His Mind on the Money — Q&A with Mike Frandsen, VP Finance

With the announcement of the Board of Trustee’s plan to terminate 15 FTE faculty, the college is buzzing with questions about money.  The Pleiad sat down with Mike Frandsen, VP Finance, to get a grip on the deal with Albion’s dough.

Frandsen assumed his role as VP Finance on an interim basis on July 7, 2009 and on a permanent basis on December 1, 2009.  Some of his duties include:

• Providing leadership and guidance to administrative units that manage finance, facilities, dining and hospitality, real estate, audit, human resources, administration, business services, and investments.
• Providing oversight of both current and long-range fiscal operations to assure that they do not exceed available resources, and that operational risk is within reasonable parameters.
• Promoting the efficient and effective use of the college’s resources.
• Providing leadership and financial input on decision making issues affecting the organization.
• Advising, negotiating, managing and administering contracts into which the college may enter.

Once and for all, why is the budget private?

Most organizations don’t release their budgets – both public and private organizations.  Results are often made public, but budgets are seldom made public.  We just don’t think that it’s necessary to release for a couple of reasons: competitive issues, depending on what level we’re talking about, personal information, to name a few.

If we’re talking about broad categories of revenue and expense, we’re happy to share.  I shared much of that information on the March 15 student senate meeting.

Is college spending on facilities (buildings, statues, etc.) a part of Albion’s financial problem?

A lot of things that happen with any nonprofit organization are donor driven, and Albion is no exception.  There are things that donors have wanted us to use their money for, whether it’s a facility or a scholarship.  If we’d been given the money with no strings attached, we might have spent it differently.  Are there glaring examples of this type of donating?  No. But there certainly are examples.

Institutions like ours usually use debt financing to build facilities. We borrow money in a capital market to build the science complex or a new dorm or whatever.  And Albion has done that over the years – most recently for the completion of the science center.

I’ve heard the reign of Peter Mitchell described as a time of “fiscal irresponsibility.”  Do you believe that the college has mismanaged spending?

I couldn’t say that without doing more research. Were there assumptions that were not realized?  Clearly.  Where we are in 2010 is a reflection of actions taken based on assumptions that this college could sustain an enrollment that’s higher than we believe we can sustain now.  Costs have been incurred to support that higher enrollment level that we can’t support at the lower enrollment level that we have now and expect to have in the future.

In 2005, our fall semester enrollment was 1979 students.  Our current semester is 1647.  We’re down 340 students from fall 2005.  We can’t afford the same things that we could afford to support with that many students.  It’s not easy to be in this spot, but it’s where we are.

What options were considered other than termination of faculty?

The Board has chosen that this (elimination of 15 FTE) is the best route.  Absolutely other avenues have been considered.  This has been a two year process – not an overnight one.  Dr. Randall has been talking about smaller, smarter, stronger for a while now, and  that significant reductions in cost have to be made and already have been made, including reductions in academic areas.  At this point, the reductions have been much greater in non-academic areas.

Academic areas are the main cost in operating this institution, but because of the importance of these areas, it takes longer to ponder which areas are the best.  Over time, across the board salary reductions and things like furloughs were considered.  But a lot of these considerations were well before my time in this role.

What will happen to the college if the 15 FTE positions are not cut?

We would continue to lose money, and that would continue, over time, to impair the endowment. In the long, that run would put our next 175 years at risk.

While you’ve stated that Albion has not adopted a formal definition of financial exigency, the faculty and administration are still referencing the term.  How do you define it, and why hasn’t the school declared this state?

There’s a Supreme Court case (1973) that I know of – the issue was pornography.  The judge said that it’s something that’s hard to define, but he would know it when he saw it.  It’s kind of the same thing with financial exigency.  Some institutions have defined it very explicitly across a broad range of definitions – groups like the AAUP.    Albion College has not chosen to define it.  But, like the Supreme Court case, I could tell you if I saw it, and we don’t have it here.  This isn’t a definition, but if we got to the point where we were selling assets to keep the college open, that would be exigency.  We’re not anywhere close to that as an issue.

Is a brighter financial situation in the future for Albion?

I believe so, because I believe the assumptions being made are good assumptions.  I’m certain that the person sitting in this office six years ago, 10 years ago, 15 years ago all thought they were making good assumptions as well.  One can make conservative assumptions that are more likely to be realized than the assumptions that have been made In the past.  Nobody has a crystal ball.  But again, I believe relative to the optimistic assumptions that have been made in the past, these are more realistic assumptions, and are therefore more likely to be realized.

I think this is certainly a difficult time.  But if we get through this, and put it behind us, we have an opportunity to be a stronger institution, financially and otherwise.

What do you wish students understood about the college’s finances?

The first thing that I would like people to understand is that the current situation is really brought about by a decline in enrollment and that the trustees and administration believe that this will be a better institution if we stabilize enrollment rather than chase enrollment.

I think from a student standpoint, the next thing is that you pay about 78 cents of every dollar it costs to educate you at Albion College.  So there are outside sources of funding that are providing support for what you’re doing – auxiliary enterprise support, endowment, etc.  But only 78 percent of the cost of your education is being borne by you, as a student.

Did this answer your questions?  Tell us what you would have asked Albion’s VP Finance.