Amherst to issue $100 million in taxable bonds for working capital

Colleges & Universities Amherst College
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<p>Middlebury’s finanical problems are at a completely different level than those being faced by Williams and Swarthmore (and Amherst if it weren’t for the cash flow problem). Middlebury has been “out of equilibrium” for a number of years, meaning that they have been spending from the endowment at an unsustainable rate above their own policy targets. Their strategic plan called for finally getting down to their targeted spending rate (5.5% from memory) by the current fiscal year. That obviously is not happening.</p>

<p>in contrast, Swarthmore has been spending $80k per student (much more than Middlebury) and only spend 3.7% from the endowment last year. Not only in “equilibrium”, but comfortably in equilibrium with a cushion.</p>

<p>Look at the implications of that on budget cutting. Swarthmore can go to 5.5% spending, offset a 30% decline in the endowment without cutting dollar spending, and still be spending less from the endowment than Middlebury has been durng the boom years.</p>

<p>As near as I can tell (Amherst’s financial reports are mildly incrutible), Amherst was in exactly the same boat as Swarthmore (if they hadn’t screwed it up with the Texas Hold 'em investment strategy. Williams pretty much the same, although they have been spending a bit higher percentage from the endowment.</p>

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<p>^^I’m sorry, Interesteddad, but the term “out of equilibrium” doesn’t even begin to describe Amherst’s financial problems.</p>

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<p>That’s because Amherst is not now, nor has it been, “out of equilibrium”. As near as I can tell, Amherst has been spending towards the low end from its endowment – as should be the case during boom years of rapid endowment growth.</p>

<p>Amherst’s endowment is so heavily invested in partnerships that can’t be priced and can’t be sold that it is very difficult to predict where this will all finally shake out. It could be anywhere from moving back a few rungs at the top of the ladder to a more dramatic repositioning.</p>

<p>Middlebury’s has no cushion. It has to cut spending, cut it big, and cut it now. That’s why you are seeing more dramatic moves. Williams and Swarthmore have the luxury of phasing in the big cuts over a couple of years. They are just doing the low hanging fruit (salary freezes, stopping capital improvment projects, and so forth) so far.</p>

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<p>Middlebury may not have Williams’ or Swarthmore’s “cushioning” as you so aptly (and, frequently) put it. But, it has a lot fewer rungs, as you put it, to move in terms of repositioning. At worst, this period of uncertainty is a lost opportunity to move up a few rungs – and, again, that’s putting it in your terms which seems to put endowment size at the top of everything.</p>

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<p>Unlike Amherst, Swarthmore, Williams, Wesleyan, Haverford, Wellesley, Grinnell, Pomona, Smith, Bryn Mawr, Bowdoin, and many others, Middlebury does not make their annual financial reports publicly available on their website. Therefore, it is difficult to know much about their financial position. I did see their presentation to staff the other day. I think they are working diligently to cut costs.</p>

<p>I think they are probably vulnerable because of mistimed expansion (enrollment, campus building, language institutes, and Monterrey). As they tried to digest all of the expansion and bring their endowment spending back down to equilibrium, a recession was the last thing Middlebury needed.</p>

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<p>interesteddad: can you comment on Wesleyan’s financial situation? they have a smaller endowment than many of the other top LACs, and their trustees just met this past weekend. how does Wes sit compared to, say Amherst, Midd or Bowdoin?</p>

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<p>Middlebury accomplished its goal of bringing the spending rate to the target level of 5% this past year. </p>

<p>From the college’s website:</p>

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<p>Also, the college is at the $300 million mark for the current $500 million capital campaign. I’ll bet they’re glad they began the “silent” phase when they did.</p>

<p>Also, read this article from last weeks “Campus”:</p>

<p>[College</a> finances hold up, for now - News](<a href=“http://media.www.middleburycampus.com/media/storage/paper446/news/2009/02/26/News/College.Finances.Hold.Up.For.Now-3651722.shtml]College”>http://media.www.middleburycampus.com/media/storage/paper446/news/2009/02/26/News/College.Finances.Hold.Up.For.Now-3651722.shtml)</p>

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<p>Wesleyan’s biggest challenge is a relatively small per student endowment. Here’s a list, prepared by Wash and Lee University of top LAC per student endowments at the top of the market (June 2007). The only one they are missing (offhand) is Berea, which should have been slotted somewhere between Wellesley and Williams.</p>

<p><a href=“Accreditation and Institutional Research : Washington and Lee University”>Accreditation and Institutional Research : Washington and Lee University;

<p>Wesleyan’s endowment spending rate has been higher than their policy range (7.1%, 6.4%, and 6.1% in 06, 07, 08 respectively). They will have to cut endowment spending immediately. That’s really their biggest challenge. Swarthmore plans to go up to 5.7% next year (the highest in school history) from 3.7% last year to cushion the cost-cutting, allowing some of the harder cuts to be phased in. Starting at 6.1% spending last year, Wesleyan can’t do that.</p>

<p>Nothing stands out as being a particular problem. They’ve got cash call commitments of $165 million, maybe a bit high, but in line percentagewise with Swarthmore and Williams.</p>

<p>I think that increasing enrollment by 120 more students is problematic for Wesleyan as increased enrollment (like at Middlebury, Oberlin, Smith, etc) is what diluted the endowment in the first place.</p>

<p>Wes is more dependent on tuition revenue than the big endowment schools. They do pretty well maximizing student revenue, averaging $32,000 per student in tution, room, board, and fees. This is not quite as high as the schools that really play the “full pay customer” game hard (Bowdown, Vassar, Haverford), but it’s a strong number, especially given the enrollment numbers.</p>

<p>The big question mark for all of these schools is what’s going to happen to that number (average net tuition). If that number holds (even by quietly being just a “little more need aware”), then it will just be a predictable scaling back of spending to a somewhat less lavish level with many of the frills cut out. If the bottom falls out of the tuition/enrollment equation, then it will get ugly. That’s why everyone is kind of holding back to see what happens with the current pile of applications.</p>

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<p>Arcadia, I believe that Middlebury’s financial plan called for them to get endowment spending down to the target in Fiscal Year 2009 (“this year”). Of course, that is now very unlikely. </p>

<p>The problem is that endowment spending should be at its lowest percentage in a period of rapidly rising endowment value, such as we have seen for the last five or six years and should increase to the high end of the range when endowment values are falling. That’s why Swarthmore and Yale were at 3.7% and 3.8% last year.</p>

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<p>Yes, Middlebury overspent during the “fat” years, but they also have a new state-of-the art library, a new science center, three new dorms, three new dining halls, a new pool and ice hockey rink, a new center for the humanities, a newly renovated student center, and a new biomass plant to show for it. Excessive? Perhaps. But these new facilities are attracting a lot of attention, and IMHO are party responsible for the huge increase in applications over the past decade. And from the sound of things, Middlebury views exceeding the 5% endowment spending target as a measure of last resort. Does that mean they won’t exceed it? Of course not. But they realize the significance of it and have certainly learned from past mistakes.</p>

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<p>Smartalica - another way of looking at it is, that Wesleyan has an income stream of roughly $172,000,000.00 in unrestricted, tax-free, and highly predictable funds. That’s what it collects in tuition and fees minus financial aid every year. If Amherst had that kind of cushion, I assure you it wouldn’t be borrowing $100,000,000 in taxable bonds just to pay its staff and run the copy machines.</p>

<p>What Interresteddad is describing is a kind of feedback loop whereby a high endowment is an end in itself and every decision is made with that as its endpoint as opposed to what is good for the college as a whole. For example a good argument could be made that rather than borrowing $100,000,000.00 to pay for a set of new dorms or a new natural history museum, Amherst could have spent the same money directly from its pre-meltdown endowment – and saved itself a 30% loss on those funds.</p>

<p>But, that’s just an example.</p>

<p>Interesteddad also talks about keeping the endowment “draw” as low as possible (3.5% in the case of Swarthmore) all for the sake of that sacrosanct endowment per student ratio. That’s all fine and good if a college has no particular long-range goals. But, what if a college, a 1,300 all-male LAC like Wesleyan was forty years ago, has a choice between maintaining a low draw and a high endowment per student ratio and lowering that ratio by expanding to include another 1,300 of the most interesting and highly qualified women in the country? Wouldn’t you at least <em>consider</em> that a worthy trade?</p>

<p>And wait! There’s more! If that’s not enough, how about providing seed money for Ph.D programs in Chemistry, Biology, Physics, and MBBC, thus allowing professors to conduct NIH and NSF-level research all year round (instead of just during the summer.) </p>

<p>And, wait! There’s still more! How about we throw in one of the ground-breaking Ethnomusicology programs in the country?</p>

<p>Still not convinced? How about we throw in another ground-breaking program in Film Studies for good measure? There are a lot of things I would not want to “give back” if I were Wesleyan just for the sake of a better endowment per student ratio.</p>

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<p>OK. Then if you want to compare Wesleyan to big schools, compare it to Dartmouth and UChicago and Rice and stop the charade that it’s a liberal arts college.</p>

<p>BTW, Amherst went co-ed without increasing to 3000 students.</p>

<p>BTW2: Amherst didn’t borrow $100 million to pay staff. It borrowed $100 million to meet its cash call commitments from private partnerhips. I think I’ve been pretty clear what I think about that.</p>

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<p>And please, let’s not throw out “but we have a film studies program”. All colleges have programs that others don’t. For example, I don’t suppose that you want to talk much about Arabic at Wesleyan (one visiting lecturer with a Masters degree) or Linguistics or Engineering. Oh, wait. Building an Arabic department might be part of a “long-term plan” for a college, right?</p>

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<p>we were wondering where all that money you saved on football would wind up.</p>

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<p>If you look at the spread of athletics budgets among the top LACs ($6+ million at Williams, $2.5 million at Pomona and Swarthmore), there should be a lot of trustees taking a good long look at varsity athletics (especially football) at small liberal arts colleges. Funny…it’s never mentioned.</p>

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<p>I spoke too soon. I guess the budget cutting is getting serious. Schools started whacking varsity sports this week. Pepperdine announced the end of men’s track and women’s swimming. Agnes Scott announced the end of women’s swimming and diving.</p>

<p>Amherst could snooker Williams by announcing the end of football, men’s hockey, and participation in NCAA post-season play to “focus on academics and campus diversity”. I believe that half of the NESCAC would follow Amherst’s leadership.</p>

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<p>Nah. If anything they would cut swimming. I have nothing against swimmers (they have some of the highest gpas among jocks), however, it’s high overhead coupled with small home team followings make it vulnerable among spectator sports.</p>

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<p>Cut Athletics? I don’t think that’s gonna happen, especially not to football or some others. First of all… you would seriously tick off your alumni AND their wallets. There are a huge list of benefits to having athletics at schools, however, how would it be if at these small $$$ LAC’s if they charged for admission like they do at BC or other schools where going to the game is a luxury not something you just do on a saturday afternoon. I think schools would lose a lot of their character and spirit without athletic competition. But it would surely change the admissions game, this is certain.</p>

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<p>interesteddad: where do you get your figures for % of endowment spent on operating budget per year at the LACs in recent years. Is there a list somewhere? Would be interesting to peruse that. Thanks.</p>

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<p>interesteddad, sorry, one other request: where do you get the per student spending figures?</p>