The 8 Million Dollar Question

With $6.85 million of the Ad Hoc Financial Planning Group’s proposed budget cuts released to the public, the associated Student Financial Advisory Panel (SFAP) and members of the Financial Planning Group (FPG) have been discussing the proposal and how its cuts would affect the community.

An SFAP meeting on Saturday informed students about the plan, which students then discussed at Sunday’s open Student Council meeting and a town hall meeting on Wednesday night with Acting Dean of Students Garikai Campbell ’90 and Dean of Admissions and Financial Aid Jim Bock ’90, both members of the FPG. Other members of the staff and administration, including VP for Facilities Stu Hain and Director of Financial Aid Laura Talbot, were also in attendance at the town hall.

Nate Erskine ’10, Student Council Vice-President and a member of the SFAP, opened the town hall meeting by noting that although “we usually think of money and budgets as being this cold, impersonal thing,” that when there are shortages, “budgets and finances can be extremely personal.

“Behind those numbers, there are all these personalities that are going to be affected,” Erskine said.

Nate Erskine ’10 and Acting Dean of Students Garikai Campbell ’90 at Wednesday night’s town hall meeting. Photo by Brendan Work.

The problem, Erskine said, becomes one of “ideals versus pragmatics.” Campbell agreed, saying that the “primary goal” of the Board of Managers is to “make sure that the proposals respect the values that we have at Swarthmore.”

The Budget Process

The College budget for 2009-10 was reduced by 7.1 percent from the 08-09 budget mainly through “unsustainable” cuts, Campbell said at Wednesday’s town hall meeting. The largest portion of which included delaying Facilities expenditures, a salary freeze for all employees, and drawing almost three million dollars from the College’s reserve fund, which Vice President for Facilities Stuart Hain said “helped us get through last year without draconian cuts.” More details on this year’s budget were released at a Fireside Chat in April.

Campbell and Bock stressed at Wednesday’s meeting the inherently unsustainable nature of these specific saving measures. The reserve fund is far from unlimited, and “Parrish is going to need a new roof eventually.” As such, the FPG has been tasked with developing a viable long-term approach to be presented to the Board at their December meeting that takes place two weeks from now.

The Board originally asked the group to identify $15 million in cuts for the annual budget, which they worked on from February through September. Because the endowment performed better than projected this year, however, the budget only needs $8 million in cuts. (At a Fireside Chat in late September, President Chopp said that the endowment had dropped only 16.8%, rather than the predicted 30%.) The FPG has a full proposal for $6.9 million of those $8 million; they hope that the remaining $1.1 million can be delayed, depending on the performance of the endowment.

“The 6.9 million point,” Campbell said at Wednesday’s meeting, “seemed to be the jump between two discrete levels of painfulness … All the cuts are painful, but going beyond 6.9 million would bring us from painful to super-painful.” The remaining cuts are to be identified next year, depending on the performance of the markets. “If the market does really well, we might not have to do more cuts at all,” Bock, “then again, we might have to cut two or even three million more.” (Before any cuts, the yearly budget is set at around $115 million.)

The proposal has not been completely specified. “We still have a few things that are unsettled, that we can either dial up or dial down,” Campbell said. Before presenting to the Board, the FPG wants “to collect information from students, faculty, and staff, to think about which of these dials we want to dial more or less.”

After the Board meeting, Campbell said that “I think we’ll still have some flexibility” in the specifics of the budget, but that the Board “will want to make sure that the big components are taken care of. After that December meeting, we’ll be able to come in and say, ‘This is where we are.’”

Necessity of the Cuts

A junior asked at the forum Wednesday night about the necessity of making substantial cuts at all. “To me,” he said, “the longstanding mission of the endowment is that it is a thing for us to tap in a time like this.” The College could make some cuts, he suggested, but then take the rest of the budget shortfall out of the endowment itself. After a few years, “if it turns out we’ve been overspending by a couple million dollars, we can make that adjustment.”

The problem with that approach, Campbell said, “is that it’s surprising how little it takes to put the long-term health of the College at risk.” Just under half of the College’s operating budget comes from income on the endowment; interest would decrease as the endowment size shrinks, meaning that the spending rate would continue to have to rise. Bock said that in 2008-09, 50% of the budget came from the endowment. In comparison, the 09-10 budget (which was 7% smaller) drew only 42% from endowment income, and at a higher spending rate.

As Hain pointed out at the town hall, state law prohibits endowment spending rates greater than 7%. According to a presentation made by the FPG in April, spending at that rate would completely deplete the endowment after 22 years.

The College targets a 4.25% spending rate, which allows enough reinvestment in the endowment for it to keep pace with inflation. Starting at even a 5% spending rate—which the Board has allowed for five years, said Hain—and then increasing the rate annually to hold pace with budgetary inflation would bring the College to a 7% spending rate after 25 years; starting at 6%, it would take only 7 years. Hain said that the 09-10 budget spent at a 6% rate, “depending on where you fix the endowment.”

It is also not clear that the endowment will earn as much proportional income as it has in the past, Campbell said.

SFAP’s presentation to students last Saturday. Photo by Brendan Work.

Student Involvement

The FPG does not have any student representation. VP for Finance and the College Treasurer Welsh said at the aforementioned fireside chat that this was because of the group’s access to sensitive financial data.

At that same fireside chat, however, Campbell and Welsh announced the formation of the Student Financial Advisory Panel. According to the administration, the SFAP as established has the dual goals of informing the student body about proposed cuts, and giving feedback to the FPG.

The SFAP, however, does not meet with the entire FPG. Certain members of the FPG attend the SFAP meetings, but the SFAP has no formal audience with the entire Ad Hoc group. Until Wednesday night, it was also unclear whether the SFAP would be able to address the Board of Managers at their meeting. Campbell announced during the town hall that he had discussed the matter with President Chopp Wednesday, and that it was decided that SFAP will present to the Board during the Student Affairs portion of the meeting on Friday afternoon. (Rachel Bell ’10 and Erskine, President and Vice-President of Student Council, will observe Saturday’s general meeting as usual.)

Its access to information is also not limitless. During the town hall, Bell (who is a member of SFAP) requested that the full $15 million plan be made available, so that students could see the other options that have been considered. Bock said that he was “not hopeful” this would happen. (At Saturday’s meeting, Erskine called the plan “quite crude,” saying that many more details would need to be filled in were it to be used.)

Even so, Bock and Campbell stressed that this process is more open than any budgeting process in recent history. “I can’t remember a time when budgetary proposals came out before they went to the Board,” Bock said. According to Bock, this allows them to get needed feedback from students, faculty, and staff before going to the Board.

Erskine told the Gazette, “It’s a big deal that the administration is going through a review process … They’re being much more transparent than in past budget changes.”

The FPG has also long had a form for comments and suggestions on its website, and welcomes input of any form. “Volume matters,” Bock said.

There will be two open Let’s Talk sessions before the presentation to the Board, which will be attended by various members of the Financial Planning Group. These will be held “during business hours so that faculty and staff can also comment.” (The meetings are at 2 pm on Monday the 23rd in the Scheuer Room and 10-11am on Tuesday, December 1st in Bond Hall.)

There were a few questions about how students should get involved after the meeting in two weeks. “The process will be a little different,” Campbell said, because “it is our hope that the Ad Hoc Committee will be disbanded after this December meeting.”

“Student involvement in the process,” Campbell said, “may range a little bit in terms of area.” There will be both formal and informal opportunities, including the reinstitution of the Budget Committee, which does have student representation but has not met since the FPG has temporarily superseded its authority.

Photo by Brendan Work.

The Proposed Cuts

The FPG is proposing an amount of cuts from each department and area of the college, which will be voted on by the Board. Individual departments will then decide on the specifics of how to account for their reduced funding, if necessary.

The $6.9 million in cuts attempts to follow the idea of small cuts spread as evenly as possible: “shared sacrifice,” as Erskine put it at the Saturday meeting. Bell described most of the cuts as “squeezing out the fat”: reducing spending on outside speakers (especially ones with high travel costs), decreasing the amount and price of food at events, and hiring fewer leave replacement faculty, to name a few. The cuts are planned to be permanent; there needs to be a “new standard,” SFAP member Robert Manduca ’10 said at Saturday’s meeting.

More details are available in the proposal, but some highlights from Saturday’s discussion include:

  • The Honors program’s budget for outside examiners will not be cut, although departments will be encouraged to hire examiners who are more local.
  • The Centennial Conference is reorganizing so that teams have to travel less; banquet expenses and teams’ meal subsidies during travel will also be reduced. Some PE classes will be cut back, and coaches will be asked to teach some.
  • There will be no additional cuts to ITS over what has already happened.
  • The libraries will save some money by changing subscriptions to periodicals; in particular, more will be shared with the Tri-Co. Student jobs will also be slightly reduced.
  • The Dean’s office is aiming for a 4% reduction, particularly from the food budget and conference spending. Some positions might still be cut, as the Game Room Attendant was this semester.
  • The admissions office has made cuts in its operating budget, primarily in “print publications and search.” Bock said at the Wednesday night town hall that they are trying to increase efficiency without sacrificing targeting towards disadvantaged groups. Bock mentioned that he got his first budget request from a prospective student, namely that the overnight hosting program remain in place (it will).

Financial Aid

The proposed cut that is by far the most controversial among students, however, is to financial aid: the FPG recommended a 2.1% reduction in financial aid, which amounts to $457,000. This would certainly not come from the scholarship component—SFAP members indicated that the College is not about to revoke its policy of meeting full student need—but it might come from an increase in the expected term-time or summer-time contributions for students, or possibly through reintroduction of loans.

Bock also pointed out that the reduction is only 2.1%, while financial aid has increased by 30% in the last two years, due to increased need. “I don’t know of anything else at Swarthmore that’s increased by 30% in these two years,” he said.

In terms of student contributions, Bock said that Swarthmore has “some of the lowest self-help and work expectations of all of [its] peer group.” Raising those expectations could be a significant boon to the budget: going from an expectation of 7.5 hours per week to 10 would fill the full gap, while a hike in the expected summer contribution could also help meet the proposed budget cut. Reinstating some loans in financial aid packages could also bring in a significant amount; as the program costed $1.7 million annually, it would not need to be a full reversion to pre-2007 levels of loans to save enough money to meet the cut demands.

Bock admitted that all of these options have serious consequences attached to them. “It’s what keeps me up at night,” he said. “Since it’s harder to find work now than ever before, how can we raise the summer component?” he asked.

Student Jobs

One senior pointed out that it seems unreasonable to expect students to earn more during the academic term when student jobs are being cut, and also that the money paid to students must come out of the College’s funds anyway. (Bock said that if they chose to increase academic-term hourly expectations, it would require some analysis to see whether this change would in fact prove to be unsustainable.)

Dan Symonds ’11, Student Council’s Financial Policy Representative, pointed out that “the number of hours in the week has not risen with inflation.” He questioned what had changed that the work expectation for aided students, which has been at 7-8 hours per week for at least thirty years, would go up.

As government grants help to fund work-study hours, a strong push towards, a strong push towards making sure that work-study students have jobs could help with the budget. Campbell said that although the new online pay system could help with tracking who on work-study already has jobs, the process of favoring work-study students in hiring can be complicated. He cited the example of hiring graders for a math course, where the pool of applicants is necessarily limited. Should the department have to hire work-study students first? What policies should be used? “We need to have that conversation,” Campbell said.

In the Student Council meeting on Sunday, Student Council members requested that anyone who knows of jobs that do not ask whether applicants are on work-study speak to Council about it.

Loans

The idea of reintroducing loans was also met with criticism by students at the meetings. Some cited concerns that prospective students would be discouraged from applying.

One student said that reintroducing loans would be unfair to those students already at the College who had applied and matriculated under the expectation of loan-free grants. “This is a community of trust,” she said. Bock pointed out that although he saw her point, Swarthmore—and most schools—do the same thing to unaided students: they are admitted at one rate of tuition, but every year that increases.

Bock also argued that if loans were to be reintroduced, “you could still protect certain groups.” Even before the no-loans initiative, “about a third of the student body had loan-free awards.” He stressed, “there are ways to protect low-income students.”

Photo by Brendan Work.
Equity

Several students brought up the issue that although the budget cuts “have an ethic of trying to distribute the burden,” any cuts in financial aid will clearly affect aided students far more than unaided students; they would put more burden on “families who are already having a hard time.”

Bock said that those issues resonated with him as a Swarthmore alum who had to take out loans when he was a student. “Why are we expecting that ‘skin in the game’ from aided students when we don’t expect it from unaided students?” he asked. “But one thing about loans is, you can protect certain groups.”

“My understanding is that one year ago, the financial aid office asked for the maximum amount that it is appropriate to ask for,” another student asked. “Anything beyond that would be asking for too much money. So why is it okay now to ask for more?”

Bock’s response to this argument was that Swarthmore was in a place where, although increasing expected student contributions would be “painful,” it would not be “inconsistent with Swarthmore’s values.” He compared it to schools that “say they meet a hundred percent of need, but that’s because their ‘need’ includes a $10,000 loan … We can argue over whether that’s really meeting need. The question is, can we be the most generous in terms of our peer group?”

Symonds said that “I don’t think it’s about what our peer institutions do, it’s about the policies last year versus now … it just doesn’t make sense. It’s harder to work; why would you ask for more?”

Student Council has suggested moving the financial aid cuts into the $1.1 million of undecided cuts. Bock said that was “one approach,” and that if students felt strongly about that, they should give that feedback.

Another potential idea, discussed briefly at Wednesday’s meeting and in more depth at the Sunday Student Council meeting, was that of a tuition hike rather than cuts in financial aid. This idea, however, was also very controversial among attendees of the meeting.

Benefits for faculty and staff are also facing large cuts, at $400,000. The exact form that this will take is still unclear. Some might come from a slow-down in raises or from voluntary pay cuts. Some will come from a restructuring of the health plan (about which HR will be holding another meeting), and some will come from decreases in the tuition benefit for faculty and staff children.

A junior pointed out that this is also an issue that students should be very concerned with. “If we’re in a situation where faculty or staff are feeling like they’re being treated unfairly while students are being unprotected, that’s a problem for us students too,” they said.

Bock did say that he had heard from some faculty and staff members thoughts along the lines of, “If you reintroduce loans, that’s a quarter of the budget adjustment right there, and then I can have my raise back.”

“It’s a different perspective,” he said, “which is why I think you should have lunch with them, you should come to the Let’s Talk meetings with them.”

Campbell noted his perception that, in general, many students’ questions were “about whether we are being really, really careful to not unduly burden one particular group of people … we have to make sure that there is not any group out there that’s getting hammered while everyone else is getting some kind of protection.” For that, he said, “I hope that you have confidence we will look at the data that we have and look at whether that’s what’s going on.”

Kristen Allen contributed reporting.


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