Over its 50-year history, a fundamental goal of the School has been to recruit, reward, and retain a talented, creative, committed, and diverse team of professionals. More than 70% of the School’s annual budget involves the payment of salaries and benefits, demonstrating the importance of people in implementing the School’s mission.
• Faculty Salary Levels. The School has been able to increase faculty salary levels to between the 50th and 55th percentile of Key’s peer institutions for most salary classes, with a current average salary of $58,000. As a part of its 2020 Vision, the School seeks to improve faculty salary levels to the 75th percentile, compared to Key’s peers.
• Employee Benefit Programs. The School seeks to allocate more resources to address increasing health insurance costs, which are rising faster than the rate of inflation; to allocate more resources to the School’s retirement plan, so that faculty and staff are provided with a higher minimum retirement savings benefit; and to double the amount allocated each year to the professional development program, to 2.0% of the operating budget.
The faculty and staff are engaged in a 10-year “Action Plan” of programmatic enhancement and improvement, as part of the School’s re-accreditation process. In addition to departmental initiatives, seven all-school areas of study are being pursued:
• Expanded student opportunities for service learning
• Differentiated instruction deriving from emerging neuro-scientific studies
• Diversity’s opportunities on School culture and curriculum inclusiveness
• Environmental sustainability awareness and practice
• An inter-divisional curriculum fostering global perspectives
• An enhanced Pre-School through grade 12 Life Skills curriculum
• Technology-supported teaching and learning
An overall goal of the Action Plan process is to maintain the School’s traditional and innovative educational progression, a rigorous Pre-School through 12 program comprising interdisciplinary studies, experiential learning, and a global curriculum preparing students for 21st century literacy, sensibilities, and skills. Many of the curriculum improvements that are in the planning stages will be funded through the annual budgeting process. In addition, the School intends to double the annual funding for technology from 1% to 2% of the operating budget.
Over the past decade, the School has spent more than $15 million to upgrade and rebuild its facilities, of which $9M has been funded through attractively priced debt - thereby spreading this critical investment across the current decade. However, several significant “bricks and mortar” needs of the School remain unmet.
• Fine and Performing Arts Center. The School has long had an ambition to build a Center containing a theater/auditorium, classrooms/studios and other facilities to support the Fine and Performing Arts program at Key. Given the expected costs of this proposed project, the School intends to develop a master plan for the entire complex, with an option for a phased construction timetable. The first phase would be the construction of a theater/auditorium.
• Fusco Athletic Park. The School only has two athletic fields—the Beach Field and the Manse Field—to accommodate more than 40 sports teams. To address this facilities shortfall, the School recently purchased the Annapolis Golf Club, a 70-acre property located 2 miles from the Key campus in the Annapolis Roads community. The purchase of this property and the associated expenses of securing regulatory approvals for developing the land have been funded exclusively through generous philanthropic contributions from 25 donors.
The full development of this property, which is expected to cost an additional $3-4 million, will dramatically improve Key’s athletic program as well as enhance Key’s outdoor education and environmental science experiences. The development of new athletic facilities on this property—now called Fusco Athletic Park—also provides the School with the ability to secure a larger site for the Fine and Performing Center, within the currently constrained Hillsmere campus.
• Administrative Office/Academic Support “Complex.” With a few exceptions, Key’s administrative facilities have lagged behind on the improvements the rest of the School has enjoyed over the past decade. Consolidating the Head’s Office and the Business, Advancement, Communications, and Admissions functions into one new facility would promote a more synergistic relationship among these vital departments.
IV. Perpetuation of Financial Strength
• Tuition Discounts. The School has historically spent 16.6% of its gross tuition revenue on two types of tuition discounts: (1) remission of one child’s tuition for faculty and staff; and (2) financial aid. This amount is “capped” each year, through a Board of Trustees policy that does not permit remission and financial aid discounts to exceed 16.6% of gross tuition. Despite the pressures to significantly raise this ceiling on tuition discounts and recent adjustments due to the financial crisis, the Board of Trustees intends to maintain this policy over the long term.
• Cost Containment. During the past several years, the School’s Administration has implemented a number of cost containment measures to trim the operating budget, including personnel and non-personnel expense line items.
• Debt Levels. Key’s current debt level is approximately $8.6 million, with an interest rate that is fixed for 10 years at 4.55%. The School also has two mortgages on the two residences it owns on Dove Lane, with a total debt level of $226,000. The Board has been very conservative in its use of debt to finance capital projects. Any additional debt would mean larger annual debt service payments which would place greater pressure on the operating budget. The Board intends to maintain its current level of debt, representing about 4.5% of the annual operating budget.
• Reserve Levels. Key currently maintains approximately $3.4 million in liquid, non-Endowment reserves. These reserves have been built up over the past dozen years from annual contributions from operating funds and fund balances.
o Operating Reserve. The Board supports a long-term target of 20% of annual expenses in Operating Reserve funds, which would raise the level of Operating Reserve funds to $2.8 million.
o Plant Reserve. The Board supports a long-term target of 10% of plant asset value in Plant Reserve funds, which would raise the level of Plant Reserve funds to $2 million.
Independent schools rely heavily on philanthropic contributions, as the cost of an education at many schools exceeds the revenue derived from tuition.
In order to bridge the gap between tuition revenue and educational costs, the substantial majority of independent schools rely on at least two sources of non-tuition income: (1) contributions from a growing Annual Fund; and (2) the interest and dividends received from a school endowment fund. The amount of funding derived from both of these sources of income is dependent on regular and successful charitable fundraising campaigns. Additionally, a third area of philanthropic activity involves the use of capital campaigns, which help a school raise charitable contributions to construct new buildings, renovate existing buildings, maintain the campus grounds and related infrastructure, as well as to grow the endowment.
Over the past decade, The Key School had made significant progress in garnering additional philanthropic revenues to support its mission. The School’s Annual Fund has grown from $200,000 to $500,000 a year. The School’s Endowment has grown from a corpus of $250,000 to $8.6 million, largely thanks to benefactor generosity. And the School has been able to spend more than $15 million over the past decade on campus infrastructure projects, in part with the help of charitable donations from capital campaigns and other sources.
Despite this success, the School remains overly dependent on tuition income, with as much as 91% of its operating budget deriving from this source of revenue, a percentage that is about 10% higher than that of Key’s peer institutions. At the same time, tuition increases that are significantly higher than inflation are not sustainable over the long term.
The most effective strategic approach to manage these issues is through a more successful philanthropic program. As a result, the Board strongly supports the development of more aggressive fundraising programs at Key, especially to grow the Annual Fund and the School Endowment. The Board also supports several significant improvements to the educational program over the next decade, through “bricks and mortar” projects to enhance School facilities.
Continued success in increasing philanthropic contributions will provide more financial resources to the School and moderate the rate of growth of tuition levels. As a general goal, the Board intends to increase philanthropic revenue in a manner that reduces the School’s budgetary reliance on tuition income from 91% to 85%. The School believes that continuing to grow its philanthropic programs is vital to ensuring necessary resources over the long term.
• Annual Fund
The Board supports a long-term goal of increasing the Annual Fund to a level that equals 6% of the School’s operating budget, per peer benchmarking norms. Faculty salary improvements can benefit from this sustained support while also diminishing pressure on tuition increases to accomplish this objective.
As noted earlier, the Key Endowment has grown from $200,000 to $8.6 million today. It is current Board policy to refrain from transferring any interest or dividends from the Endowment to the School’s operating budget. The Board has agreed to review this policy after the corpus exceeds $10 million.
The Endowment is currently invested in a mix of equities, bonds, and cash. An $8.6 million current value will grow to $14 million by 2020, assuming the Endowment can achieve a 7.2% total annual return after expenses. Similar to its peer institutions, the School also needs to continue to solicit contributions to the Endowment. For this reason, the Board supports a goal for increasing the endowment to $17 million, of which $3 million would be achieved through philanthropic contributions.
• Bricks and Mortar Projects
The Board supports an ongoing program to raise $5 million in contributions to fund first phases of the Fusco Athletic Park development as well as that of the Fine and Performing Arts Center.