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Student Feedback Solicited by ACBP

The student members of the Ad Hoc Advisory Committee on Budget Priorities (ACBP) are soliciting for student feedback on what at Williams is important to the student body. I’m withholding the e-mail address because the message was sent specifically to students, but feel free to sound off in the comments (especially you ’08 alums.) For the e-mail, click Read more

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Wolf!

timber_wolfThrough the last 6 months of blogging about the financial crisis and its effect on Williams, I have tried to avoid purple-mountains-are-falling alarmism. Although my posts (highlights: here, here, here and here) have taken a more bearish, skeptical stance than many other observers, I have not yet cried “Wolf.” Until now:

Wolf!

Why now? Although I still hold out hope that the College will make the needed cuts, that the Trustees will provided the necessary discipline, that Morty will do the right thing so that his successor is not completely trapped, the passage of time has provided too little evidence of seriousness. The College is not nearly rich enough to be able to hire new staff and invite more visiting professors. Now, to be fair, many of these decisions were finalized months ago. I would not expect the College to renege on offers already made. Still, there is little evidence of meaningful budget tightening in the future. The Transcript reports:

Williams College is looking to cut approximately $10 million from its budget over fiscal 2010, according to the private institution’s provost and treasurer.

Any time you read a story about budget “cuts,” whether for the Federal Government or your local youth soccer league, you should wonder whether the baseline against which these cuts are measured is actual spending this year or proposed spending for next year. Which do you predict is the case for Williams?

“What we’re budgeting for FY10 is approximately $10 million lower than what we budgeted for this fiscal year,” Provost and Treasurer William Lenhart said Thursday.

It all depends on what the meaning of “this” is. I do not mean to accuse Lenhart — a good and competent Provost who answers my questions professionally — of trying to mislead anyone. He isn’t. But interested Ephs still need to pay very close attention, all the more so since the College makes it almost impossible to understand the budget crisis from the outside. (Luckily, you fortunate readers have EphBlog to help.)

He said the college originally had budgeted $216 million for operating expenses for FY09, but by the end of the fiscal year (June 30), the college expects the actually amount spent to be $213 million or maybe less.

That’s fine, but still sort of pathetic. The worst financial crisis in a generation hit last October, and the College has managed to save around 1%. If this is belt-tightening, then we need shorter belts. And, per usual, we have the recurring confusion in these discussions about whether or not the budget includes financial aid spending. In the College’s official financial statements, it does not. Financial aid is just a decrease in revenue. It does not count as “spending.” Here, Lenhart is including financial aid. That’s fine, if the College were to provide us with a time series of the budget measured in this way. But the College won’t do that. We have to do the translation ourselves. At least it is good training for all you future forensic accountants in the audience!

The $10 million decrease for FY10 would result in a budget of $215 million.

Bingo! The College’s endowment is down by, at least, 30% and Williams is going to spend more in 2010 then it is 2009. This is how a first-tier college enters the second-tier, by refusing to cut costs, by avoiding the hard choices, by hoping that things turn around, by spending its seed corn. If Morty really wanted to help out his successor, he would leave him with a budget of no more than $200 million. Even that is excessive, but at least it is a start.

Lenhart said cuts will be made across a number of areas. Of the four essential operating budget areas: Salaries, wages and benefits; financial aid; managers budgets — which include individual operating budgets for departments excluding salaries and the renewal budget — which includes spending for ongoing maintenance and modernization projects to the campus and its buildings, financial aid will increase because of the college’s ongoing commitment to make sure students can afford to attend the college, he said.

He said college departments have been asked to submit two budgets, one with a 12 percent cut and the other with a 15 percent cut. The idea behind submitting two budgets was if some areas couldn’t reach the 15 percent cut, it could be made up with other areas that could take a the cut.

In addition to cutting department budgets, the college will spend “markedly less on renewal spending next year,” the hiring freeze instituted for FY09 will continue and salaries will be frozen at current levels for the coming year, Lenhart said.

He said there have already been some changes in the college’s programs with the reductions made to the FY09 budget, and the reduction in what is available as part of programs in FY10 “will be noticed.”

He said the college is not planning to cut any programs, including its community outreach programs, at this time.

Great! Let’s just keep handing $500,000 to the town each year. Why not?

“We haven’t identified yet any larger, dramatic program elimination,” he said.

The Record reports on the activities of the AHACOBP. I have no doubt that these serious folks are identifying meaningful cuts. I question whether the Administration/Trustees have the fortitude to make them. We need to cut now.

He said the college contribution to the local community will remain largely intact for FY10.

A Feb. 26 letter from Williams College President Morton Schapiro to the college community stated the college had formed an Ad Hoc Advisory Committee on Budget Priorities made up of faculty, staff and students to meet weekly and advise the college’s senior staff on programs that should be protected most if the college is forced to cut its budget further than anticipated.

Lenhart said college officials are in the process of determining how the budget targets for FY10 will be reached, and they hope to have a final budget ready to present to the college’s Board of Trustees in April.

We have some Trustee readers. Please, do your job! No one expects you to micromanage the College’s budget. But you need to step up and stop the Administration/faculty from screwing over the future of Williams to avoid necessary pain in the present.

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New Normal

A former EphBlog author writes:

I am not sure I agree with your prescription for dealing with Williams’ finances, but I thought you would find this article interesting. If Princeton is feeling a pinch, then Williams is probably in worse shape.

Indeed. At the same time, Will Slack ’11 writes:

The college is taking it [the financial crisis] more seriously than your writings would suggest.

Well, I certainly hope that this is true, and I have no reason to doubt Will. But, how does he know? How can any outsider (meaning anyone not in Administration) know? There can be clues, but have not seen much. Can anyone provide some evidence? The steps that we know about (cutting budgets by 2% this year and 15% next year, dropping the number of visiting professors and new tenure-track hires) are nowhere near enough.

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Don’t Get It

From a financially savvy reader:

I cannot believe that your EphBlog readers still believe that construction on a new library is going to begin next year. They don’t get it. The low hanging fruit of budget cutting cover the Fiscal Year starting in July 2009. The real bloodbath doesn’t start until July 2010.

Here are the operating budget numbers from the June 2004 and June 2008 financial statements:

June 2004: Operating Expense of $137,351,974 plus fin. aid discounts
of $18,543,227.
June 2008: Operating Expense of $176,523,523 plus fin. aid discounts
of $29,284,650.

I agree that these numbers highlight the magnitude of the problem. It is not just an issue of not hiring visiting professors or not hiring a new volleyball coach or canceling the Bolin Fellows program or postponing goo-goo green spending. The College will, eventually, need to do all those and more if it is to have any hope of avoiding lay-offs and maintaining financial aid.

The $30 million in operating expenses that the College added from 2004 to 2008 must be cut back. Every single penny. The first $10 million and cuts have been made, but that was the easy stuff. No more trips for dinner to Mezze with the students. Boo-hoo! The real carnage comes with the next $20 million.

Two quibbles, however: First, I think that there is a chance that the new library goes forward next year. After all, the College has, more or less, committed itself to that plan. It is too late (?) to stop the work. So, it might as well happen now, ideally with a major new donation picking up the $80 million tab. I would bet that unstarted projects, like Weston renovations, won’t go forward for years.

Second, I think/hope that we will get some blood sooner rather than later. The Ad Hoc Advisory Committee on Budget Priorities (call it AHACOBP, pronounced A-ha-Cob-P) is meeting for a reason. The 2010 budget (starting July 1, 2009) has yet to be approved by the Trustees. The financial markets have gotten much worse. With luck, the Trustees will force the College to make some hard choices now. The longer we wait, the worse the pain.

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Budget History

Isn’t it pathetic that, while Williams is going through its biggest financial crisis in 25 years, no outsider knows the total, much less the details, of this year’s budget? Yes, it is!

As a service to the Williams community, here is some data on the recent history of the College’s finances, via financial statements and this 2002 report. Numbers are in millions and the fiscal years end on June 30.

Year  Operating Expenses Tuition Revenue Shortfall
2008          177                61         116
2007          164                59         105
2006          154                56          98 
2005          140                55          85
2004          137                53          84
2003          130                49          81 
2002          129                46          83          
2001          116                46          70
2000          108                47          61      
1999           99                NA 

There is probably a disconnect between these numbers around 2002/2003 since I get them from different sources. The jump from 129 to 130 in spending is smaller than normal, although it could be that the College was belt-tightening in conjunction with the 2002 bear market. Reasonable people will differ on just what is included in “operating” spending, and the College may very well change its classifications over time.

For pre-2003 data, I add “Renovation, Repair and Adaptation” to “Operating Expenditures” in the 2002 report because I think that this makes the total consistent with the 2003+ data. I estimate the tuition revenue for pre-2003 by subtracting “Scholarships & Fellowships” from “Student Charges.”

Comments:

1) The key issue is that Williams has been increasing spending year after year while not raising after-aid tuition nearly as much. Since 2000, spending is up 74% compared to a 30% increase for student revenue. As long as the bull market roared, that was a sustainable policy. Now, it’s not. Almost all of the shortfall is made up by annual giving and endowment income. Unfortunately, it is very hard to get the data on those numbers to get a sense of the problem. We need an annual endowment number and a spending percentage.

2) When the Record reported that the College’s “operating budget” for 2008–2009 was $216 million, I was immediately suspicious since, after relatively steady growth over the last decade, it would be strange for the College’s budget to suddenly go up by 22%, especially in the year after the endowment was flat.

I followed up with the Record. Editor-in-Chief: Kevin Waite ’09 writes:

Checked with Lenhart and he says that total current expenditures are set at $216M this year. This includes operating expenditures, capital renewal spending and debt interest payments among a few other things. He says last year’s budget was around $200M.

So looks like operating expenditures are a good deal lower than $216M (probably closer to the number you published) making our article incorrect. Since we’d be a week late on running a correction, you can use what I told you here on Ephblog to correct our mistake.

Happy to help. I still wish that the Record would gather the necessary information in one handy table. Is that too much to ask for? And, of course, the College itself ought to make this data easily accessible and intelligently organized. It is almost impossible for any outsider (even members of the faculty) to have an informed opinion about the seriousness of the financial crisis at Williams without this sort of information.

3) If last year’s budget (2008) was $200 million under this definition (i.e., $23 million more than the $177 published in the financial statements) then one guess at the 2009 number that would be comparable would be the reported $216 million minus the same $23 million, or $193 million. That would represent 9% growth, more than I would expect but not implausible.

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Cornell’s Letter on Financial Situation

Our Morty is President Skorton. Yesterday he sent the letter below.  Awfully familiar, though note the electronic “suggestion box” for ideas they have set up for how to solve the financial problem.

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Show Them the Money

My co-bloggers here at ephblog central, along with other Ephs of goodwill, often take issue with my postings on the College’s gift to charity. As many times as I ask, I have trouble finding anyone who will specify where $250,000 should be cut from the College budget to fund worthwhile programs at Mt. Greylock High School next year.

But perhaps I should turn the question around. Assume that the College has decided to spend an additional $250,000 this year (or even every year) on attracting and retaining the best college teachers in the country. How would I spend this money, if not on gifts to the local schools and hospital along with realestate development?

Call me crazy, but I would . . . Give the money to the very best teachers at Williams!

Show them the money. Would that really be so hard? Establish “Ephraim Williams Awards for Teaching Excellence.” Five would be given out every year, each consisting of a cash prize of $50,000. Winners would be selected by a committee dominated by students. The only restriction might be that the same person can’t win two years in a row. Nothing would prevent truly exceptional teachers from being recognized several times each decade.

Of course, there is a lot that could be done with these awards. Perhaps one of the awards should be reserved for excellence in advising senior theses and/or individual projects — thus ensuring that not just the best lecturers win. Perhaps 2 of the five awards could be determined by former students — ideally committees centered around events like the 10th and 25th year reunions. This would nicely bias things toward professors who make a career at Williams, thereby giving folks like Gary Jacobsohn and Tim Cook a(nother) reason to stay.

If you want great teachers to come to and stay at Williams, then giving them special prizes is almost certainly the most cost effective way of doing so.

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