It hardly needs to be reiterated that in a theological school, the governing board's most fundamental responsibility is ensuring that the institution is fulfilling its mission. Making the best use of the school's resources is challenging even when a school is operating at economic equilibrium — that is, when its revenues are sufficient to meet its educational mission and to protect the vitality of its financial and physical assets. But the choices get more complex when an institution is struggling financially.

When finances are so tight that a school's ability to fulfill its mission is uncertain, one of the board's options is declaring financial exigency.

Financial exigency is a formal declaration by the board that a demonstrable, bona fide, imminent financial crisis threatens the survival of the institution as a whole. It is declared when financial difficulties cannot be solved by any but the most drastic means.

A statement of financial exigency allows a board to end faculty tenure, drastically reconfigure operations, and nullify contractual obligations. It comes after other cost-cutting measures have been taken and after new sources of revenue have been exploited. Financial exigency should never be used as a short-term tool without consideration of the school's long-term educational and financial viability.

Many boards are reluctant to declare financial exigency, even when they face a true emergency. That's usually because they are concerned about the declaration's impact on employee morale, current and future development work, and the effect of the declaration on the vitality of the institution. In the end, though, the declaration of financial exigency may be required to salvage the long-term viability of the school.

A theological school should have a well-defined formal process that leads up to the declaration of financial exigency. Although the final decision rests with the board, the process should be as transparent as possible without violating the confidential nature of the work. When practical and permissible, detailed information about the nature and extent of the school's financial challenges should be made available to faculty, students, alumni, donors, church bodies, and other groups.

The mission of a theological school is undergirded by its resources. But when the resources are out of balance and the mission is in jeopardy, a board's responsibility to steward all resources of the institution toward the fulfillment of its mission requires an openness to use a declaration of financial exigency.

Further reading

♦ Association of Theological Schools in the United States and Canada
Guidelines for Retrenchment (1976)
A proposal to replace these guidelines will be presented for a vote at the 2010 Biennial Meeting.

Proposed Guidelines on Faculty Reductions During Financial Crisis (2010) (scroll to p. 94) 
Proposed guidelines to replace the 1976 Guidelines for Retrenchment.

♦ American Association of University Professors 
Report on Financial Exigency, Academic Governance, and Related Matters (2004)

Inside Higher Ed
News article on "Layoffs Without ‘Financial Exigency'" (March 2, 2010)

Texas Tech University
Sample financial exigency policy

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