To the Williams Community,

I am happy to report that at their meeting this weekend the trustees
approved an operating budget for the coming academic year that calls for
spending of $205 million, keeps our financial aid program intact, and
contains no layoffs.

Given what’s happened in the world economy, there’s still hard work for us
to do on charting the College’s way through the subsequent few years. But
it’s worth taking a moment to acknowledge the accomplishment to date. It
results from the creativity and shared sense of purpose among faculty,
staff, students, and trustees and was made possible by wise stewardship of
financial resources by generations of College leaders and the loyal support
of alumni, parents, and friends. If all these efforts continue, Williams
will emerge from these challenging times as strong as ever.

Among the many steps taken to reduce spending next year, we’ve frozen all
faculty and staff salaries, reduced the number of faculty and staff
positions through attrition, delayed major capital projects, lowered
spending on building renewal, and cut managers’ budgets by 15%. These
changes, while painful, have protected the College’s highest priorities of
maintaining our financial aid program, avoiding layoffs, and continuing the
high standard of our academic program.

So, it won’t be business as usual. But it will still be Williams at its best
— great faculty and students interacting inside and outside of small
classes, supported by dedicated staff, in first-rate facilities.

We’ve tried to be as thoughtful as possible about where to cut, focusing on
things that can more easily be reversed when the world’s business cycle
moves to recovery. We need to continue this deliberate process because
further cuts in subsequent years will almost certainly be needed.

For those of you interested in more details, what follows are the numbers.

Of the College’s main sources of revenue (fees, endowment, and gifts) the most significant change has been in endowment income, which in recent years has covered about 44% of our expenses. We’d planned in 2008-09 to spend $94 million from the endowment. That was about 5% of its $1.8 billion value last July 1. With the rapid drop in the endowment’s value, we cut spending enough to lower that figure to $91.5 million. For 2009-10 we’ve reduced it to $78.5 million, or $15.5 million less than what we started with this year.

We are modeling spending from endowment in 2010-11 of around $70 million, a drop of another $8.5 million. We believe that we can also hit that target without violating our key principles of financial aid and without layoffs. The Ad Hoc Budget Advisory Committee is working on recommendations for possible further cuts for 2011-12.

Planning that far ahead requires the wisest possible projection of future
endowment values. Here’s our latest thinking. As of today, the return on the
endowment since last July 1 is probably around negative 25%. This estimate
is based on what we know about the part of the endowment that can be valued each day because it’s invested in publicly traded stocks and what we know about the performance through Dec. 31 of the private investments that only get reported less frequently.

If that investment loss of 25% persists through June 30, then our endowment,
after subtracting spending from it and adding new gifts to it, would be
around $1.3 billion. We are modeling no growth in our investments in 2009-10
and 2010-11, followed by returns of positive 8% in future years.

If the endowment is around $1.3 billion on July 1, we’ll be spending about
6% of it in 2009-10. That spending rate makes sense in the short-run ­ to
smooth out the disruption of the business cycle — but we’ll need to get it
back soon to around 5% to avoid depriving our future students, faculty, and
staff, whom the endowment is also meant to support.

Fortunately we now have the time to plan for that in a careful, thoughtful
way, for which I give great thanks to all involved.

M. Schapiro

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