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Our view: Sweet Briar board should resign

Our view: Sweet Briar board should resign

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Something just doesn’t add up here.

We’ve been looking at the public financial filings for Sweet Briar College, which has announced its closing due to declining enrollment and a dwindling endowment. Here’s what we find:

For six of the past seven years, Sweet Briar’s operating expenses have exceeded operating revenues, sometimes by a little, sometimes by a lot. In private business, that would be called a loss.

For at least the past three years, and perhaps more (it’s hard to tell), Sweet Briar has been covering that loss by dipping into its endowment, which explains why that fund has dropped from $96.2 million in 2011 to $84 million today — at a time when the stock market has been inexorably going up.

On this point, there can be no dispute: This is not good. This is the fiscal equivalent of a farmer eating his seed corn. It might get you through a lean winter, but it bodes ill for the long-term prospects of the farm. There’s a reason why the technical term for spending an endowment is called an “invasion.”

Sweet Briar’s board has looked at that burn rate — along with the drop in enrollment — and concluded that the school simply isn’t sustainable. The college has been using up its endowment to subsidize 62 percent of students’ tuition. Best to get out now, the board has concluded, while there are still assets left — presumably so it could still carry out at least some semblance of the directives in the original bequest that set up the college, which called for a school “for girls and young women” as a “perpetual memorial” to the late Daisy Williams.

Maybe if there can’t be a school, a court will allow the assets to be directed toward some other educational purposes that would constitute a different sort of “perpetual memorial.”

On the other hand . . . there is still that endowment of $84 million. “I’ve never seen a college in as strong a financial position as they were in close their doors like that,” money manager John Bonnell of USAA Investments, which holds some of Sweet Briar’s bonds, told Bloomberg News. “It’s kind of unprecedented territory to see how the process will unfold.”

And here’s where things get curious. For the fiscal year ending 2014, Sweet Briar reported assets totaling $163.9 million — land, buildings, investments, everything.

Yet that’s more than it had at the end of the previous fiscal year, when its assets totaled up at $160.6 million. Yes, that’s right — even though the college spent down some of the endowment, its assets still grew, while its liabilities decreased — down to $29.5 million from $30.7 million.

Assets up, liabilities down. Isn’t that what might also be called “headed in the right direction”?

OK, that’s just one year. Let’s look at a bigger swath of time. Let’s go back to the fiscal year ending June 2009 (which puts us after the stock market crash of ’08):

Assets that year totaled $172 million — so that part of the school’s ledger has slipped to $163.9 million.

But the school’s liabilities have been cut at an even faster rate — from $50.5 million then to that $29.5 million now.

So while the overall assets are down some, the school’s asset-to-liability ratio has actually improved.

And back to that endowment: Even though it’s down from 2011, that $84 million figure is still higher than the $74.3 million that was in the endowment in 2009.

So we say again: Since 2009, asset-to-liability ratio improved, endowment up. Aren’t these generally good things? Why the panic?

Yes, some $53 million (the latest figure) of that endowment is tied up in restricted funds; but that’s not unusual for an endowment.

If this seems a muddle of numbers, you’re right. But that’s also the point. This does not seem to be a clear-cut case of the college running out of money, or anywhere close to it. The board seems to be acting on trend lines, not bottom lines.

Or does the board simply lack imagination and energy?

Maybe the board is right. Maybe it has peered into the future and simply sees no way to reverse these trends — that enrollment will keep falling, the burn rate for the endowment will accelerate and soon that will be that.

Yet . . . the board never went public to sound an alarm and ask alumnae or other donors for a fund-raising campaign.

Nor do there appear to have been any serious attempts at cutting costs; the employee-to-student ratio (328-to-560) seems rather generous. If this were a private company, we can guarantee there’d have been some cost-cutting going on.

Meanwhile, some of the board’s explanations for closing now are somewhat dubious. College President James Jones has said: “To save Sweet Briar we would need $250 million into the permanent endowment tomorrow morning.”

Really?

To put that figure in context: Hollins University has an endowment of $180 million and seems to be doing just fine. Ferrum College has an endowment of only $50 million and it’s been increasing enrollment — which also seems to run counter to Jones’ other assertion that small colleges in rural areas are having trouble attracting students. He also said the nearest Starbucks was 30 minutes away and that was a problem in recruiting; it’s really about 20 minutes.

You know who does have an endowment of $250 million? The University of Maryland.

Does it really take a Maryland-sized endowment to save a school of 500 or so students when the rest of the balance sheet doesn’t look completely out of whack?

If the Sweet Briar trustees are so absolutely convinced that closing is the only responsible option, here’s what they could do: Resign.

Sweet Briar’s alumnae are now actively engaged in trying to raise money to save the school. Let them take over. If the existing board is right, then a new board would surely come to the same, sobering conclusion.

At worst, a new board would spend down some more of the endowment, but at the rate things have been going, the college’s overall net value might still increase as it has in the past year.

But if the existing board is wrong, well, there is that risk of being proven wrong.

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