After the largest endowment decline in history, many Swarthmore departments, including ITS, the library system, Human Resources, and Facilities, have been told to prepare for significant budget cuts if the economy (and the College’s endowment) doesn’t start to turn around by 2010.
More than 50% of the College’s operating costs are drawn from the endowment. As Swarthmore aims to spend between 3.5 and 5% of the endowment annually, the $400 million losses could equate to a spending decrease of $14-$20 million dollars.
The Investment Office has said that “the magnitude of the decline in the endowment goes beyond the volatility that our endowment spending guideline was designed to tolerate.”
In October, College Treasurer Suzanne Welsh said that the College was aiming to spend 4.25% of the endowment in the 2009-2010 academic year. Since then, losses have doubled, and maintaining the current endowment expenditure would require a 5.7% spending rate-which wouldn’t account for inflation, increased financial aid demands, or newly hired staff. Several sources approached by the Gazette suggested that the College has updated its spending figure to 6%—the highest rate in Swarthmore’s history.
Such a higher spending rate isn’t sustainable. So if the current recession doesn’t begin to ease within the next year, the College is planning for large scale budget cuts.
Some cuts have already been made. Facilities has already slashed its capital budget, which funds repairs and renovations, by $15 million over the next three years. “That money allows us to do roofs, change departments, small projects,” explained Stu Hain, the Vice President for Facilities and Services. These projects include many of the changes required for the College to be compliant with the Americans with Disabilities Act, including updated bathrooms, walks, and stairs. “There is probably close to 2.2 [million] worth of work we won’t do,” said Hain. Most of these cuts are actually deferred maintenanceÃ¢€”the projects need to be done and the College is pushing the timeline back.
Even after cutting $15 million, however, Facilities has been asked to look for more. “For next year, we hope not to grow the budget,” said Hain, and in the long term, nothing is off the table. “It is … difficult, thinking what we can do,” Hain admitted. And while he believes students won’t notice any cuts next year, there will be clear changes in 2010-2011 if the economy doesn’t turn around.
Like Facilities, ITS is working on contingency plans. The department has been asked to consider cuts of up to 10% for 2010-2011, or $200-250,000. While, in the context of the entire College budget $250,000 isn’t a huge amount of money, most of ITS’ costs are tied up in expensive software licenses—think Blackboard, the phone system, and MeetingMaker—so the cuts would have to come from more flexible pots of money.
Last Fall, ITS installed Lab Stats, which tracks usage of most of the College’s computers. The software was originally intended to help figure out the proper mixture of Macs and PCs, or help determine where to place more computers, but now it is being used to help plan replacements. “We may find there are places where we can combine facilities or have a Mac with Windows instead of two machines,” said one ITS employee who asked to remain unnamed. These changes could include cutting the number of computers in each dorm.
“If we find savings in public computers, that’ll save something else,” said the ITS employee.
Human Resources is considering potential budget cuts. While no decisions have been made, staff cuts are being discussed. “We won’t know for some time,” explained Melanie Young, the Vice President of Human Resources, in an e-mail, “how deep we may have to cut and whether or not those cuts will involve currently held positions.”
Stu Hain explained that the College usually offers raises of 4% annually, which is higher than inflation. As the recession deepens, similar raises are unlikely. “We have discussed all kinds of options, including a wage freeze,” said Young.
Some staff-members have been advocating more radical steps. At a recent faculty meeting, a professor suggested that all faculty should take a pay cut of 10%.
The library system seems to be one of the most secure departments at Swarthmore. While ITS and Facilities have been asked to hold their budgets to current levels (despite cost increases due to inflation), the library’s budget is expanding, according to Peggy Seiden, the College Librarian. Even so, the library has started making plans for a budget cut of up to 10%.
Such cuts would slash every part of the library budget, including book binding, electronic archiving, and special collections acquisitions. The library system is also studying the cost-per-use for databases, but Seiden wasn’t confident that many cuts could be found there.
“We are trying to preserve the book budget,” said Seiden. But she wasn’t too optimistic. “The whole affair has a different feel compared to 2001,” she explained. The conversations about potential cuts “feel more serious.”
She’s just hoping that the stock market does better than Welsh predicts. “Sue’s models are pretty pessimistic,” Seiden noted.
Swarthmore has lost around $400 million dollars—a staggering amount of money. Still, the College is doing well compared to other liberal arts college.
The Amherst Student
“>summed up losses at other colleges noting that Wellesley College is struggling “to continue meeting studentsÃ¢€™ financial needs,” “Dartmouth College aims to cut spending by $72 million in the next two years,” and Harvard plans to cut 1,600 employees.
Amherst reported a 25% drop in its endowment in November 2008. At that time, Swarthmore had only suffered a drop of 15%.
Swarthmore’s been fortunate in large part due to cautious financial leadership by Suzanne Welsh. The College invests 15% of the endowment in Treasury bonds which helps weather financial downturns. More importantly, however, the College has been cautious with its building campaigns. David Kemp Hall was initially delayed because of a minor financial downturn, for example.
This caution meant that Swarthmore has significantly less debt than many peer schools. In 2008, Swarthmore had debt of $184.5 million, all at fixed interest rates, according to the Investment Office’s Financial Conditions report released yesterday. The document also concluded that “Swarthmore is relatively better-positioned than many other institutions.”
Williams, by contrast, has roughly $240 million in debt. In financial downturns, debt decreases liquidity and can cost schools. The Eph Blog speculated that Williams’ debt cost the school millions.