Tuesday, January 29, 2018

Budget season is looming. This is one of the hardest moments of the year. Even in a Seminary that is so fortunate in so many ways, things can get tricky. So as we approach the budget preparation for 2019-2020, there are certain parameters that are hard. Endowment dependent institutions need to make sure that we do not steal from the future. An endowment must grow by the amount drawn down plus inflation. So our draw rate is currently 4.4% and inflation is 2.5%. So if the purchasing power of the endowment is going to be the same in the future, then the endowment must grow by at least 6.7%. 

This is very hard to do. Markets are very volatile. So the Board has instructed the administration to reduce the draw-rate from 4.4% down to 4%. This we are permitted to do in stages. But even a 0.05% reduction takes about $100,000 out of the operating budget. This is the equivalent of a staff position plus some program money.

This pressure coincides with a community aware that the capital campaign is going well. However, budgets make a careful distinction between capital and operating. Capital refers to assets (such as building projects or computers - that in principle one could sell if things got hard), while operating refers to the day-to-day budget of salaries and program money. Even though the capital campaign is going well, discipline is required with the operating budget. So we are in for a difficult budget round. Meanwhile, all those seminarians who are planning to be involved in congregations, do please read this commentary carefully. This is a major part of your future.

The Very Rev. Ian S. Markham, Ph.D.
Dean and President
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