Structural Change Task Force

BACKGROUND: Final Report of the Structural Change Task Force of CDSP, October 2011

Introductory Remarks:
In March 2010, the Board of Trustees of Church Divinity School of the Pacific [CDSP] concluded that although CDSP is not facing an immediate financial crisis and continues to retain substantial assets; the present structure it is utilizing to carry out its mission of providing theological education cannot be financially sustained. The School has been, and unless changes are made will continue to incur annual operating deficits exceeding $1 million. The deficits are reducing the endowment and in turn the amount that can be prudently drawn from the endowment under applicable audit standards. Changes must be made and some ways of doing things must come to an end, so that new ways of accomplishing the mission can be undertaken utilizing the finite resources [human, material, and financial] that CDSP has available to it. The Board determined that by doing so now it can assure the School’s continued financial sustainability. The Board commissioned this Task Force [TF] to recommend changes that meet this challenge. (Members of the Task Force are: Rodney Davis, Ken Allison, Marc Andrus, Kathleen Kelly, Eliza Linley, Holly McAlpen, Rod McAulay, Mark Richardson, Don White, Steve Argyris, Don Brown, Linda Clader, Nancy Eswein, Steve Huffman, Hank Mitchell, Donn Morgan, and Susanna Singer.) In May 2010, the TF adopted a five stage Strategic Outline as a methodology for arriving at recommendations to bring to the Board. Those stages encompassed the following and were completed in September 2011:

Stage I: Putting in place a method of conducting TF work that assures transparency, involvement, and buy-in by stakeholders and interested parties.

Stage II: Preparing a descriptive narrative of the legal, operational, human, financial, and property, assets, liabilities, and limitations likely to impact any proposal for structural change.

Stage III: An assessment of the present and future needs of the Episcopal Church and the Province of the Pacific for theological education; the efficacy of present programs in meeting these needs; and to the extent they are not being met --- how CDSP might be able to meet them

Stage IV: An assessment of whether and how CDSP can meet all or part of the needs for theological education identified in Stage III in ways that are financially sustainable.

Stage V: Agreement on a comprehensive plan that will enable CDSP to carry out its mission in a financially sustainable way. During stage IV a broad range of possible changes in how CDSP fulfills its mission were raised, investigated, and discussed. Many different structures for doing so were considered and discussed. These included but were not limited to: selling all of the campus and moving to a less expensive location possibly in conjunction with merging with another seminary; selling most of the campus and using the increased endowment to fund a very small faculty to educate for little or no charge, a handful of postulants for the priesthood; merging with Pacific Lutheran Theological School [PLTS] to create an Episcopal/Lutheran seminary; becoming a house of studies within Pacific School of Religion [PSR]. These and other structures remain as future options and their existence made clear to the TF that a number of possibilities exist that will assure that the Western half of the Nation has available to it an Episcopal seminary for the training of future clergy.

II. Leading the Way toward a More Robust Relationship with Other Schools
Ultimately, the TF favored a comprehensive plan that it believes will lead one or more GTU sister schools to join CDSP in creating a jointly funded common core faculty for delivering the classes needed for all but the most denominationally unique requirements of its M-Div and Certificate programs. The TF did so because the high value it placed on the ecumenical opportunities for Christian theological education the GTU consortium offers and its conclusion that such education is consistent with the trend and direction of Christianity generally and “mainline” American denominations in particular.

In exploring this idea, the TF worked closely with the Presidents and Deans of PLTS, PSR, and the GTU. These individuals were given access to all of the material developed by the TF during stages II and III, participated in TF plenary sessions, and repeatedly met with Dean Richardson. The leadership of these schools recognizes that they too cannot assure financial sustainability unless they significantly change. Although the leadership of these schools sees a common core faculty and the sharing of expenses as desirable and possibly inevitable, if the GTU is to continue to exist --- they are unwilling to commit their schools to it at this time.

The TF believes that CDSP can and should get out front and lead by example one or more of these schools to merge its resources and programming in this way. It can do so by unilaterally structuring its faculty and programming as if the common core faculty already existed. This requires CDSP to reduce its full-time faculty to those likely to be part of the common core faculty and those that are essential to deliver the instruction unique to forming ordained ministers for the Episcopal and other Anglican churches.

To replicate the instruction that would be provided by other common core faculty, CDSP will have to contract for instruction with faculty of other GTU schools and elsewhere and hopefully share those expenses with one or more other schools of the GTU.

The largest single expense of the operating budget is instructional costs. A smaller full-time faculty along with contracted for instruction and sharing of expenses will reduce the operating deficit; respond to the increasing need for ecumenical education; and nudge one or more GTU schools to share more expenses through reducing and consolidating most of their faculty into a common core faculty.

III. Increased Low-Residential Programming
Low-residential programming is instruction delivered online with or without a compliment of some face-to-face instruction with the instructor and fellow students. It is an increasing feature of higher education, and can be less costly for both the institution and for the student. More significantly for the Episcopal Church’s increasing reliance on volunteer and part-time bi- vocational clergy --- such programming provides, in many cases, the only effective way for such students to attend seminary. It also provides full-time residential students with time-sensitive options likely to be more compatible with part-time employment.

The TF has concluded that that it is essential that CDSP expand low-residential programming. This belief is shared by the Dean and current faculty and they have begun to do so in anticipation of the TF conclusions and recommendations. To meet the need for instructors for these classes, the Dean has set new teaching load expectations for faculty and started a summer program in which classes are delivered in this way for credit. This may result in faculty having to forego non-compensated work for the GTU doctoral program. The tuition and campus housing revenue generated from this new programming will become substantial in time. The TF also concluded that students taking these courses should be eligible for student aid if they otherwise qualify.

IV. A Different Focus and Emphasis for Fundraising
CDSP tuition is higher than most comparable seminaries, as is its Bay Area housing costs. Tuition cannot be increased without negatively impacting enrollment. Even with its high tuition, revenue from tuition does not come near to covering the per-student cost of CDSP programming. The School therefore depends heavily on revenue from annual giving and an annual draw from its endowment to partially make up the difference.

Recognizing that increased fundraising has to be a significant component of any comprehensive plan to address the operating deficit, the TF reviewed the history of fundraising at the School. Recent campaigns have emphasized and focused on raising money for improvements to the real property, the endowment of faculty chairs, and encouraging bequests to the School.

While unrestricted annual giving has remained at roughly $800,000 annually, CDSP has very few churches, dioceses, or individuals --- including alumni --- with a commitment to annual support for the Seminary comparable to that of other graduate and professional schools --- much less parishes. Such a commitment is simply not rooted in the culture of CDSP. Significantly, every dollar raised through annual giving can be used for operating expenses.

Accounting standards provide that institutions such as CDSP can annually withdraw 5% of their endowment to fund operating expenses. This annual draw is the largest single source of revenue available for the operating budget and the Board has been exceeding this 5% standard to cover operating deficits. Doing so has a cost. The resultant reduction in the value of the cash endowment proportionately reduces the amount of the prudent draw that can be used to fund operating expenses. Money taken from the endowment that exceeds accounting standards is considered a loan that has to be repaid with a reasonable amount of interest. These loans will eventually have to be repaid. Before repayment can begin, the TF believes the School has to gradually eliminate the operating deficit.

The TF considered a major campaign to increase the endowment and thereby the amount available through the annual draw for operating expenses. It concluded that the Board should wait several years before doing so. Because of the 5% standard, contributions to the endowment return only 5 cents of every dollar contributed that can be used to reduce the operating deficit. Moreover, the success of such a campaign will be more likely if it is built upon a multi-year record of robust annual giving, along with the implementation of a plan that is gradually eliminating the operating deficit.

Therefore, the TF concluded that CDSP should change the emphasis, resources, and staff of its fundraising program to secure support for its operating budget through increased unrestricted giving to its Annual Fund, especially among its alumni. In doing so, the School will hire a chief advancement officer who has the experience and skills needed to increase annual giving and the associated commitment to annually support the School. The chief advancement officer will require staff. The TF recommends that the current position of director of alumni and church relations become a full-time fundraising position under the supervision of the chief advancement officer and no longer have church relations and deployment responsibilities. Alumni contributions to the Annual Fund barely exceed money spent by the School to host and staff the Alumni Council. The current leadership of the Council sees the need for alumni to begin playing a significant role in annual giving. The TF therefore believes that alumni relations have a fundraising purpose and that their development should be part of the chief advancement officer’s fundraising program.

The fundraising program will have to be supported by a shared communications position. Solicitation of major gifts and bequests should continue, but as a supplement to annual giving, and the President and Dean should continue to devote a substantial amount of time to securing increased financial support for the School.

VI. A Gradual Increase in Enrollment
After analyzing historical patterns in CDSP enrollment as well as current trends of seminaries generally and Episcopal and GTU seminaries in particular, consulting bishops and diocesan deployment officers, and taking into account current economic and cultural changes, the TF concluded that growth in student enrollment alone would not eliminate the operating deficit. Modest growth over the next 5 years will, however, significantly contribute to its reduction as the School receives increased revenue from tuition and rent.

M-Div student numbers have been moving sharply lower, from a plateau of around 60-70 in total, to a plateau of around 40 in total. Numbers for last year were even lower: 30 full-time equivalent students [FTEs]. Similar drops were experienced in other degree and certificate programs. Total enrollment in all degree and certificate programs last year was 75 students, down from a high of 122 in 2004. The only other period in which enrollment was even close to this low was in the early to mid-1990’s, also a time of significant internal difficulty for the school. The trend of these numbers is represented in the enrollments of seminaries generally, as well as in Episcopal and GTU seminaries. The good news is that the entering class at CDSP is larger than what was anticipated.

Taking this information into account, the TF made a number of conservative assumptions about growth in enrollment in both its residential and low-residential degree and certificate programming. The TF concluded that enrollment will gradually increase over the next 5 years from 54 to 90 FTEs. The projections assume that retaining a full-time student recruiter will increase the number of entering students, that an increase in low-residential programming will also do so, and that the School has experienced the low end of an enrollment cycle and is now gradually returning to a more normal size. The TF is also hoping that a more ecumenical faculty and showcasing affiliation with the GTU will also increase enrollment since the TF’s analysis showed that the ecumenical experience offered through affiliation with the GTU was a major reason students enroll at CDSP.

The TF’s analysis made it clear that the School’s tuition and associated costs prevent students who otherwise would attend CDSP from attending. The cost also is narrowing the demographic profile of CDSP‐trained clergy, and is saddling graduates with burdensome debt. However, the School’s operating deficit makes increasing student aid above 45% of tuition infeasible pending the successful implementation of this comprehensive plan during the next 5 years, and further study and investigation by the Board on how costs can be reduced. Many ideas for doing so were discussed by the TF, including, but not limited to tuition‐free education for select students either independently or in partnership with Episcopal dioceses.

V. Creative Management of the Property Endowment
The School’s real property is the most significant financial asset it has. Its proximity to UC Berkeley, to its sister GTU schools, and the GTU Library, as well as the diversity of its housing highlight its value to academic programming, student recruitment, and as a source of revenue. The TF thoroughly investigated the possible sale of all or parts of the property, as well as its potential for generating additional income from rents. The latter was done in conjunction with assessing the cost of making properties suitable for rent and relocating faculty and staff that might be displaced by further leasing of the property. The TF concluded that CDSP should retain ownership of its existing property while seeking tenants for non‐essential space on campus. Additional leasing of non‐essential space on the main campus can potentially accelerate the 5‐year time frame for eliminating the operating deficit. But it must be done carefully so as not to create unintended expense that will offset any gains from increased revenue from rents.

Easton and Gibbs Halls provide overnight housing for students and visitors to campus. This resource is a necessary feature of the School’s plan to increase low‐residential programming and the number of students for whom such programming is the only way they can attend seminary. The remaining residential property is paid for, provides operating revenue, and is suitable as security for the School’s line of credit.

The lack of an opportunity for a weekday community meal in the Refectory impacts student recruitment, the suitability and desirability of residential space, and the cultural atmosphere for residential and non‐residential students. PSR will be ending its meal program within the next year or two. The TF recommends that CDSP work toward replacing the current meal plan with an option for the entire student body to purchase lunch in the Refectory during weekdays. This will require improvements to the Refectory kitchen as well as the small kitchens in Parsons Hall.

When improvements and renovations were made to Gibbs and Easton Halls, the School secured a line of credit that it makes monthly payments on out of its operating funds. That line of credit ends in August of 2012. Monthly payments are significantly reducing the balance that will be due when the term ends. This fact along with anticipated reasonable interest rates and the availability of Nichols and Virginia as security, convince the TF that a new line of credit can and should be procured in August of next year. Monthly payments on the new line of credit will be less than currently made and will accordingly reduce the operating deficit.

The TF has incorporated its conclusions and recommendations into hypothetical operating budgets for each of the next 5 years. Those drafts will be shown to Board members at the Board meeting on October 13, 2011. They present detailed assumptions affecting faculty, staff, and operations that are subject to change at the discretion of the Dean. Although tentative, these details will show that implementation of the TF’s comprehensive plan will reduce to an insignificant amount or outright eliminate the operating deficit in 5 years. The TF concluded that projections beyond 5‐years are unreliable.

© 2012 Church Divinity School of the Pacific