolio hit hard as the value of equities plummeted during the second half of 2008.

"Rider's endowment was negatively affected by the market turmoil of 2008, as were almost all individuals and organizations with U.S. and international equities in their portfolios," Julie Karns, the university's vice president of finance, said in a statement issued through a school spokesman.

Rider is "being conservative in its financial planning," Karns said.

In a 2008 financial report, Lawrenceville chief finance and operating officer Wes Brooks wrote that the school had reduced the percentage of its portfolio devoted to U.S. and private equity in recent years, while increasing exposure to investments in natural resources.

"Given the turbulence of the markets recently, we have been gratified that our diversified portfolio has so far held up relatively well in this down market," Brooks wrote.

The Lawrenceville School also has plans for several campus improvements, including a new girls' dormitory called Carter House. Brooks told The Times recently that the school is relying largely on fundraising, rather than its endowment, to finance Carter House and other projects.

"We are pretty confident the money will be raised, but it's not in the bag," he said.

http://www.nj.com/news/times/regional/index.ssf?/base/news-15/1232255150322500.xml&coll=5