Guest Post – Concordia, Ann Arbor: A Response, Part 1 by Mark Stern

On February 13, 2023, Dr. Erik Ankerberg, President of Concordia University Wisconsin (CUW), notified faculty, staff, and students at CUW’s two campuses (Mequon and Ann Arbor) that “we must reduce our costs to operate sustainably within our existing revenues.”  He reported that based on a just-completed financial analysis, “the Ann Arbor campus faces a structural deficit large enough that it cannot be overcome without a significant change to the strategic model of how we operate,” and that “[t]he situation at our Wisconsin campus is slightly better but still needs attention and significant change.  Here, too, we face an ongoing operational deficit created by an imbalance between the money we spend annually and the revenues we generate.” 

Many saw that announcement as a prelude to possible or likely closure of the Ann Arbor campus.  Ann Arbor supporters immediately launched a Facebook page called “Concordia Matters”, which they have filled with stories from students, alumni, and faculty of their positive experiences at Ann Arbor.  Unfortunately, much inaccurate or misleading information is also circulating. 

Among the inaccurate information is a contact list, posted on Concordia Matters, that names individuals, including me, supposedly serving on the Concordia University System Board (none of them does).  It encourages supporters to email a long list of people, many of whom have no connection to the situation.  Though I have no direct connection either, I have received dozens of emails, so I am writing to respond, in part, to this correspondence.

Among the misleading information is the claim that CUW can and should solve its financial problems by using cash on hand and/or taking money from its endowment fund.  Though CUW could raid its reserves to cover deficits, doing so is not sustainable and would lead to more problems down the road.  We trust that God will provide for our needs, but He does not promise to sustain any congregation or human institution forever – only His Church – and we are called to be prudent stewards of temporal resources He has given. 

On a recent Lead Time podcast[i], retired CUW president Dr. Patrick Ferry asserted that because CUW has cash on hand and a significant endowment fund, there is “not a crisis” at CUW and we need to “hit the pause button” on any “precipitous action” to address the financial situation.  He stated that “it would be very difficult for me to look folks in the eye” and make major cuts “without utilizing any of the endowment” to cover financial shortfalls.  These talking points have been echoed by others who advocate for maintaining the status quo, or largely the status quo, at CUW and particularly at the Ann Arbor campus.

CUW has a $125 million endowment, of which about $90 million is “unrestricted”.  That’s great.  However, that money is similar to an individual retirement account (IRA or 401k).  Like an IRA, it is long term savings with a specific purpose:  to provide sustainable future income over time.  

If you are 59½ or older, the money in your IRA is “unrestricted”.  Legally, you can take 10% of it out today – in fact, you can take all of it out today.  However, if you and your spouse think you might live more than a few more years, it’s probably a bad idea to withdraw a big chunk in a single year.  Your IRA will rapidly shrink, and you will lose the future income that the funds, sensibly invested, would have generated.  Covering a $9.1 million operating deficit for a single year would require liquidating 10% of the unrestricted endowment built up over decades, to cover a single year’s worth of operating bills.  That’s dangerous; The Chronicle of Higher Education has described this kind of action as a warning sign of a university in a financial “death spiral” because it means eating the “seed corn” that should have been used for future planting.[ii]  

Dr. Ferry also stated that at the end of the most recent fiscal year (June 30, 2023), CUW had $11.3 million “cash in the bank” and hadn’t drawn its line of credit, which are both true statements.  According to Dr. Ankerberg, CUW faced a $9.1 million structural deficit.  The $11.3 million cash in the bank (checkbook balance) is more than $9.1 million, so what’s the problem?

Consider an average family.  If paydays are March 1 and March 15, ideally they don’t spend every dollar in their checking account by March 25 – they keep “cash in the bank”.  If their cash is zero on March 25, they can buy groceries with a credit card, to tide them over to the next payday.  But next month they’ll have to pay that back, plus interest, and their budget will be even tighter.  Sadly, many families must live “paycheck to paycheck,” but those with the ability to cut spending to get out of the borrow-and-repay cycle (or worse, permanent debt) should do so. 

CUW’s annual expenses are about $125 million, or more than $342,000 per day, every day.  Cash in the bank of $11.3 million covers only about 33 days of spending.  Also, most colleges and universities get much of their income (payday) around September 1 (when students return to school and pay tuition and fees for the fall term) and in early January (when they pay for the spring).  That means that on June 30, CUW must have enough money to cover bills for the months of July and August, when relatively little income is coming in, but expenses continue. 

CUW may have cash on hand to cover one year of deficits, but a “structural deficit” means “$9.1 million, every year”.  With its checkbook depleted, CUW would likely have to start borrowing to pay its bills for periods of time during the year – a sort of payday loan for universities.  Though this is not an “uncommon” way to “live” for many schools, it’s not a sign of financial health, and requires added interest expense that further stresses the budget.

In the coming weeks, I’ll write more about different aspects of the Ann Arbor situation to respond to other questions and comments that have been emailed to me.

– Mark Stern does not serve on the Concordia University System Board, but is the former chairman of the Concordia University Chicago Board of Regents and now serves on the Concordia Seminary Board of Regents.  This article is his opinion and does not speak for any of these institutions.

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[i] Available on YouTube at https://www.youtube.com/watch?v=ePIncodtnKI&list=PLMbPp2EY2cv1jDsidoDpS3vnDV2vVImLn&index=1&t=1358s.

[ii] Carlson, Scott and Galbally, James F. Jr., “How to Recognize the Warning Signs of a Death Spiral – and How Colleges Can Avoid One”, The Chronicle of Higher Education, April 22, 2020, available at https://www.chronicle.com/article/how-to-recognize-the-warning-signs-of-a-death-spiral-and-how-colleges-can-avoid-one/.