Friday, October 10, 2008

Albion's Money Woes
Stopped cold
Wachovia freezes Albion's funds
By HOLLY SETTER
Editor-in-Chief
and
KELSEY LAUER
Assistant News Editor

The economic crisis hit home for Albion College on Sept. 30.

When Wachovia Bank folded, and the college lost the ability to access over $7 million of its short-term funds, the money used to pay salaries, bills and finish construction. Wachovia was trustee for the Commonfund, a financial institution that provided a higher-than-average return on endowments that non-profits and colleges, such as Albion, invested with them.

Nearly 1,000 colleges nationwide were affected by this freeze.

The Commonfund has since allowed institutions to access up to 37 percent of their short-term funds, according to Troy VanAken, executive vice president for Albion.

“We had some of our endowment invested with the Commonfund, in particular with the short-term fund,” VanAken said. “At this point in time, I don’t believe we’ll have any issues (paying salaries, bills and finishing construction projects).”

VanAken mentioned that the college will watch its spending very carefully and should have enough other resources that funds should not currently be a problem.

According to Jon Hooks, professor of economics, the endowment is the accumulation of all the financial assets of the college, and Albion follows a spending formula that emphasizes saving for future students and limiting access for current use.

VanAken said that Albion has portions of the endowment invested in other institutions, including Chemical Bank, Citizens Bank and JP Morgan Chase.

Albion operates roughly a $4 to $5 million monthly budget.

“Albion College gets most of its revenue in two big chunks,” VanAken said. “We get a lot of money in August when you guys (students) come to school and pay tuition, and we get a lot of money in January. Now of course, we don’t have our bills come in August and January.  We have a lot of cash on hand or in our accounts after we get all of our money in August. We put our money into these accounts and we invest it so that we can get a return on it.”

Because of this schedule, VanAken said that money does get a little tight around December and the end of the summer.  As the end of the semester draws closer, VanAken noted that without other sources of short-term funds, Albion could have been put in a much tighter spot with the asset freeze.

Hooks said that although the short-term asset freeze was an inconvenience for Albion, it doesn’t have a large impact on the overall health of the endowment.

“Much of the endowment is invested in stocks, so the stock market affects the endowment more than the short-term fund,” Hooks said.

According to VanAken, the largest impact that this situation has had on Albion is in where the focus lays.

Instead of focusing on how to improve the college, VanAken said that the staff has currently been preoccupied with communication with trustees and others concerned about Albion’s connection to Wachovia.

“Although at the time it doesn’t appear that there is any undue impact, it’s something that you really have to stay on,” VanAken said,

President Donna Randall noted that other colleges around the country aren’t so lucky.

“Albion will be able to meet our payroll expectations and we do have other sources of liquidity,” Randall said. “However, I do feel for many small institutions who may not be in our position and are now facing serious cash flow problems.”