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Financial/Budget Links

A collections of links relating to the financial crisis:

A Williams administrator notes this story about problems with the CommonFund at Smith. Does Williams invest in the CommonFund?

The 2008 budget is now available. Total spending for last year was $177 million, compared to $164 million in 2007 and $154 million in 2006. These sorts of increases do not scream out “budgetary discipline.” The more wasteful the spending increases of the last 10 years, the more painful the cuts to come. Note that, as best I can tell, these increases in spending are not driven by increases in the number of faculty. That increase was completed before 2006, after decisions made early in Morty’s term.

The Record article on Morty’s e-mail includes: “The operating budget for the 2008-09 fiscal year is $216 million, about half of which comes from the endowment.” Huh? Either Williams’s spending is out of control or the Record is very confused. How could the operating budget go from $177 million to $216 million in one year? That is a growth rate of 22% in the year after the endowment was flat. Unbelievably irresponsible, if true. More likely (I hope!) is that this “operating” figure includes capital spending on building projects. Could a reader from the Record clarify for us? Also, is the College really going to spend $108 million from the endowment this year? That would be 6% of the June 30 value of $1.8 billion. But the endowment is now worth (at best) $1.4 billion. If you spend almost 8% of the endowment each year, then it doesn’t take too many years to get in real trouble.

If that $216 million operating budget figure is accurate, then Williams needs to do some serious budget cutting. Batten down the hatches.

Eagle article. Entire article is below. Did you know that Williams employs 1,068 people? As I have been arguing for years, that is absurd. By the way, the Form 990’s list twice as many employees (latest pdf). What is up with that? Is this a full-time versus part-time distinction? If I didn’t know any better, I would be guessing that the Eagle is getting spun. Note also that Williams has “323 faculty members.” Really? That number clearly includes coaches (which is reasonable), but just how many coaches does Williams need?

Eagle article

Even Williams College is seeking shelter from the global economic storm.

In an open letter to students, parents, staff and alumni, college President Morton Schapiro said putting off $100 million worth of new construction projects, cutting $3 million in maintenance efforts and a slow-down in filling vacancies will take effect immediately. For the longer term, he wrote, officials are considering a “modest” increase in the number of students accepted in coming years.

The value of the Williams College endowment, which had risen as high as $1.8 billion last summer, has fallen as a result of the sudden financial downturn.

In his letter, Schapiro noted that during the last fiscal year ending in June, the investment return of the college endowment was minus 1 percent, “and since June 30 all world markets have dropped precipitously further.”

College spokesman James Kolesar said that since June 30, those markets have declined by 20 to 30 percent.

Schapiro’s letter said officials expect a decrease in both endowment fund growth and income from gifts and tuition.

“While we haven’t seen substantial effect on giving to the college, it’s reasonable to expect that global economic uncertainty will dampen it for some time,” Schapiro wrote. “Finally, as unemployment rises, some of our families will find it harder to pay student charges.”

Included in the list of actions being taken is the year-long postponement of the renovation of Weston Field and the next phase of the Stetson-Sawyer project, which together are estimated to cost about $100 million, Kolesar said.

“This will preserve capital, put off additional debt interest payments and provide time to better understand the depth and breadth of the economic downturn,” Schapiro wrote.

Spending on other maintenance projects, which he referred to as “facilities renewal,” an annual cost of about $12 million, will be reduced by $3 million.

“We have very little deferred maintenance, so pushing some of this work off to the future makes sense when times are tight,” Schapiro noted.

While the college intends to retain current faculty and staff by ruling out any layoffs, any vacancies will be reviewed on a case-by-case basis. For those deemed essential, a search will begin to fill the opening. Any others will remain unfilled.

“How long these positions remain open will depend on the time it takes for college’s revenue to stabilize,” Schapiro wrote.

Kolesar said that each year there are about seven faculty openings and 10 staff vacancies. Williams employs 1,068 people, with 323 faculty members.

Schapiro said ongoing discussions will identify other possible means to cut spending or increase revenue. “One possible example would be increasing the size of each entering class by a modest amount,” Schapiro noted.

On the other hand, efforts will increase to help students whose financial aid situation has become more severe.

While Williams College has one of the highest tuition rates in the nation, 95 percent of American families already qualify for financial aid under recently revamped guidelines, which eliminated student loans in favor of tuition grants.

The cost of tuition, room, board and fees at Williams increased $2,390, or 5.3 percent, for the 2008-09 school year to nearly $50,000 a year.

At the start of the school year, officials expected roughly 50 percent of the Class of 2012 would receive more than $9 million in college aid, according to an admissions office memo.

Financial aid packages average $37,000, with families picking up an average of $17,000 of the cost.

Last fall, the total enrollment was 2,112 students.

“Our first priority will be to protect current and future Williams families,” Schapiro said. “We’ll maintain our financial aid programs and extend help to those whose changed circumstances reduce their ability to pay.”

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#1 Comment By hwc On October 27, 2008 @ 5:01 pm

Welcome to the incrutible world of the Williams financial reports. See if you can find these two figures:

a) The year end value of the endowment. For your reference, the endowment value at the June 2007 fiscal year end was $1,892,055,000 as reported to NACUBO and referenced in the alumni mailings. I can’t find any number anywhere the fiscal report that matches that rather key fiscal indicator.

b) What was the spending from the endowment on operating expense? Was it the realized gains utilized? Or those plus the investment income? Or both of those plus the $14 million operating shortfall?

A little management discussion would be nice.

The operating shortfall may explain the doom and gloom nature of Morty’s letter, although the College has one every year.

The other thing that may have him concerned is that the vast majority of the College’s bond debt at the year end close in July was variable rate. Good luck converting that to fixed rates now. Your argument against debt will be compounded (pun intended) to the extent it’s variable rate.

#2 Comment By Larry George On October 27, 2008 @ 6:06 pm

Maybe the employment numbers include the work-study and other student jobs during term and the thriving student summer research program?

#3 Comment By parent On October 27, 2008 @ 6:43 pm

Williams can handle the fixed/floating issue through interest rate swaps.