Our discussion about Morty’s recent letter revealed some confusion about the College’s spending. I am here to help! What are the facts? Start with the history of spending at Williams. (If you don’t read that, the below may not make sense.)

Year  Operating Budget Avail Spending
2011                          70 
2010          205*            79
2009          192*            92
2008          177             79
2007          164               
2006          154                
2005          140                
2004          137                

Comments below:

1) Avail spending is defined as money from the endowment spent on operating expenses. (Money from the endowment spent on capital projects is handled separately.) The 2010 operating budget number and avail spending for 2009–2011 comes from Morty’s letter. The operating budgets from 2004–2008 come from the College’s official financial statements. The $192 million for 2009 is my estimate after some suspect Record reporting on the issue. I think it is a reasonable estimate, both because it falls in between the “hard” numbers for 2008 and 2010 and because the claim that about half the operating budget came from the endowment is consistent with the $94 million avail spending which was originally planned. But, even if you don’t like that estimate, the rest of the analysis stands on its own.

The $79 million avail spending for 2008 was confirmed by Provost Bill Lenhart via e-mail. (See my original speculation here.) Lenhart also confirmed that it was impossible to derive this number from the College’s published financial statements. It is pathetic that one of the most important numbers for the long-term health of Williams is treated as a secret. I asked Lenhart for a time series of this spending. He declined to provide it.

2) Note that there are various complexities here and that Williams does a very poor job of making its finances intelligible to outsiders. For example, the 2008 Report sent to alumni cites “operating expenditures” of $174 million. How can one official source report $177 million and another $174 million, both for fiscal year 2008? Doesn’t anyone know how much Williams spent last year?

Of course they do. The $3 million difference is probably (hat tip to HWC) some weird bit of accounting trivia, perhaps involving a non-cash charge for depreciation. Still, it sure would be nice if the Record could inform, rather than confuse, the Williams community. Give us the numbers for the last 5 or 10 years on total spending (broken down into operating and capital budgets), financial aid and avail spending (along with the endowment size). Those are the 5 key numbers. We need a decent time series to make sense of what is going on. Professor Lenhart has all this data at his finger tips. Go sit outside his office until he tells it to you. This is called “reporting.”

2) What the heck is going on? How can Morty propose an operating budget for 2010 that is $28 million greater than last year and talk about, with a straight face, “the many steps taken to reduce spending next year?” Two possibilities:

a) I am clueless and the above budget numbers are misleading. This has happened before! Perhaps the numbers in the financial statements leave out some major spending item (like financial aid) while the budget for 2010 includes it. In that case, comparing $177 million with $205 million is apples and oranges. Or perhaps Morty’s $205 million includes some strange accounting for capital spending. Suggestions welcome! Most obvious conflict would be financial aid since the College spent about $30 million on that in 2008. Yet that spending goes up each year, so I would expect it to be something like $33 — $35 million (or higher) by 2010. In that case, the apples-to-apples comparison would be, say, $205 – $35 = $170 million in 2010 versus $177 million in 2008.

Yet that doesn’t seem plausible to me because so much of the cost structure of the College went up from 2008 to 2009 (salaries, health insurance, heating and air conditioning the new academic buildings and so on). It would be very hard (impossible?) to cut enough in other areas to get the College’s operating budget down to 2008 levels. That leaves:

b) Morty, for all his many good qualities, is fundamentally a bull market president. He was great when Williams was spending, spending, spending. But put him in the middle of a financial crisis and his natural instinct is to avoid the hard choices and leave his successor to deal with the resulting problems. Morty doesn’t want to be the bad guy, so he won’t make meaningful decreases in the operating budget. In fact, he won’t even try very hard to slow its growth.

3) Keep in mind the distinction between the operating budget and the capital budget. Williams spent $50 million in 2008 on capital projects. (Most of this was, presumably, the new academic buildings.) Williams is not spending anywhere near that on capital projects this year or, apparently, next. So, there is less money going out the door in 2009 then in 2008, and less that would have gone out the door if work on Stetson-Sawyer were to be restarted.

Still, we just haven’t dealt with the structural imbalance in the budget. Moreover, saving money by “spending [less] on building renewal” by, say, not painting Bronfman is well and good, but, eventually, buildings need to be repainted.

4) Here are two comments from that previous thread: first from Rory and second from Vermando.

how has williams cut avail from 94/91 to 78 (and then to 70) and not cut operating expenses, David? Or is Morty flat out lying about those numbers? Did non-endowment related revenue increase that much?

David, re: your claim that no cuts have been made to the operating budget, is all of the work in that sentence being done by the word ‘operating,’ e.g., are all of the savings due to cuts in the non-operating budget? How is that possible if they’re reducing faculty and staff size due to redundancies?

I don’t think Morty is “lying” but there seems little doubt that his words have created a misleading impression insider peoples’ heads. His fault or theirs? You make the call! There seems little doubt (corrections welcome!) that the Williams operating budget in 2009–2010 is much larger than the operating budget was just last year. There have no doubt been cuts in total spending, but that is simply a function of the College no longer starting (or even finishing) major capital projects.

Morty cites several examples of savings from the operating budget but notice that he does not quantify the dollars involved. How many fewer faculty will be employed at Williams in 2009-2010? The College hired 9 new faculty for next year! I bet the decrease, if any, over the next year or two will be minimal. How many staff positions have been reduced via “attrition?” Morty is keeping that a secret. Total manager budgets (including money spent on staff) have not been cut 15%, just the discretionary non-staff portion. These are not big dollar savings.

Moreover, Morty is silent on all the costs that continue to rise. Consider healthcare. You can be sure that the College’s spending on health insurance will rise next year, just as it has been doing for many years. Is the College trimming coverage, increasing co-pays or doing anything else to moderate that increase? Not that I have heard. As other prices rise (for food, fuel, library books), the College will spend more money on these items than it did last year.

5) Again, it could be that I have made a major mistake. In particular, I have trouble figuring out how all the numbers even add up in 2009-2010. Traditionally, the 3 major sources of operating spending are tuition, avail from the endowment and annual giving (alumni/parent funds). If we look at trends in tuition, we might estimate $66 million in net tuition revenue in 2009-2010. If the avail is only $79 million and the operating budget is $205 million, then that would leave a $60 million hole for the parents/alumni fund to fill. The Alumni Fund raised $11 million in 2007-2008, but I don’t think that this includes the 25th and 50th reunion major gifts, which were $16.1 million in 2003. The parents fund seems minor in comparison. The College also raises about $5 million in revenue for other sources. Still, I have trouble getting this to add up to anywhere near $60 million for 2009–2010.

6) Perhaps the best explanation is that Morty’s $205 million refers to an operating budget of something less than that plus some capital spending. The exact phrasing — “an operating budget for the coming academic year that calls for spending of $205 million” — is somewhat unclear in that it allows for the interpretation that the operating budget is of size X, generating total spending of $205 million once we add in other items. Again, I don’t think that this is what is going on, I am just doing my best to reconcile everything we know.

Clarifications welcome!

UPDATE: Minor edits made.

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