Our Goal of Financial Equilibrium
What is financial equilibrium for an endowed institution like Vassar?
Financial equilibrium is a long-term planning goal in which:
- annual operating revenues are greater than or equal to operating expenses (i.e., the traditional concept of a balanced annual budget);
- growth in annual revenues are greater than or equal to growth in operating expenses over time, ensuring that future budgets can also be balanced;
- endowment spending is small enough that the corpus or principal of the endowment can sustain its real purchasing power over time (i.e., the value of the permanent funds and the income produced by the funds keep pace with inflation);
- reinvestment in the physical plant and equipment is sufficient to preserve their useful life.
Maintaining financial equilibrium is essential for guaranteeing Vassar’s ability to meet its mission both now and into the future. It ensures that each generation of Vassar students benefits equally from the support of the endowment and from the use of a physical plant in good repair.
Vassar’s financial planning has recognized since the late 1990s that reinvestment in the physical plant has not met the goal of financial equilibrium. The amount budgeted in the annual operating budget for plant renewal has been growing slowly for the last decade, but is still far less than would be called for under conditions of financial equilibrium. This is evident in the continuing backlog of deferred maintenance in certain areas of the campus.
As we address the effect of the current financial and economic crisis on Vassar, we are temporarily drawing on the college's financial resources at a rate in excess of the sustainable rate of spending from endowment, and we are reducing once again the rate of reinvestment in the physical plant. Both of these conditions are unsustainable. The financial crisis has highlighted a need to reduce operating costs so that the college can move closer to conditions of financial equilibrium in the years ahead.