Provost Bill Lenhart provides some background on the budget.

The $205M budget mentioned [in Morty’s letter for FY 2010] is our “total current expenditures” number which, in addition to employee compensation, financial aid, and managers’ budgets, also includes certain expenditures on our physical plant (so-called capital renewal), interest on debt, and some miscellaneous expenses such as community support.

The $205 would be comparable to a figure of $200M (budgeted) or $197.5M (actual) for FY2008. A slightly longer answer is: Our cash-flow-based internal financial planning model provides a different (but useful) view of our finances than does our audited (accrual accounting based) financial statement, although as part of our year-end “closing of the books”/external auditing process the two are reconciled annually. Both approaches have strengths and weaknesses.

The differences between the two are many, including how financial aid, gift revenue, interest on debt, gift pledges, the value of the physical plant, reserves to cover “liabilities” such as owed vacation time, sick leave, workers’ comp, et cetera are accounted for.

Record reporter Yue-Yi Hwa ’11 adds these details.

According to Jim Kolesar, assistant to the president for public affairs, an approximate breakdown of last year’s operating budget is: 50% compensation, 25% managers’ budgets, 20% financial aid, and 5% capital renewal. Those numbers — particularly financial aid and capital renewal — differ slightly, but not drastically, for the $205 million operating budget of 2009-10.

Thanks to both for permission to print their comments.

Summary: There are two ways to view the Williams budget for FY 2010 (which starts on July 1):

First, one could claim that Williams has accomplished meaningful belt-tightening. We are planning to spend much less next year than we did this year without changing financial aid or engaging in lay-offs. Since other costs, like health care, continue to rise, we have been forced to make significant cuts elsewhere. Therefore, Williams is acting with appropriate frugality in response to the economic crisis.

Second, one could claim that Williams, while having made some cuts, has done nowhere near enough given the magnitude of the crisis that it faces. In FY 2008, Williams was a very rich school, with a starting endowment of over $1.9 billion. If we are (at least!) 1/3 poorer now, how can we afford to spend even more in FY 2010 then we did in FY 2008? The short answer is that we can’t. And, by avoiding hard choices now, we make the inevitable cuts to come even more painful than they otherwise would be, all so Morty can ride off to Northwestern as the nice guy.

Further details and commentary below.

1) Always believe content from HWC. Throughout this debate, HWC and I have gotten into a series of (friendly, I hope!) disputes about various aspects of the numbers. He was right and I was wrong. See previous threads for all the messy details, but the take-away is that the College’s audited financial statements are the best source for information. The College’s Form 990s are also useful (and are based on the same accounting methodology), but they are much less timely and somewhat confusing. The College’s reports to alumni are also useful, but they bear no necessary connection to the audited statements. Use them with care.

2) My key error was to assume that, because the total operating expenditures/budget numbers in the financial statements and alumni reports were so similar, and because they both used the “operating” terminology, they must refer to the same thing, that any differences between the two were small and due to obscure accounting conventions. After all, the totals were almost identical, year after year. But that assumption was wrong. The financial statements to not include financial aid in their summary of operating spending (instead it is a discount to revenue) while the alumni reports do include financial aid. The totals are just similar by coincidence, because the some of the items (probably total interest and depreciation) excluded from the alumni reports equal the dollars spent on financial aid, which is included in the alumni reports. Mystery solved!

3) Would the Record please print a simple table of the key numbers from, say, FY 2001 through FY 2010? That is the only way to get an understanding of the issue. We need to know endowment, total spending (broken into components like financial aid, capital projects, and so on), tuition revenue and avail over time. Right now, I can only guess at these time series because the numbers that the Administration discusses (like $205 million for FY 2010) include and exclude different sub-accounts from the published financial statements. Last week’s Record article was excellent in many ways, but it only gave us numbers for this year and next year. Without more context — especially in looking at the ratio of spending (in various categories) to tuition revenue and the endowment (the two largest sources of funds) — it is very hard to have an informed opinion about whether or not the Trustees and Administration are acting in the best long term interest of the College.

4) I sure wish that the College would be more transparent. Morty sends a letter to all of us specifying a budget of $205 million for FY 2010. But it is impossible for any Eph (other than Trustees) to place that number in context because it uses an accounting methodology that is different (includes some items and excludes others) from ever other published document that the College provides. Think that you can compare that $205 million number to the audited financial statements or the Form 990 or the alumni reports? You can’t.

Sometimes I feel like a historian trying to reconstruct the spending of a 14th century Irish monastery. I have some documents. I have some testimony. But there is no place to find out the “truth,” so I stumble about as best I can. Alas, Williams could prevent all this stumbling by giving the rest of us access to the same data that the Administration uses every day.

For those who want to join me in the reconstruction, consider the $197.5 million number from Professor Lenhart for the “total expenditures” in FY 2008. According to the audited financial statements (pdf. page 5), Williams spent $176.5 million on “operating expenses” and awarded $29.3 million in “financial aid.” But those two numbers added together equal $205.8. Why the $8.3 million difference?

5) I am still very, very concerned. Although the greatest sucker’s rally market recovery in 75 years is continuing today, I still see a woods full of wolves.

For those who want to see the source documents, below is my original e-mail to Lenhart followed by his reply (which is reprinted with permission). Thanks to Professor Lenhart for his time and willingness to explain these issues to we befuddled alumni and parents.

Hope all is well. I hate to bother you with these minor questions but
Keli Kaegi suggested that you were the person to speak to. If there is
someone else in the Provost’s Office that I should send these
questions to, please let me know.

Anyway, could you clarify $205 million budget number that Morty
mentioned in his letter this week. My understanding is:

1) That this is for the operating budget.

2) That this number is comparable to the $177 million amount that the
College reported in its financial statements for FY 2008. That is, we
can compare the $177 million and $205 million amounts on an
apples-to-apples basis, at least to a first approximation.

I realize that budget numbers are complex. For example, although the
financial statements on the Provost’s website reported $177 million
for FY 2008, “A Report From Williams 2008” cites $174 million for the
same year. (I expect that the differences are due to issues like
depreciation and other non-cash expenses.) I just want to make sure
that there are not major categories of spending that are included in
the $205 million but excluded from the $177 million.

I suspect that the answers to the above two questions (perhaps
obviously) are just: Yes and Yes. I hope that I am not wasting your
time. But, like any good (former) Record reporter, I like to get the
details correct.

Thanks,

Dave Kane ’88

Reply from Lenhart to me.

David,

The $205M budget mentioned is our “total current expenditures” number which, in addition to employee compensation, financial aid, and managers’ budgets, also includes certain expenditures on our physical plant (so-called capital renewal), interest on debt, and some miscellaneous expenses such as community support. That’s the answer to question 1.

The short answer to question 2 is “no”: The $205 would be comparable to a figure of $200M (budgeted) or $1975M (actual) for FY2008. A slightly longer answer is: Our cash-flow-based internal financial planning model provides a different (but useful) view of our finances than does our audited (accrual accounting based) financial statement, although as part of our year-end “closing of the books”/external auditing process the two are reconciled annually. Both approaches have strengths and weaknesses.

The differences between the two are many, including how financial aid, gift revenue, interest on debt, gift pledges, the value of the physical plant, reserves to cover “liabilities” such as owed vacation time, sick leave, workers’ comp, et cetera are accounted for.

I hope the above gets to your questions.

Bill

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