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Hanging In The Balance

Baylor’s new CBO Brett Dalton recently sat down with the Baylor Line for a wide-ranging interview about the University’s financial status and goals.

Over the past year, Baylor administrators have reinforced their efforts to become a Tier One research university, while also introducing a billion-dollar fundraising campaign. With the university at such a critical juncture, alumni may be wondering who is steering the financial ship.

Enter Brett Dalton, Baylor’s new Chief Business Officer.

Dalton’s perspective of Baylor is untainted by familial ties or emotion. In fact, he could be considered an objective outsider. His life has been centered around Clemson University, where he holds two degrees, and where he served in various administrative roles for the past three decades. Nearly everyone in his family, from his wife to his cousins to his grandfather, also went to Clemson. Dalton’s salt-of-the-earth persona and southern drawl may not match the cliché of a “numbers guy,” but his track record of success at Clemson aligns with the research and growth goals that have been laid out by President Livingstone.

“This was just an opportunity that we felt like, if we didn’t explore it we weren’t being obedient,” Dalton said of taking the position at Baylor. “I wasn’t looking for a job. My son is in the 10th grade. I was a year and a half short of full retirement at Clemson University. But we saw this as a calling.”

While Dalton has enjoyed his time in Waco thus far, he has his hands full in managing Baylor’s finances.

The university is currently rated an A+ Debt Issuer, but Baylor is also in the midst of a billion-dollar fundraising campaign, lawsuit settlements, a thinner-than-ideal endowment, buildings in need of renovation, and a tuition-dependent model, all of which must be considered in relation to the aspirations of the administration. Dalton is tasked with pointing the dollars in the right direction.

“One of the areas that President Livingstone has focused on with me is the need for not just running a professional, administrative, and support division, but really providing some entrepreneurial leadership. And to look at some new opportunities to generate resources, without large tuition increases. To look at ways to generate revenue and products, that Baylor has not thought about, or has not engaged in, in the past. That’s my preference. I’m not happy with the status quo. I’ve never been happy with mediocrity.”

Part of Dalton’s appeal is his warm personality and entrepreneurial spirit, but that may not be as vital as his experience in generating revenue and prestige through graduate research – a key goal of Illuminate. At Clemson, Dalton spearheaded the effort to grow from a third-tier public university to a top 20 public university. For the past 11 years, Clemson has been rated as a top 25 university in the US News and World Report.

Dalton’s hiring coincides with two major initiatives announced by President Livingstone in the last year. The first is Illuminate, the academic strategic plan that would move Baylor closer to becoming a Tier One Research University. The second is Give Light, the fundraising campaign with a stated goal of $1.1 billion to both fund Illuminate and also build new facilities. The plan kicked off at Homecoming, where it was announced that the $500 million raised since 2014 would be credited to the campaign as part of the “silent phase”.

A brand-new Alumni Welcome Center, state-of-the-art laboratories, athletic facilities, and new cloud-based administrative systems are all on deck to receive hundreds of millions of dollars of funding over the next few years, and they are all necessary investments if Baylor wishes to pursue Tier One status.

But the question remains: where is the money coming from?

In some ways, the success of Illuminate is dependent on a two-fold bet.

One is that Baylor graduate researchers can acquire significant external funding. In order to win grants, they will need personnel, equipment, and facilities that currently don’t exist. To attract well-respected personnel and build those facilities will require a huge investment of resources. The hope is that external funding will then offset those new costs. In other words, if you front the money to build the lab and hire great faculty, grant money will eventually cover the expense. Even when the facilities are built, the question remains whether external funding will be granted to a sectarian university with an overt Christian mission. Dr. Livingstone has addressed this concern at length, in this publication and elsewhere. The second factor of the billion-dollar bet is whether Give Light, the new fundraising campaign, can boost $500 million into the endowment, a stated goal of the campaign.

If that bet falters, the burden can only be carried by tuition-paying undergraduates.

Dalton acknowledges the predicament of Baylor’s current model.

“Baylor is more tuition dependent than its peer set,” he stated. “When I was referring to the president’s charge for me to be more entrepreneurial, creative, help us gain some efficiencies, that was one of the big drivers.”

For many peer institutions, their endowment alleviates some of the reliance on tuition dollars. For universities that are overly tuition-dependent, attempts at growth often must be offset by an increase in tuition, an increase in enrollment, or an increase in debt.

Currently, Baylor costs approximately $60,000 per year.

Dalton has heard the concern, both from colleagues and alumni. “I’ve heard it from the Board of Regents,” he said. “Joel Allison’s been a very strong leader in this respect. There is a real sensitivity with the President and the Board of Regents to ensuring that future generations and current generations are able to afford a Baylor education. That we pay careful attention to our price, to our tuition levels.”

Dr. Livingstone has also been asked about the cost of a Baylor education. She told the Baptist Standard, “Like other universities across the nation, we are keenly aware of the importance of affordability, especially as a private institution. We are endeavoring both to keep costs down and to find new revenue sources that aren’t as tied to tuition.

The $60,000 cost per student does not tell the whole story. Baylor often points out that 90% of their students receive some form of financial aid, both from the university and from outside organizations. Scholarships granted from the university are counted against tuition income. While Baylor received $720 million in tuition in 2018, they redistributed $310 million of that in the form of scholarships, rather than being able to draw scholarships from the endowment. Full-paying students are essentially subsidizing the cost for non-full-paying students. Many students also supplement those scholarships with loans. According to the national database at, 52% of Baylor students graduate with loans, at an average student loan debt-per-borrower at $44,859. Only Hardin-Simmons has a higher loan debt-per-borrower rate in the state of Texas. Across the nation, only 29 schools have a higher debt-per-borrower rate than Baylor.

Dalton dismissed the idea of significantly increasing enrollment. He anticipates undergraduate numbers to remain stable, but for graduate enrollment to grow. Baylor’s enrollment of undergraduates has grown modestly over the past five years, moving up from approximately 13,300 to 14,300.

For some alumni, the concern over growth has more to do with incurring additional debt than the cost of tuition or enrollment numbers. Nostalgic alumni may harken back to the days when President Reynolds famously kept the university free from debt. Currently, Baylor has total liabilities of approximately $857 million, with $597 million of that in notes and bonds payable. In fiscal year 2018, Baylor paid $25 million in interest.

Dalton’s philosophy towards debt is more market-based.

“Debt is something that has to be examined in context,” he said. “The first thing to look at is, what’s your bond rating? Baylor is an A+ rated debt issuer. So very high quality, very low risk in the eyes of the investors in the financial world, which means that Baylor’s fundamental financial position is very strong.”

According to Dalton, rating agencies take into consideration market position, nationwide demand of the Baylor ‘product’, and the prospects of growing donations and the endowment. The data has favored Baylor based on admissions and applications, which has yielded the strongest academic performing class in history. Graduations and retention rates have also continued to strengthen.

“Baylor has taken on more debt, but that debt is still in the context of enrollment, financial strength, and in line with peer institutions in our rating category,” Dalton added. “That’s the more important thing, is the debt in the context of your overall balance sheet . . . When Baylor has issued debt, it has made long term, strategic capital investments, which pay off. That’s important, too. That was reassuring to me, before I agreed to come here, to look at some of those fundamentals.”

The administration is focused on strategically upgrading facilities that are in line with the goals set forth in Illuminate, placing priority on supporting infrastructure that can improve research capacity. Dalton and his team have been evaluating the use of space on campus, and have considered how to best utilize existing buildings, even if that means leasing space in downtown Waco. In addition to research infrastructure costs, residence halls that were constructed in the 1950s, 60s, and 70s continue to need expensive upgrades to electrical systems, HVAC systems, and other safety features.

“If Baylor doesn’t invest in its infrastructure, students will stop coming,” Dalton said. “Parents will not send their students to sleep in substandard housing. If they come from a high school that had better chemistry labs than they’re going to have in college, they’re not going to come. The reality is, keeping that infrastructure so that it’s safe, that it’s functional, that it meets the needs of the faculty and students, requires the use of debt.”

One solution to Baylor’s tuition-dependency challenge is simple: stop growing and stop spending. However, that approach is at odds with the stated goals of the administration, who view Baylor as an institution with a moral responsibility to change the world through research.

As Dalton has been evaluating priorities in relation to Dr. Livingstone’s overall goals, he suggested that the key to unlocking Baylor’s potential lies in growing the endowment. If there is a magic pill to alleviate financial burden on undergraduate students while simultaneously positioning Baylor to support graduate research, a robust endowment is it. Universities like Rice have built such a strong endowment that they recently eliminated tuition entirely for students who come from families making less than $130,000 per year. While that may not be feasible for a university like Baylor, it is clear that a healthy endowment allows for creative solutions to rising tuition.

“As much as possible, we would like for gifts to serve the endowment, to become a part of Baylor’s growing, permanent endowment, and to be able to use that revenue stream to support capital plans and facilities,” Dalton said. “It’s very early in the Give Light campaign. Very early. We are awaiting word from certain gifts, and certain opportunities that we hope will materialize. Roughly, we’re hoping that, I would say, 75% of what we bring in can go to grow the endowment, while roughly 25% might be spent on a more annual basis.

A major challenge for fundraising for the endowment is that donors often want to see their gifts put to use immediately. Beautiful buildings, outdoor features, and the immediate needs of individual schools offer a tangible expression of a donor’s interests. When major gifts come in, the donor rightfully indicates how he or she would like the money to be used.

From 2013-2018, Baylor’s endowment grew from $1.05 billion to $1.3 billion. That change doesn’t account for the new $100 million Foster Business School or the $266 million McLane Stadium.

“I would not refer to the endowment’s growth as stagnant,” Dalton said. “I think you might be surprised when you look at Baylor’s return over the past 5-year period, 10-year period, 15-year period, compared to the benchmark higher-ed endowments. I have really been impressed with what the investment group here has been able to do. The only part that I would qualify is, with the stadium and some other major projects, instead of those dollars going into the endowment, they went straight in to fund those capital projects.” Dalton later added, “Let me say this. A capital gift is an endowment. Because you’re not spending cash on a program, and it’s gone. But when you’re building an asset, that may have a 50, 75-year life, that’s a different form of an endowment.”

However, new facilities create ongoing costs, like staff, renovations, insurance, and bills, all of which impact cash flow. Though the number is in constant flux, Baylor reported $75 million in cash in 2018.

According to Dalton, Baylor is in a strong financial position to handle upcoming challenges, both known and unknown.

After high-profile settlements with former football coach Art Briles, President Ken Starr, and sexual assault victims, the final cost of the sexual assault scandal is still unknown. The trial of Jane Does 1-15 vs. Baylor is tentatively scheduled for October 2019, and has the potential to greatly impact the university’s financial outlook. Many of the settlement agreements remain confidential, so specifics are still lacking for those outside of the legal team and the administration. Back in 2016, Bears for Leadership Reform, a group of large donors to the university, estimated the cost at $223 million. It also remains unknown how much of the final tally will be covered by insurance.

Dalton fully evaluated these possibilities prior to taking the position, and remains confident in Baylor’s outlook.

“At a macro level, what I will tell you is that information is reviewed by rating agencies,” he said. “It’s reviewed by the audit firms, and it’s certainly available to folks like me. All of that has been factored into the information that I shared with you. For rating agencies, all of that legal information has to be disclosed. Now, they’re under a non-disclosure agreement. Those issues are disclosed as a part of the evaluation of an entity’s financial health, as a part of bond rating and issuance of debt.

“When I say to you that Baylor is strong financially, and you look at the financial statements, and you see that Baylor’s unrestricted net assets have grown throughout this period. Adjusting for any legal cost, any settlements, Baylor’s total assets have grown. Those are a real cost that have been factored into operating plans. I’ve been very impressed at how prudent and generally fiscally conservative the university has been in managing its affairs, so that this has not had a significant negative effect on the university’s ability to educate students, or to deliver on its mission obligations.”

Dalton is determined to use his experience at Clemson to help Baylor reach the goals stated in both Illuminate and Give Light. But at the end of the day, he is reminded of his ultimate purpose each time he looks out the window.

“My sole focus now is trying to do what’s best for Baylor,” Dalton said. “When you sit here, in this corner office of Pat Neff, and I see the thousands of students walking by, it’s easy for me to focus on what I need to be doing.”

Additional reporting by Libby Tidwell

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