The 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); to achieve this aspect of financial equilibrium the college must carefully plan to be sure expenses are prioritized according to the college's short- and long-term goals.
- Growth in annual revenues is greater than or equal to growth in operating expenses over time, ensuring that future budgets can also be balanced; factors outside the college's control, such as inflation, changes in disposable personal income, and investment returns can significantly affect the college's planning in this area.
- Support from financial assets (primarily the endowment) is measured so that the purchasing power of financial assets can be preserved over time (i.e., the value of the permanent funds and the income produced by the funds keep pace with inflation); preserving the value of financial assets is a commitment that the college makes to future generations of students.
- Reinvestment in the physical plant and equipment is sufficient to preserve their useful life. The physical plant is one of the college's major assets. To preserve the college's future, much like the endowment this asset cannot deteriorate.
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. Short- and long-term planning to achieve financial equilibrium must balance the maintenance of the strong educational mission of the college by identifying those areas which are central to that strength and supporting them with the maintenance and growth of resources for the future.