The State of VMI finances address

"We've got a serious issue," was the alarm sounded by Virginia Military Institute (VMI) Board of Visitors (BOV) Finance Committee Chair, Mr. Teddy Gottwald, to the full BOV at their January 2023 meeting. During the meeting, Board of Visitors Member Mr. Teddy Gottwald started his presentation on VMI's financial status using athletics as a point of comparison. "if you take the athletic financial gap and put it on steroids," stated Mr. Gottwald "then you're kind of looking at where the whole budget is." Using the financial assumptions in the BOV's information book, Mr. Gottwald explained the significant issue facing VMI from the enrollment perspective. "…it gets enrollment assumptions going forward. And this is really the heart of the math problem…" He defined it as "the math problem", explaining VMI is "sized for a core of about 1700 cadets. That's how pretty much every department in the school [is sized]. If you look at the total cadets at the beginning of the fiscal year…, you'll see that last year we had almost 1689 at the start of the year. We know what's happened this year with [a] 120 shortfall. We know that we hope to get back 450 next year and then back around 500 the year out. The way that rolls through, it's not a one-year problem. We have those Classes' four years. It's going to be the fall of 2026 before the Corps gets back to that close to 1700 number." The impact, Mr. Gottwald explained, is that "we have four budget cycles here of real issues. We have the fund balance that's been mentioned and a few comments on that. It's not really a rainy day fund. It's a fund that's used for lots of purposes. It's used for cash management in the fluctuations in the course of the year. Revenues and expenses aren't on a linear path. It's used to pay the bills." Mr. Gottwald and VMI's financial team feel that $11 million is the minimum for this fund for normal operations." According to Mr. Gottwald's presentation and the accompanying reports, VMI finished last year and started this year with [a] fund balance of 24 million having been built up over the years through good financial discipline. The fund rises and falls based on whether VMI's annual budget has a surplus or a deficit. "A very simple way to look at the math on this is," said Mr. Gottwald, "that for every 25 cadets below 500 with the cadet class coming in there is about a million dollar impact on that year - give or take. So that's a $4 million problem over the course of the cadet's years. So this year's class with 120 short 5 million a year, four years, $20 million -- we'll be very short. Two million a year, $8 million. So a $28 million issue." Analysis by Mr. Gottwald's Finance Committee shows VMI is rapidly heading for a significant deficit and the fund is rapidly dwindling. "In very general terms," briefed Mr. Gottwald, "$24 million starting fund balance, $11 million needed minimum. So there's a crunch. Add on top of that things aren't static. We've got the 5% salary increase. We've got the VMI portion of the health insurance premiums going up. That adds up to a little over $4 million. It's offset by an expected tuition increase. 3% in-state, 4% out of state. That raises $2 million. But it doesn't not offset the costs that we know are going up. So when you put that together…,if nothing changes, if we don't change the way we operate, continue to operate for 1700 cadets, about 1700 cadets then pretty much by the end of calendar 2024, we'll be under that $11 million. Then that fund balance will be completely gone in 2026." The numbers used in the analysis assume normal attrition of the Corps over the course of a Cadetship. No information was available to illustrate if current attrition is in line with those normal levels. To counter this slide. Mr. Gottwald stated the Finance team is "looking at a number of ways to reduce the shortfall." He quickly added, "that really means reducing spending." Although he did not specify any, Mr. Gottwald briefed that the Finance team has "some good ideas and I'm sure we'll be hearing more about them." Details provided in the Final Report to the Board contained in the 346 Page BOV information book from the meeting supports the concerns Mr. Gottwald raised. Of the "VMI Key Financial indicators, most are under for actual/projections including: New Cadets (-25%), Old Cadets (-0,8%), Spring projected Total Cadets (-5.2%), Cadet tuition and other revenue (-12.9%). The result is that overall estimated revenue is approximately $4,228,000 under budget per the charts.VMI submitted eight amendments to Governor Youngkin's 2022 – 2024 biennial budget that highlights the severity of the problem and infusion of additional Taxpayer funds VMI seeks to mitigate it. A sample of these include: Tuition Moderation Funding of $715,000. VMI's justification is that the moderation funding "would allow VMI to hold both instate tuition and out-of-state tuition flat while still providing adequate funding to educational programs. Out-of-state cadets currently pay approximately 141% of the cost of education, far exceeding the State mandated requirement that they pay 100% of the cost of attendance. Further increases to out-of-state tuition will only increase this disparity, but will be necessary without additional tuition moderation funding." According to VMI's submission, "No acceptable alternatives exist that do not result in either increased costs to cadets or potential degradation of educational programs." Strategic Enrollment Management of $367,500. This will fund implementation of a Strategic Enrollment Management (SEM) framework that aligns with the Institute's strategic vision, Institute design, and the urgent need to synchronize key enrollment management functions across the Institute, including marketing, admissions, financial aid, and retention. Again, if not funded, VMI's justification states it will have to pass the costs to cadets via tuition and fee increases or not fully address the enrollment management challenges. American Constitution History Course of $90,000. This is a new recurring cost of $90,000 per year beginning in FY 2024, to fund an additional faculty position to teach a new three credit hour course in Civics titled "American Constitutional History". VMI touted the course as a key DEI initiative during the Barnes & Thornburg investigation and report response. The course covers the foundational development of the Constitution, followed with a rigorous reading of key amendments and Supreme Court rulings, to include those addressing slavery and civil rights. It will be a core required course for all Cadets. According to VMI, there are no other alternatives to consider outside of requiring this course for all Cadets. Like other DEI related programs, VMI assessed the impact of not funding to be that the Institute must pass these costs along to cadets and/or re-allocate funds from other areas. This is a "must fund" for VMI based on the Institute's justification "The concentrated focus on civil rights and the abolishment of slavery in our history is fundamental to each cadet's role in civic engagement during their cadetship and after graduation." Mr. Gottwald concluded with the firm warning that, "So the message is we've got an issue. We've got a serious issue. The budget is not a one year issue. And it's something that as the Board is our responsibility to stay on top of this and make sure that the Institute is thinking four years, five years down the road and how they're going to address this issue." Adding, "If we don't fix it, it's only going to get worse." One major contributing factor identified in Mr. Gottwald's analysis is the matriculation numbers. The current state of recruitment for the Class of 2024's incoming Rats was a topic of much debate during the March 20, 2023 Academic Affairs Committee Meeting. According to a version of the draft minutes posted to the BOV website, during the meeting VMI Director of Admissions, LTC Hagy, provided an overview of the academic quality of the incoming Rat Mass as compared to the previous three classes, although he was quick to state his conclusion that there is no way to compare "point-in-time" data in this area. BOV Member Ms. Lara Chambers asked about the low number of applications to attend that VMI turned down compared to previous years and questioned how VMI could have such a low turn down rate while still maintaining average academic quality. She asked if VMI was appointing students with a broader range of academic quality in order to maintain the average. LTC Hagy speculated the current labor market, which he opined makes it relatively easy to get a good paying job, led to many borderline students going directly into the job market and forgoing college. Mr. Garcia noted that grade inflation has been widespread in high schools since the COVID-19 pandemic and may have also helped boost the apparent quality of the appointees. Mr. Adams asked LTC Hagy to run a comparison of average GPA for students who have reservations or partial reservations in the incoming Rat Mass to the average GPA of matriculants for the previous three classes and provide that to the Committee. Ms Chambers asked LTC Hagy to provide the range of GPA's of the students who have been accepted as incoming Rats at the April 2023 Board meeting. Ms Chambers stated she is concerned that, if these matriculants are not of sufficient academic quality, academic support services may not be adequate to meet increased demand. According to the BOV briefing slides, as of March 17, 2023, the Institute is at 47.8% of its 450 new Rat target for the incoming Rat Mass. Of these. Only 215 actually made deposits. Although a number of the statistics on the slides do not match statistics on VMI's online data dashboard, the BOV was briefed that VMI only declined 5 of the fully completed applications it received for the incoming Rat Mass to date. This led BOV member Lara Chambers to comment that it appears the Institute is "accepting everyone". Another, even more critical factor, in the economic situation facing VMI is alumni actions to withhold or redirect personal and Class gift donations. This is especially critical as some 80% of the VMI budget comes from non-State funds. One bellwether for alumni giving is the traditional Class 50th Reunion gifts to VMI. As The Cadet previously reported, members of the VMI Class of '74 attempted to welcome back their Brother Rats who abandoned VMI in recent years by offering them an alternative to donate to The Cadet Foundation where distribution of donations would be to projects nominated and supported by the Corps of Cadets itself working with Alumni. The administration, working with the VMI Alumni Agencies, responded by issuing Memorandum 34. The Memorandum seeks to prohibit individual cadets and cadet organizations from receiving any monetary or in kind support from any source unless approved by the Superintendent or his representative and passed through the VMI Alumni Agencies. Around the same time, the Alumni Agencies distributed a response by MG Wins to VMI '74 it said was to "to set the record straight". In his letter MG Wins accused the '74 BRs of "asking you to withhold your donations in order to punish the Institute and withdraw funding from cadets for political or other reasons beyond its control." The result of this rejection and attacks could cause donations from '74 and other classes for their 50th reunion to be substantially less than even the current reduced amounts. One new expenditure not fully explored in the BOV session is the potential impact of new stipends to NCAA athletes. MG Wins announced his intention to establish monthly stipends for NCAA athletes. According to MG Wins in a video of his announcements: …an initiative that we have going relative to the academic achievement fund initiative or uh NCAA Athletics which is a fund that has tentatively been approved which would allow for a stipend of sorts to be provided to some of our, uh athletes… it's consistent with NCAA rules it's consistent with Southern Conference rules and again it kind of goes to my theme that um as VMI continues to pursue efforts in NCAA Division Athletics uh we don't need to pamper ourselves by creating a tougher set of rules for us to operate under and above what the NCAA allows and what the Southern Conference allows… The issues surrounding VMI's influx of cash are seemingly dire and require immediate attention so as to not dig a larger hole. Perhaps new methods of recruitment are necessary among the solutions proposed to the governor by VMI. While the efforts of taxpayer money are undoubtedly appreciated in all public universities especially VMI, it is important to examine all aspects of the issue, both internal and external. Most wish for VMI to continue its remarkable legacy and can only pray for a quick and effective solution. Editor's Note: The original documents referenced inthe article are available for download in The Cadet e-version at www.cadetnewspaper.com. The data on admission is continually changing and an update is anticipated at the upcoming April 2023 BOV meeting.&emsp;&emsp;