Williams is in real financial trouble and, for whatever reason, the Administration is refusing to take the situation seriously enough. The College has already appointed 8 new faculty members for 2009-2010 and still has 12 openings. Madness. The College can not afford this expense, if it is to avoid layoffs and cutting financial aid. Something has to give. The next Williams president will rue Morty’s profligacy, his refusal to play the bad guy in his final months in office.

Recall my original advice to “Batten down the hatches.” That was less than 5 months ago and, already, things have gone from bad to worse. My suggestion to freeze the salary of those making more than $100,000 was attacked and yet, Williams has now frozen salaries for everyone. My recommendation to not hire visiting professors was similarly challenged. Here is Morty on visitors.

You’d rather have us get visitors rather than tenures because visitors are only one year, not a commitment. The other way to look at is you can make a killing in the faculty market. Students like tenured professors better generally than visitors, though not always. Teaching evaluations tend to be better for tenure or tenure track professors. I think it could be pretty short-sighted to say we could replace tenure people with visitors. This is something the CAP will be talking about. They may not share my views. I’d take a tenure track over a visitor any day, although some of the visitors are absolutely spectacular who really fill voids in the faculty. When you bring in people like that, it’s a great opportunity that you don’t want to lose. On the other hand, if you’re bringing in people to just teach temporarily on their way to teaching somewhere else, I don’t know how engaged they are in the life of the campus. I hear from my students all the time that the visitors don’t contribute as much, on average, as regular faculty.

I expect that we will see fewer visitors next year than the originally promised 7. You read it here first.

Now, partly this is me saying “I told you so” or “I am telling you so.” But more important is the trend. Each month the College delays the necessary cuts because it hopes that things will get better. They don’t (and won’t), so the cuts that I recommend happen a few months later. I predict that the same will happen over the next year. Cuts that seem incomprehensible to many readers are, in fact, inevitable.

That’s why avoiding new faculty hires right now is so important. The cost is not just for salary and support for next year. Each faculty hire locks the College into significant costs for the next 8 years. Williams can’t afford to make those sorts of commitments right now. The sooner we adjust to our reduced circumstances, the better.

I wrote a short letter to the Record on this topic. See below the break for the full text of the original op-ed.

The point of this post is to highlight the fact that the hatches are still open. Williams can not afford to hire new faculty. We are not as rich as we pretend to be.

President Schapiro’s January 26, 2009 letter to the Williams Community is meant to allay our concerns about the financial crisis. Instead, it should alarm anyone with knowledge of the College’s finances and worries about its long-term strength.

First, it is very hard for any outsider to have a sense of the magnitude of the problems that we face because the College makes it almost impossible for us to know the basics. For example, how many dollars did the College spend from the endowment each year from 2000 to the present? There is no way to deduce this information from the College’s published financial statements. Yet, without it, one can not have an informed opinion about whether or not President Schapiro’s plan to spend “up to 6.9% of the beginning of the year value of the endowment” in fiscal year 2010 (starting this July) is prudent or spendthrift.

Second, we know that this percentage, the “avail rate,” is calculated incorrectly. As Professor of Economics Emeritus Gordon Winston demonstrated years ago, the relevant measure is not the endowment itself; instead it is the College’s net financial wealth: the endowment minus outstanding debt. As President Schapiro explained to the Boston Alumni Association in December, if you have a $500,000 house with a $200,000 mortgage, you don’t really have $500,000. You can’t ignore the mortgage. You real wealth is $300,000. Similarly, the value of the endowment is around $1.25 billion (at best) but a proper calculation of the avail rate would subtract out the College’s $262 million in debt. So, 6.9% of a $1.25 billion endowment is actually 8.6% of the Williams’s net financial wealth. A top-tier college that spends more than 8% of its wealth each year won’t be a top-tier college for long.

Third, the College’s most basic assumption about the endowment — that long-term real returns of 5% are a plausible assumption and that, therefore, spending 5% of the value of the endowment each year is “conservative” — is absurd. World GDP growth is no more than 3%. If Williams could really grow the endowment at 5% forever, then eventually, Williams would own the whole world. As desirable as that outcome might be, it won’t happen. Assuming 5% real growth is ridiculous, all the more so because everyone does it.

Taking the 100-year view, the College should assume 3% real growth from its net financial wealth. At best, that would suggest spending $30 million from our $1 billion in net wealth. That the College is currently planning to spend more than twice as much, including hiring more faculty while making no meaningful effort to decrease employment, even through attrition, is an worrisome indication that the Trustees are not taking their fiduciary responsibilities seriously. Williams can not afford to hire 8 new faculty members. The longer we delay the necessary cuts, the more painful those cuts will be.

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