History of the Financial Crisis at Calvin

During the first year of his presidency, Dr Le Roy’s financial stewardship made him aware that Calvin’s financial health was threatened by a large body of debt and debt-service, which had been by-and-large hidden from the various Calvin constituencies. The Grand Rapids Business Journal quoted Dr. Le Roy as saying,

Our financial statements didn’t have the financial clarity and transparency that they needed to have — and that they will have going forward — about the interplay between investments, income and debt.

    In a series of public statements, Dr. Le Roy has made the situation known and spoken encouragingly of the college’s ability to manage the crisis. The Calvin College Chimes reported, “Ultimately, Le Roy is optimistic about the changes in store for Calvin. ‘Money problems are the easiest to solve,’ he said.”

    This summary of the financial situation facing Calvin has been based on various published sources. (See the links in the sidebar.)

    Apparently, over several years, the financial team at Calvin chose to use monies which had been donated or borrowed for the purpose of new buildings and other college uses in speculative investments in real estate and in the kinds of toxic securities that led to the great financial collapse of 2007-8. As a result of these speculative investments (some of which the college trumpeted as late as February 2012 in an article titled “Wise Buys” in a publication of the National Association of College and University Business Officers), the college must retire this debt over the next 25 years or so to the tune of $8 to $10 million a year, out of other revenues.

According to a Calvin College Chimes article of November 2, 2013,

Aside from rising costs, Calvin is also facing significant debt payments starting around five years from now as a result of its use of debt financing. Debt financing allowed the college to earn investment return on money donated towards building projects. Calvin borrowed the money to construct buildings like the Fieldhouse, and invested the unused borrowed funds and incoming donations. The expectation was that the investment would make more money than the debt cost to service.

This strategy was successful until the stock market crash in 2008. The crash especially hurt Calvin because several large debt-financed building projects, like the Fieldhouse, were begun not long before it. Since 1997, Calvin has spent $32 million more in debt service payments than the yield on related investments. Large market losses in 2008-09 are the main cause.

    Although stock markets have rebounded since the crisis, the various Calvin investments, for the most part, have not. Thus the college is left with large outstanding IOU’s backed by assets which have lost much or even all of their value. As the Grand Rapids Business Journal quoted President Le Roy:

“Our investments were fairly heavy on alternative investments and hedge funds. That meant with the collapse of the stock market in 2008, by definition, we were going to be hit harder than others.”

The Journal goes on to report:

Calvin’s investments with the Fuller Foundation and the Common Fund were hit hardest. Calvin had losses that were in excess of the market loss for the same period, Le Roy said. The returns even since the economic rebound have not met market averages, he said.

    Although the exact details of the debt burden have been variously reported, there seems to be debt of above $100 million that must be amortized by 2038, entailing debt service of somewhere in the range of $8-$10 million a year or about 10% of Calvin’s annual budget. The Chimes article reported:

After looking over all of these factors and trying to project how the college would deal with both its expenses and debt, Le Roy realized that Calvin wasn’t prepared. To address this situation, the college needs to be ready to make a few cuts and restructure its programs and services in order to make room for the additional 10 percent, which, based on Calvin’s current budget of $103 million, is $10.3 million.

We at Calvin in Common hope that our grass roots “crowdfunding” effort can make some significant impact on this financial situation, thus removing some burden from current faculty and staff and enhancing the long-run educational flourishing of our uniquely Reformed liberal arts college.