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Board approves 2010-11 budget

interesteddadinteresteddad Registered User Posts: 24,177 Senior Member
edited March 2010 in Swarthmore College
In its regular February meeting over the weekend, the Swarthmore Board of Managers approved the operating budget for next year. This is a key milestone in responding to the fiscal challenges of the market crash and endowment losses. Here's the three-page budget summary:

http://www.swarthmore.edu/Documents/administration/finance_investment_office/OperatingBudget_10-11.pdf

To put this budget in context, you might want to read the more in-depth 26 page fiscal framework approved at the December board meeting which lays out the extent of the required budget adjustments and a broad outline of adjustments:

http://www.swarthmore.edu/Documents/administration/finance_investment_office/approved_budget_adjustment_Dec09.pdf

By way of background, Swarthmore is a conservatively managed college with low endowment spending rates. They have consistently stayed within their target of 3.75% to 4.75% endowment spending. When the recession hit, Swarthmore was towards the low end of that range and could have absorbed a 20% endowment loss by boosting the spending rate. Nevertheless, the College responded quickly with stopgap saving measures for this year (2009-10) including a salarly freeze, a partial hiring freeze, a three-year one-time reduction of capital spending, and a decision to spend down fully-topped off reserve accounts from the good years. Even so, at the absolute bottom of the market one year ago, the Board anticipated that endowment spending might have to exceed the College's all-time high of 5.4% set in 1982-83 even with a projected $6 to $8 million cut in actual spending.

At the time, the Board recognized that these short term measures would need to be replaced with permanent structural budget adjustments over the next three to five years. At the bottom of the market, with losses of 35% or more looming, the Board tasked the College with identifying $15 million a year in cuts on a $115 million budget, to be phased in over the next few years.

By June, the markets had rebounded and it became clear that the budget cuts wouldn't have to be that deep. The Board asked the budget committee to go ahead and privately put a $15 million plan on the shelf as a worst-case scenario, but to present a revised plan totalling $8 million a year in cuts. This was the plan approved in December (although $1 million of the budget cuts were left undecided (and unpublished) as further endowment gains since June suggested that the full $8 million might not be necessary.

So, here are some highlights:

Endowment spending:
Shockingly, Swarthmore is budgeted to only spend 4.15% of the new June 2009 endowment during this fiscal year -- the result of budget cuts adopted when endowment losses looked to be more severe. This is actually below Swarthmore's long-term target of 4.25%. If we assume that the budget ends the year in June 2010 with no gains, Swarthmore's new budget calls for endowment spending of 4.2%. If the strong market gains we have seen so far this year continue, that percentage would drop. In effect, Swarthmore will be below its long-term target and banking some cushion against instability in the markets over the next few years. Very few colleges and universities will be under 5% endowment spending this year.

Enrollment:
Swarthmore is completing the second part of an enrollment increase of 29 students to 1419 at Swarthmore, plus another 80 studying abroad. This fills the empty beds available with the opening of David Kemp Hall, but does not require going into overflow housing like ML basement or student lounges in Danawell.

Salaries and Employment
The salary freeze ends after one year with budgeted salary increases next year of 2.4% to 3.0%. There have been no layoffs and none are planned. Some unfilled vacancies will be left vacant and there will be a reduction in hiring faculy leave replacements. Tenure line slots have not been cut, but the College is trying to "save up" some vacancies to give them some flexibility. A decision to cut three tenure-track slots has been postponed (apparently part of the yet-to-be-determined $1 million in cuts. The College apparently would like the luxury of a few empty slots to potentially re-assign since increases in the faculty size are not on the table.

Tuition and Fees
The Board approved a 3.8% increases in fees to $51,500 for next year. I believe this matches Princeton's announcement.

Financial Aid
Total financial aid grants will increase 11% next year, offsetting the price increase for aid students and reflecting continued economic hardship in the customer base. The Board voted to continue need-blind admissions for US students and to continue the no-loan policy for all students (which increased aid by $1700 per student last year). Instead, the Board approved an increase of about $600 per aid student in required summer earnings. This is the first increase in nine years. The 200 Swarthmore students who receive summer research or service grants will see them increase by $600 to $4350, covering the increased expectation.

Capital Spending
Facilities capital projects will continue for the second of three years of signifcant cuts, partially offset by spending down reserve accounts. Technology capital spending will resume, albeit with some cuts like extending the 3 year computer replacement cycle to 4 years.

Total Spending
Total spending is expected to increase by about $1 million next year, but is still down $5 million or so from the peak in 2008-09.

There are some other schools that appear to have weathered the storm in good shape, but I think it's fair to say that Swarthmore has come through this mess in exceptionally good condition. The endowment spending is completely under control. There are no liquidity problems. Debt is reasonable and every penny is fixed-rate so there is no inflation fear on debt service. Cash call commitments are moderate. And, the long-term systemic cuts are being made without gutting fiancial aid programs or the basic undergrad educational offerings. Very impressive. The budget committee, Rebecca Chopp's administration, and the Board deserve some kudos, IMO.
Post edited by interesteddad on

Replies to: Board approves 2010-11 budget

  • momof3sonsmomof3sons Registered User Posts: 5,116 Senior Member
    idad, do you know if tenure decisions for current faculty were made at that meeting?
  • interesteddadinteresteddad Registered User Posts: 24,177 Senior Member
    I'm thinking that they probably were. I believe Chopp was supposed to present the recommendations for pro forma approval, but I haven't seen any news items yet. The budget stuff was all from the Finance Deptarment's website. They are on the ball.
  • momof3sonsmomof3sons Registered User Posts: 5,116 Senior Member
    I'm interested in the tenure decisions because my '07 grad wrote a letter of recommendation for one of the professors and we're trying to find out what happened without having to ask directly. :)
  • dadx3dadx3 Registered User Posts: 1,559 Senior Member
    I think former President Al Bloom deserves some credit, too, for having managed the finances well. President Chopp and the Board of Managers had such a (relatively) strong hand to deal with, at least compared with many other colleges. I, too, am surprised that they are able to drop to a low and very sustainable rate of endowment spending essentially immediately. If the endowment continues to recover, the college should be in even better financial shape, especially compared with some of its competition. It will be interesting to see what Swarthmore does with that relative financial advantage.
  • johnwesleyjohnwesley - Posts: 4,610 Senior Member
    judging from what is going on at Williams and Dartmouth, it will take every cent of that advantage just to hold on to a "no-loans for anybody" fin/aid policy.
  • interesteddadinteresteddad Registered User Posts: 24,177 Senior Member
    Dadx3:

    Yes. Bloom deserves a lot of credit. As does VP Fianance Suzanne Welch and the Board of Trustees. Swarmore was well positioned goiing into the recession. Low spending rates that had been under 4% in some recent years. No variable rate debt. Moderate levels of debt and cash calls. They had smelled the credit freeze early and started moving assets into cash and bonds, so their liquidity is excellent. They were actually using cash to buy firesale assets from other schools at the bottom of the market.

    John Wesley:

    Dartmouth never had Swarthmore's financial strength. It went into the recession with 23% smaller per student endowment and came out with 35% less. That's magnified because grad students eat endowment spending at a much higher rate than undergrads. It has double the debt (32% versus 16% of endowment) and cash call commitments about a third higher. Dartmouth got killed with their variable rate debt and the interest rate swaps, taking a $43 million loss to buy out of underwater swaps (like Harvard). Dartmouth had to borrow $250 million in taxable debt to cover operating expenses.

    Plus, Dartmouth never had endowment spending under as much control. They spent 5.5% in 2008 leading up to the recession compared to 4.2% at Swarthmore. That's meant Swarthmore could absorb a 33% endowment loss simply by going to Dartmouth's spending rate. In 2009, Swarthmore spent 4.1% versus an unsustainable 6.3% at Dartmouth.

    The Williams comparison is trickier, because I really don't understand Williams' cost-cutting. On paper, I would have included them among the winners coming out of of 2009. Their financials weren't quite as strong as Swarthmore's, but all the measures appeared solid with the only big difference being they have mostly variable rate debt (which looks attractive now, but is poised to see skyrocketing interest costs). They just haven't released a comprehensive cost-cutting plan to see their strategy. Swarthmore's strategy was to cut small amounts across every department and activity on campus. Williams may be more determined to protect certain departments (like the athletics department) even if it means deeper cuts elsewhere. If they have a problem, it's with ballooning out year structural budget increases. I just don't know yet. I still think they are in good shape.

    No-loans was certainly on the table for discussion at Swarthmore. That policy was a multi-million increase in financial aid at a time when there was already severe upward pressure on financial aid costs. Swarthmore needed to slow the growth in fiancial aid and, I think, did a smart thing clawing back $600 per student elsewhere and avoiding the PR hit of ending a brand new program. If the market stablizes and doesn't crash again, I think Swarthmore will stay no-loan. Bloom's thoughts of going need-blind for internationals is clearly not an option for the foreseeable future. The cost of that was killing both Williams and Amherst and both have now scaled it back -- Williams ending need-blind and Amherst putting a new lower cap on international admissions.
  • standrewsstandrews Registered User Posts: 1,365 Senior Member
    re: no loans, I find the wording in the budget summary interesting:
    In addition, [the board] reaffirmed its 2007 decision to give “loan-free” financial aid awards to financially aided students enrolled next year.
    This would allow revisiting the policy before accepting applications for the class entering 2011. It's as if the no-loan policy has been given a one-year, renewable extension. Swarthmore is also buying time to look at what the collective FA need of next fall's class is. This approach is prudent given the current economic uncertainty.
  • interesteddadinteresteddad Registered User Posts: 24,177 Senior Member
    Everything is approved year to year. The enrollment targets, the sticker price, various aspects of financial aid, operating budgets, etc. Unless you are going to give Board approval for multi-year budgets, it all is year to year.
  • KeilexandraKeilexandra Registered User Posts: 5,492 Senior Member
    What's the state of funding for visiting lecturers/professors? Nonexistent?
  • interesteddadinteresteddad Registered User Posts: 24,177 Senior Member
    I think it will vary by department. I haven't seen any indication that Swarthmore intends to gut the faculty. There will still be visiting and non-tenure faculty. I think it will just be like any other open position: can they cover the courses without it? Or not? It's always been that kind of decision making.
  • interesteddadinteresteddad Registered User Posts: 24,177 Senior Member
    Now we know how Swarthmore is dealing with the additional $1.1 million a year in budget cuts that were left "to be decided later".

    Led by Eugene Lang ($2.1 million) and David Kemp ($450,000), the Board of Managers agreed to contribute an additional $3 million over the next three years to close that gap for the short term and buy some time to see where the endowment and spending levels stand three years from now.

    The major push for the gifts was a decision by the board that they did not want to see changes in financial aid like the end of "no-loan" aid packages.

    Board contributions fill $1 million of budget gap - The Phoenix
  • johnwesleyjohnwesley - Posts: 4,610 Senior Member
    judging from what is going on at Williams and Dartmouth, it will take every cent of that advantage just to hold on to a "no-loans for anybody" fin/aid policy.

    and then some.
This discussion has been closed.