January 26, 2009
To the Williams Community,
Coming out of this weekend’s Board of Trustees’ meeting, I would like to bring you up to date on how Williams is adapting to the downturn in the economy.
Over the three months since I last wrote on the subject, the College has deepened its analysis of the situation, mapped a way forward, and begun to reduce spending. These efforts led to fruitful Board discussions, which underscored several themes:
- Despite the changed economy, Williams will remain Williams — a vibrant college where students will receive the finest possible liberal arts education.
- We remain committed to retaining our full financial aid program and to avoiding layoffs.
- To accomplish this we need to find very significant savings elsewhere in our operations.
We are in this relatively strong position because of the talent and dedication of our faculty, staff, and students and the commitment of our alumni and parents.
On this last point, I’m pleased to report great news regarding The Williams Campaign. Despite beginning during the dot-com bust and ending in the deepest recession in decades, the Campaign closed at a total of $500,165,000. This heartening outcome results from the hard work and generosity of many in the Williams family. On behalf of everyone who will benefit from this effort, now and in the future, I thank all who have taken part. Both capital and annual gifts have enabled us to make permanent additions to our curriculum, financial aid, and campus infrastructure. Without this extraordinary result and the ongoing capital and annual support of those devoted to the College, our current challenge would be even greater.
Another piece of reassuring news is that despite our concern about the effects of this economic turmoil on current Williams families, we’ve been relieved to see that the number of families who have asked for mid-year financial aid reviews has been no greater than usual. We still understand, and appreciate, the degree to which many families of all income levels are having to sacrifice to make available for their children a Williams education.
The economy’s greatest effect on the College itself has been the degree to which falling financial markets have reduced the value of our endowment. While we’re fortunate that the endowment continues to outperform benchmarks and to contain enough liquid assets for us to meet our obligations, it’s still the case that the endowment’s overall value is significantly less than the $1.8 billion recorded last June 30. Its liquid assets, which can be valued day-to-day are down so far this fiscal year by a little over 20%. Making a reasonable estimate of its illiquid assets, which can’t be valued every day, leads us to conclude that the overall endowment value is down this fiscal year by a figure approaching 30%. Meanwhile the financial markets remain volatile.
In October we announced the College’s first responses. We postponed for a year the construction of the new Sawyer Library and renovation of Weston Field, reduced by $2 million the amount we’d planned to spend this year on building renewal and maintenance, and decided to postpone the filling of all but the most essential openings for faculty and staff. After careful study by the Committee on Appointments and Promotions, we chose to postpone searches for 6 of 14 tenure-track faculty appointments and to drop searches for half of 22 visiting faculty positions. A separate ad hoc group has recommended the postponement of around 20 of what were 30 staff openings, while several remain under review. We also asked all budget managers to find ways to spend at least 2% less than expected this year on non-personnel expenses.
Next year’s operating budget is planned to go down by $10 million to around $207 million. Accomplishing this while protecting financial aid, avoiding layoffs, and not overspending from the endowment will require the following steps:
- We’ve cut spending on building renewal and maintenance next year by over $6 million a little more than half. The fact that our physical plant is in such great shape makes this step more practical than it otherwise would be.
- We reluctantly join many colleges and universities in deciding to have no faculty and staff salary increases for the year. While relieved somewhat to note that general inflation is currently near zero, we know how important competitive salaries are to the health of our educational offerings and commit to increasing salaries again as soon as feasible.
- We’ve asked all budget managers to submit plans for the coming year that include cuts in non-personnel spending of 12% and 15%. We'll decide closer to the beginning of the fiscal year which level is necessary depending on external circumstances. We've also asked all budget managers to explain how they would cut an additional 6% the following year.
We’ve been greatly aided in the process by cost-saving suggestions from faculty, staff, and students. Our thanks go to all who used the Website developed for this purpose to submit nearly 400 ideas. They ranged from small to large and covered almost every aspect of college operations. The ad hoc Committee on Cost-Saving has reviewed them and passed them to relevant managers. Two of the larger ideas have already been put into action. One was to experiment with closing the campus as much as possible over the recent winter break, which had the added benefit of reducing our greenhouse gas emissions. Another suggestion with a large financial impact was to suspend after this spring semester the Williams in New York Program. The faculty had already voted last fall to end the program in its present form, pending a process through which it’ll be re-imagined. That planning will continue and I'm confident that the program will eventually reappear in new form. These ideas, combined with several others, represent savings of more than $500,000.
An important annual calculation for the College is how much to spend from the endowment, keeping in mind the needs of both current and future students. To strike this balance we’ve generally aimed to spend in the long run on operations an annual average of around 5%, though in some years in which the endowment grew healthily we spent at lower rates to avoid spending for spending’s sake and instead save for the future. That practice has served us well. But in the same way that the College spent from the endowment at higher rates during previous deep recessions, the Board has agreed to do so now. We plan next year to spend up to 6.9% of the beginning of the year value of the endowment — a level that’s sustainable for a few years but not longer.
Like all financial plans, ours is based on assumptions about the external environment. The steps that I’ve described here are based on our conservative model that the endowment will drop 30% this year, stay level for the next two, and in the following year go up by 8%, a figure closer to its historical average. If the endowment fares better than this, we can carefully increase spending more than currently planned and/or spend less from endowment. If it does worse, we’ll have to adapt even further.
Economic downturns are stressful. This one, with its speed and depth, has certainly put pressure on the families of our students, of our faculty and staff, and of our alumni. But it’s in times of challenge that communities find their greatest strength. I’ve been not only encouraged but also moved by the deep goodwill that Williams people, on campus and afar, have brought to our collective effort to meet the current challenge. We know that making the most of this situation requires the best, shared efforts of us all. Through this process we will reaffirm for our time those initiatives most central to our mission and those, less essential, that can be pared away.
The ultimate result can only be an even stronger Williams — one that I thank you all for helping to build.
Regards,
M. Schapiro
President
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