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Provost Report 2010: Conclusion

Today finishes our two week tour of the 2010 Provost Report. Professor Bill Lenhart concludes:

Williams is in a strong financial situation by virtually any comparison—except with the Williams of three years ago. In the wake of the financial crisis, we have significantly less revenue from endowment and less revenue from gifts. It would be unwise to anticipate endowment growth in the future of the kind we’ve experienced over the past 15 years. Our challenge then is to reduce spending in ways that protect our mission of providing the finest possible liberal arts education and that return us as soon as possible to where, if capital markets remain steady, we can resume growth in our operations each year. This is a goal we can achieve with the continued help of faculty, staff, students, alumni, parents, and friends.

Indeed. Thanks for all the many thoughtful comments during this discussion. Kudos once again to Williams for providing such detailed information.

How much transparency should Williams provide in the future? That’s easy! Just slap up on the webpage whatever material is distributed at Faculty or Trustee Meetings — or, at least 90% of it. Doing so requires (virtually) no extra work since all the charts/tables/slides have already been created. A small portion of the data would need to be kept secret, because of federal regulations, fund-raising sensitivities and other issues.

But if, going forward, Williams were to be as transparent as it seems to have been in this case, I would have little to complain about, at least when it comes to financial issues. Next steps include admissions, grade inflation, course enrollments, and . . .

But, for now, baby steps!

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Revenue by Category 2008-09 to 2009-10

Original here, archive here.

1) Seems like the College decided to raise a bunch more money from the graduate programs, mainly, I think, by increasing the number of CDE students.

2) Is “Asset Use” the same as avail spending from the endowment? I think so. But isn’t it annoying that so few of the College’s numbers seem to make sense in conjunction with each other? We should be able to see that $94 million number somewhere in this chart. But we can’t! If I were a trustee, I would raise a ruckus about this sort of sloppiness. You tell me that asset use was $80 million for 2008–2009 and then you tell me it was $94 million. Well, which is it?

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Major Spending Reductions 2008-09 to 2009-10

Original here, archive here. What items do you find the most surprising? Which would you reverse if you could?

Other current spending by 57%
(Resulted mostly from 2008-09 being the last of a multi-year pledge to the Northern Berkshire Healthcare capital campaign.) $325,000

Does this mean that the faculty is satisfied with North Adams Regional Hospital? I suspect that they are not. Recall that the Presidential Search Prospectus tells us:

A recent study showed that over the previous ten years Williams had made annual financial contributions in the community that averaged more than $500,000 and additional one-time contributions of $5 million.

That would suggest annual spending of $750,000. Have we now cut that in half? Good. That is one step in the direction that I suggested.

Many readers attack me for being anti-faculty because I think that the College should donate much less money to local non-profits. Well, the Williams Administration (Morty, Wagner, Lenhart, Trustees) just decided to donate hundreds of thousands of dollars less to local non-profits than Williams has in the past. Are they anti-faculty too?

Graduate Art Program reduced visiting lectures and financial aid, and other savings $135,000

Williams should provide zero financial aid to graduate students in Art (and at the CDE). We are a undergraduate institution, first and foremost.

Course Development stipends were reduced $100,000

Who says that the Administration does not listen to me? This is a great example of a total boondoggle, paying the faculty extra money to do their jobs.

Needless to say, the Administration does not listen to me. But they sure seem to end up doing a lot of the things that I recommend! And that’s because the budget is a zero sum game, millions of dollars must be cut and reasonable Ephs will often agree on what is least important to Williams.

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Spending by Category 2008-09 to 2009-10

Original here, archive here.

1) This table would be more informative with at least a few more years of data.

2) A senior faculty member told me that cutting the first $10 to $15 million out of the Williams budget was easy. There was a lot of fat. But cutting the next $10 million is very hard.
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Class Section Offerings and Sizes

Lots of interesting data here (archive here). No complaints from me about the quality of those charts. (Note that 19 was chosen as the maximum number for a large portion of Williams classes to help increase our US News ranking since percentage of classes with fewer than 20 students matters in the formula.)

Suggestion: I am most curious about seeing this data from a student’s point of view. Every student takes 32 classes, more or less. What is the average class size for those 32? Or, just looking at a given year, every student at Williams in 2008-2009 took 8 classes, thereby generating a total of around 16,000 student-in-a-class experiences. What was the average class size for those 16,000 “golden tickets?” I suppose that I could create this information myself by transforming the data in some way . . . suggestions welcome.

And, as always, my suggestion is No More Lectures. We can’t go there immediately, of course, but I would like to see Adam Falk break up the 19 classes with more than 50 students. Just do what ECON does and offer multiple sections of these (mostly) introductory classes.

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Faculty and Staff Size

Great data (archive here).

0) This is wonderful information. Kudos again to Provost Bill Lenhart for making it public.

1) Scariest part of this chart if you are not a faculty member? There are no staff numbers for 2010/2011!

Look at both what is there, and what is not there.

At the beginning of the crisis, the College hoped to avoid lay-offs and cuts in financial aid. Throughout, Morty/Trustees seemed, if anything, to consider the financial aid the most important part of the budget, the last thing to be cut. And, yet, we have cut it by adding loans back in. I bet this means that there will be lay-offs. And, if I were Adam Falk, I should would like those lay-offs to be announced before my arrival! If not, then the natural timing would be after the trustee meeting in April or during the summer when the students aren’t around to complain. You read it here first.
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Spending Leading Up to the Economic Downturn

Day 7 of our chart-by-chart march through the material on the 2010 Provost Report. Finally! Some details on Williams spending over time (archive here).

1) One of my purposes here is to highlight for our faculty readers places where Williams spends too much. Instead of whining about a faculty pay freeze, they should be challenging, privately and publicly, the Administration/Trustees about some of these line items. I would focus on two: First, the growth in Administration, much if it due to the Investment Office. Close it. Second, the spending on WCMA. We all agree that WCMA is wonderful. Can’t we just roll back its budget to 2004-2005?

2) It would be better to show a decade’s worth of data, or at least to add 5 and 10 year growth rates.

3) Instead of just knowing the total spending on Graduate Programs, we need to know the net spending. If the Masters in Art History and CDE bring in enough money, then no worries (although I would still close them). But, if they cost the College millions, then we should look more closely. (Again, faculty can have their raises or they can have graduate programs. They can’t have both.)

Back of the envelope, there are 30 CDE fellows this year (big increase?), each paying $50,000, thereby generating $1.5 million. This is a bit of a scam since most (?) of the money comes from emerging country central banks who are, more or less, just printing it.

The Masters in Art costs $40,000 but there is some (a lot?) of financial aid provided by Williams. There are about 20 students in the program. So, call it $800,000.

So, it could be that the funds generated by these programs come close to paying for themselves. And, moreover, most of those costs (professor salaries?) are fixed. The College is stuck with those professors even if it closes the programs. It is hard to make a sensible judgment without more information.

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A Different Look at Spending

Another ridiculous pie chart (achive here) — this time in duplicate!

1) Pie charts are among the worst methods for transmitting numerical information. Bar charts are much better.

2) You have the data for each year for the last 10 years. Show it! The more data that you show people, the more informed they will become.

3) Without the numbers for specific categories, it is hard to make sense of things. Has spending on the library/museum increased or decreased (in percentage terms) in the last decade? Looking at the pie chart, we can’t tell!

If I were a Trustee, I would be quite critical of this chart. Doing it right takes no more time than doing it wrong.

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Spending

Continuing our two week review of the 2010 Provost Report.

Another pie chart that should have been a bar chart with 10 years of data in it (archive here). More importantly, this is the first example of a statement that might mislead an inattentive trustee (i.e., one that does not read EphBlog).

Williams is a different college from what it was ten years ago in a number of ways. One is that the student body has become much more socio-economically diverse. That’s the main reason why the percentage of our operating spending devoted to financial aid has grown from 13% to 21%.

There is evidence that Williams has become more socially diverse, in the sense that a higher percentage of students have parents without college degrees now than in the past.

There is no evidence that Williams has become more economically diverse in the last decade, at least with regard to US students. So, there is no good (at least public) evidence the “main reason” for increased spending on financial aid is the change in the mix of students who attend Williams.

I have reviewed this topic many times. See below for a refresher.

1) Looking at the increase in students on financial aid over the last decade tells you little about the decrease, if any, in student family wealth. Imagine that Williams raised tuition to $1 billion dollars but still met everyone’s demonstrated need while enrolling the exact same students. Suddenly:

100% of students are on financial aid. Look how socio-economically diverse we are!

Williams spends $2 trillion on financial aid, orders of magnitude more than we have in the past. Look how socio-economically diverse we are!

These statements are true but they are, obviously, misleading. Raising tuition and giving out more aid does not, in and of itself, mean that students are coming from poorer families. Ending loans does not necessarily, without a change in admissions policies and/or relative yields, increase the number of poor students at Williams. To figure out if Lenhart is telling the truth, we need to look at the actual income/wealth of Williams students.

2) In theory, Williams might have increased the number of poor students and decreased the number of rich students. And, perhaps, by increasing the number of (honestly?) poor international students and decreasing the number of (relatively) rich US students, this has happened. But there is no evidence that, among US students, average family income/wealth has declined. None. Zero. Zip. Zilch. Previous discussion here. Summary:

The key conclusion is that, while the number of families getting aid has risen (853 to 990 or up 16%), the median income of those families has risen faster (65k to 79k or up 22%) so the wealth of the family at the 20th percentile of all Williams families has risen (about 10%) as well. If anything, Williams is less socioeconomically diverse than it was a decade ago.

There are various complexities to account for in terms of inflation, changes in average family size and so on. But, big picture, there is no evidence that there are more poor US students at Williams today than there were 10 years ago.

3) Even worse, I have actually pursued the College on this point. It is an easy question to answer because the College has good family income data on US students who apply for financial aid. Consider just the 400th poorest student at Williams. (He would be at the 20th percentile of the income distribution.) What is his family’s income? (Obviously, we don’t need to know his name.) What was the family income of the 400th poorest student 10 years ago? That simple comparison wouldn’t tell you everything — perhaps the numbers have shifted in other parts of the distribution — but it would be a simple way to demonstrate that the increase on financial aid spending is actually caused by lower family incomes among Williams students.

4) In fact, I can make this even easier! (It is often hard for Director of Institutional Research Chris Winters ’95 to gather data from several years ago.) We know from the 2008 letter to the Senate that, in 1997-1998, the 426th poorest US student at Williams had a family income of about $63,800. What is the family income of the 426th poorest US student at Williams today? Chris Winters can answer that question in about 30 seconds.

5) If I were a Trustee, I would ask Bill Lenhart for that number.

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Giving

On giving to Williams (archive here).

Recessions understandably affect giving. Not all the giving shown here is spent on current operations; some goes to endowment and to building projects. The numbers for recent years were affected positively by The Williams Campaign, which ended Dec. 31, 2008. Despite the continued commitment and generosity of our alumni, parents, and friends, it’s likely to be a few years before we experience those levels of giving again.

I don’t really understand these donation totals, averaging about $50 million per year from 2006 — 2008. Can someone explain?

1) The College claims that the Williams Campaign raised $500 million from 2003 to 2008. Great. But then how come these donations don’t add up to anywhere near that?

2) In discussing revenues, Provost Lenhart reports that 5% of the $205 million in revenue for 2009-2010 was from “Annual Giving.” But that would only be a little over $10 million. This chart has “Total Giving” at $35 million, which I guess is not the same as “Annual Giving”

3) Most likely, we just need a more careful breakdown of donations into different categories. My guesses (clarifications welcome):

a) The $10 million in “Annual Giving” from the Revenues chart is from the annual Alumni and Parent fund drives. The College takes this money and spends it directly on operations.

b) The $35 million in “Total Giving” from the Giving chart includes the Annual Giving and some special categories that recur every year. The big items would be the class gifts for the 25th and 50th reunion classes. (Some info here.) This might also include Planned Giving and/or donations from corporations. Much of this money, especially the 25th and 50th reunion gifts, goes to specific uses, not just general operations.

c) The $100 million per year that the Williams Campaign raised over the five years from 2003 through 2008 includes a) and b). It then adds in the Leadership gifts that fund major items.

4) Keep the following table in mind when trying to understand donations at Williams.

Just 89 donors (out of over 25,000 alumni) are responsible for 60% of the money raised. Just 561 account for over 85%. Want the people in Hopkins Hall to take your opinions very seriously? Get on those lists.

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Total Financial Assets

This is an excellent chart. (Archive here.)

The diamonds in the graph below show the amount spent each year from endowment, while the bars show the endowment’s value at the beginning of each fiscal year. Over the past decade the amount spent from endowment doubled from roughly $40 million to $80 million. The colored bars indicate the three fiscal years, including the current one, that began with the endowment at $1.4 billion. In the first of these years (2000-01) we spent from endowment almost $40 million less than we plan to this year. In 2005-06 it was almost $20 million less. Some of those differences have been made up by increases in revenue from student fees and from gifts, but the rest is coming from a level of endowment spending that’s not sustainable over time.

1) I have made the exact same point again and again. Morty’s Armstrong kegger spending spree has Williams using twice as much ($80 million versus $40 million) from the endowment this year as it did a decade ago. Reasonable people might not blame Morty for this since we all (?) thought that the bubble would go on forever. Yet there is no excuse for not adjusting to this reality as soon as possible. Security is here to end the party.
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Revenues

Starting our two week examination of the Provost’s Report, let’s look at revenues: original here, archive here.

1) Pie charts are a stupid way of transmitting information. Bar charts are better, especially a bar chart that shows these categories over the last decade or so.

2) How many times do I need to refute this wishful thinking?

It’s increasingly important that we get our rate of spending from endowment back as soon as possible to a sustainable level, which is generally considered to be around 4.5 to 5% of its beginning-of-year value.

“Generally considered” by whom? Williams can only spend 5% of the endowment if it can grow that endowment at 5% (real) over the long term. It can’t. Believing otherwise is a Ponzi delusion. The sustainable rate is much close to the world GDP growth of 3% or so. (If the Williams endowment could really grow faster than the world, then Williams would eventually own the whole world. How likely is that?)

Still don’t understand this? Think of all the institutions/families in the world that had the equivalent of $1 billion (or some very large amount) in 1910. How many of them could have plausibly claimed, in 1910, that they had a plan which would yield 5% real investment returns over the next 100 years? Round numbers: None. Most of them failed to do nearly as well. And the very few that did were just the lucky monkeys throwing darts. Or, even if they were led by genius investors, those investors are dead now.

Unless you had some magic spell that allowed you to discover market-beating investments year after year, it would have been stupid to think, in 1910, that you could achieve 5% real returns.

Now, its 2010. There are hundreds of large institutions (foundations, pension funds, endowments) with hundreds of billions under management, all of whom think that they can beat the market. It just won’t happen. A few will probably get lucky. But all the wealth in the world can not grow faster than the world itself grows.

Assuming 5% allows us to spend money that we really don’t have.

For 2009-10, the Trustees approved a higher than normal asset use rate of 5.6%, which reflects both a substantial reduction in asset-use and a commitment to maintaining the quality of a Williams education.

The College deserves credit for the real cuts that it has made so far. But more will need to be done, and the sooner we start doing it, the better.

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Provost Report 2010

As previously discussed, Williams has made public an impressive collection of financial information. President Bill Wagner writes:

January 21, 2010

To the Williams Community,

As background to the ongoing campus discussions of the College’s next steps in responding to the new economic realities, the Provost’s Office and the Office of Public Affairs have developed the following Web site.

provost.williams.edu/?page_id=182

It shows trends in the College’s revenue and spending over two time periods: the decade before the global crisis began and the year plus since then.

The more we all understand the factors that led to the current situation the better decisions about the future we are likely to make.

This site makes that information widely available.

Kudos all around. The more transparent Williams is, the more likely the College is to be successful. So, in the spirit of open discussion and debate, I will post a selection of the Report every weekday at noon for the next two and a half weeks. There is much interesting material to discuss.

Do any of our trustee/administration readers know how much of an overlap there is between this material and the documents used by the Trustees during their January meeting? It sure seems like these are exactly the sort of reports that the Trustees would have been looking at . . .

From the main page of the Report:

Background Information on College Finances, Jan. 2010

As background to the College’s financial situation, the documents on this site show changes in revenue and spending, in some cases since the beginning of the global financial crisis and in some cases over the past decade or more.

They show that we headed into the crisis with considerable financial strength, reacted quickly to changed circumstances, and need to adapt further to the changed environment. Our growth in spending over the past decade was fueled in large part by a surge in resources of a kind unlikely to recur anytime soon.

Understanding our recent history can help inform our decisions on next steps.

Exactly right. One minor suggestion: It would be nice if all this material were gathered into a pdf (or some other kind of) document.

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Data From the Provost

Huge props to Provost Bill Lenhart and the rest of the Williams Administration for making this excellent collection of data publicly available. (Hat tip to Will Slack ’11.)

1) There is so much good material here, I don’t even know where to begin. I will devote next week to an item-by-item discussion. Contain your excitement.

2) At first glance, this data looks highly detailed and comprehensive. I could imagine that this is almost exactly the same as the information that the Trustees are looking at this week-end. True?

3) As longtime readers know, I (and others at EphBlog) have been complaining/campaigning/cajoling for years in order to encourage Williams to be more transparent. This is exactly the sort of material that we had in mind. Anything (or, almost anything) that is presented at a faculty meeting or to the Trustees ought to be made public.

4) The more information that members of the College community have about Williams, the more informed their opinions will be. More informed opinions lead to better discussion and debate, which leads to better decision-making and results. But that is too wordy! EphBlog needs a handy slogan which encapsulates this argument. Suggestions? Transparency for excellence?

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