A Conversation with President Kurt Landgraf: Lower Enrollments, Budget Deficits Mark Challenges at WC

Declining enrollment, small endowments, and competition from more affordable public universities will continue to threaten the existence of small liberal arts colleges well into the next decade.

Moody’s, the Chronicle of Higher Education and other education experts predict these factors will force many small private colleges to close or merge with larger institutions — and Washington College President Kurt Landgraf agrees.

He said he made his concerns known at an education conference several years ago, long before he was approached to take the helm at WC.

“I projected…that 50 percent of liberal arts colleges would no longer be here ten years from now,” he said in an interview with the Spy on Monday. “There are macro things that are affecting not just this college but all liberal arts colleges.”

The pool of high school graduates nationwide shrank by 81,000 in 2017 and the trend continues downward. The East Coast has been hit hardest by the decline.

The shrinking freshman pool is blamed on a decrease in birth rates at the dawn of the Great Recession, called the birth dearth. This means the brood of 18-year-olds headed to college in the mid-2020s will shrink by another 15 percent.

Small colleges, including WC, have tried to overcome dwindling enrollment with drastic tuition discounts. Experts say this is leading to a fiscal crisis at many small liberal arts colleges.

“We can’t cover the expense of every new student with tuition room and board [revenue],” Landgraf said. “That’s why all colleges take money out of their endowment.”

The tuition discount for WC runs 55-60 percent off the list price of $251,00 for a bachelor’s degree, and the college normally uses 5 percent of its endowment annually for operating expenses. But in the last few years, the board has allowed the administration to take 6.5 percent because of less than predicted enrollment, which resulted in higher operating costs.

In Maryland, withdraws from endowments that exceed 7 percent of their fair market value must get approval from the attorney general.

WC planned for growth as enrollment nationally began to slide

While experts were sounding the alarm of declining enrollment, Washington College was planning for growth. The construction of new dorms and a new stadium — and the purchase of Stepne Manor and the armory — were in anticipation of the student population climbing to 1,700. But the student population dipped and sits at around 1,350 headed into the fall 2019 semester.

“Over the last four or five years the board expected the student body to grow,” Landgraf said. “They had every reason to believe that.”

He said during the expansion years the freshman class had swelled to 450 and the board’s predictors were based on “fundamentally sound facts.”

But the new freshman class is about 380 and the decline meant that staff reductions had to be made to help close a $6.6 million deficit, which in recent weeks has fueled concerns that the college is in peril.

Landgraf said the financial health of the college was sound but staff size had to be made commensurate with the student population and tuition revenue.

“There was a reduction in force because we had too many people…the college was built on the expectation of having 1,700 students,” he said.

The total staff reductions consisted of voluntary retirement packages for three faculty and 11 staff. Another nine positions were eliminated.

“We have to face the fact that we don’t have 1,700 students,” Landgraf said. “We’re in a recovery mode and the board is fully supportive of that; we’re doing all the things that need to be done to get us to the point where we’re back on a growth path.”

The staff cuts and additional revenues helped trim $3.6 million from the $6.6 million structural deficit, and the board allowed the administration to carry $3 million in debt into fiscal 2020.

To help further close the deficit, tuition will go up 4 percent and room and board will increase by 2 percent.

The college is also trying to sell off surplus real estate.

“The college is in a program to divest itself of nonessential real estate in Chestertown,” he said. “We’re selling everything we possibly can because we don’t need it…it’s a significant source of cash.”

When asked if senior staff had shared the pain of the budget woes, Landgraf responded that many in the upper ranks collectively agreed to take salary cuts — and in return — he agreed to match it.

“Everybody said we’re in trouble, we have to face up to this and we have to participate,” he said. “I’m going to match whatever they give.”

The money will go to the Washington Fund and is estimated to reach $150,000.

Landgraf said WC was on a better financial footing than most small colleges because of its large endowment.

“Our endowment is four and five times that of smaller liberal arts colleges,” he said.

The total endowment as a March 31 is $228 million, and the Forge a Legacy campaign is nearing its goal of $150 million a year ahead of schedule. The campaign has so far earmarked $64 million from the campaign for the endowment. The numbers are expected to grow before the final tally.

Hodson Trust bears no influence on recent cuts, Landgraf says

The Hodson Trust, established nearly 100 years ago, provides scholarships and grants to Washington College, Hood College, St. John’s College of Annapolis and Johns Hopkins University.

The trust is WC’s largest benefactor, contributing over $80 million since inception. The trust is set to pay out its endowment to the four schools sometime in the next two years, when the trust is scheduled to bring its balance to zero. Speculation has circulated that the staff cuts were aimed at giving Hodson greater confidence in the college’s future.

Not so, Landgraf said. He said a large payout would certainly help with enrollment but the staff cuts were not an attempt to please Hodson. He said the potential for a large payout was not behind the decision to cut staff.

“Even if we were not one of the recipients of the Hodson Trust, there’s nothing we’re doing today that we wouldn’t do.”

But he did make clear that Hodson and other donors want assurance that their beneficiaries are financially on solid ground.

He said Hodson requires quarterly reports to demonstrate sustainability.

“If they felt this college was not going to be here 200 years from now, that would impact how much money they would give us,” he said. “The Hodson Trust pays attention to sustainability. We’re better than sustainable, but in the next couple years they’ve got to know that we’re doing everything we can to make sure we’re still here 200 years from now.”