200 more students - impact on housing and dining?

interesteddad
Thu, 08 Oct 2009 23:06:46 +0000

OK, here’s where it gets tricky (and I am talking about the five biggest endowment LACs). I can’t speak for Pomona and Grinnell yet because I haven’t seen their year-end endowment numbers and enough info on budgets, so I’ll use examples from Williams, Amherst, Swat for now). The issues that differentiate them are: the amount of bond debt. the amount of variable interest bond debt (variable looks cheap now, but is poised to go thru the roof), and the amount of outstanding cash call commitments to private equity funds.

Swarthmore is in great shape: the highest per student endowment of the three, the lowest debt ($185 million), zero variable rate bond debt, and the lowest cash call commitments ($220 million). They have enough cash and bonds to cover three or four years of endowment spending, no liquidity issues.

Williams is in good shape. The lowest of the three in in terms of per student endowment, but manageable debt $265 million (about $100 millon variable), and manageable cash call commitments $270 million.

Amherst was much more aggressively invested in private equity and got burned badly. Their endowment took the biggest hit, they have over $500 million in outstanding cash calls, and had to issue a $100 million taxable bond issue in February because of liquidty issues, i.e. to raise cash to cover operating expenses and meet some cash calls without having to firesale every public stock in the endowment. Over 60% of their endowment is in non-liquid assets. They now have $320 million in debt, $200 million in variable rate. Thus, the $1.3 billion endowment is offset by $825 million in debt and cash call commitments. They will work it out. I’m not in any way suggesting they are at risk in any way. However, the debt and cash needed for cash calls means that Amherst is having to make all the cuts that Williams and Swarthmore are making, PLUS millions of dollars in additional cuts each year to account for the cost of added debt service.

The upshot is that Swarthmore added faculty this year – not as many as they had planned, but new tenure track slots in at least three departments. They now have more tenure track slots for 1500 students than Amherst is planning for 1800 students. Thanks to a stronger than expected endowment performance, their budgeted endowment spending this year will be 4.1%, amanzingly this is below their long range target. They are very relieved. Swarthmore now sees their long term budget-cutting challenge as an $8 million annual number to be achieved by the end of year three – about 7% of their annual operating budget. It will mean some real cuts, probably a small increase in students (they went up 16 this year), replacing all the computers on campus every four years instead of every three, and so on and so forth. All the academic programs, including the four years of Arabic they’ve phased in with two tenure-track and two non-tenure faculty, should remain intact. The only faculty cut has been moving a tenure-track slot from German to Chinese to address shifting demand. They are preparing a doomsday contingency of $15 million in cuts, but $8 million is the number they are planming to implement assuming the endowment doesn’t crater from here.

Amherst’s bogey for year three is $18 million in cuts (and they say there will have to be more to come in subsequent years). Obviously, finding $18 million in cuts is more painful than finding $8 million. That’s why they are growing enrollment, shrinking faculty, capping financial aid budgets, and already announcing 5% price increases for next year and the year after. So, you can count on Amherst’s Arabic program (one post-doc) to remain where it is and not catch up. The difference is really all in the cash needed to cover the additional debt service and cash calls to private equity and the fact that the lack of liquidity in the endowment is throwing off no cash. A year ago, I thought Amherst was the strongest of the three schools financially. Now, they are in the worst shape.

Without boring you with the details, Williams is pretty close to Swarthmore in terms of budget cutting. They are in good shape. Their endowment spending rate will be higher (5.5% I think), but otherwise the cuts should be similar. The only program being lost is the slot for their one-man band in linquistics. They denied tenure to the one guy and aren’t planning to replace him. A case where they either had to add a slot or get out of linquistics. because one guy is not sustainable. The biggest mess at Williams is that they built some new academic buildings on the assumption that the existing library practically touching them would be torn down. The new libary project has been stopped and I don’t see it starting again anytime soon (taking on $100 million in new debt is just not in the cards), so they’ve got kind of a kludge of buildings around the old library and an old building that had been gutted for renovation and is now in mothballs. They’ll manage. Both Williams and Swarthmore got their new science centers built

I know that Grinnell’s endowment got clobbered – maybe the biggest butt-kicking of all over the last two years. I think they were very heavy in some bank and financial stocks (ouch). They fell from #2 per student endowment to #5, I think. I haven’t seen signs of big budget cutting. They are very conservative as far as spending – low debt, paying cash for a lot of buildings, fairly low spending rates. I just don’t know where Pomona stands. They have been #1 in per student endowment for quite a few years, but they just aren’t saying anything since the year end. My hunch is that they are in relatively good shape, but it’s hard to say without any “updates on the economy” from them since last winter. The budget cuts for this year were pretty mild – about 2% below last year’s actuals.

Hope this helps. We’ll know a LOT more when the schools start releasing their year end audited financial reports from June 30th, 2009. The auditors were signing off on the fianncials in September and now the schools are adding their management discussion, which should be interesting to say the least. Amherst was first out of the blocks with the outlines of their three year budget cutting plan. Both Williams and Swarthmore have their committees wrapping up their 3 year plans for presentation over the next couple of months. Swat’s board approved the $8 million year three target last weekend. Amhert’s board approved their $18 million year three target in August. I haven’t seen confirmation of a final number from Williams. All three of these schools will still be better off in terms of where their budgets end up than the next tier down the endowment ladder. Smith’s cuts will hurt the quality of their core educational program. Has to when you go from 9-1 to 10-1 student/faculty ratio. Middlebury is making some hard cuts, too.