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:
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:
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 This was the plan approved in December (although $1 million of the budget cuts were left undecided (and unpublished) as further endowment gains since June suggested that the full $8 million might not be necessary.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:
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.
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.
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.
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 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.