In an effort to check spending, President Schapiro, in an all-campus e-mail this past Saturday, announced that the College will cut back on faculty hiring, postpone the Stetson-Sawyer and Weston Field projects and reduce facilities renewal expenditures.
These measures were taken in response to the financial crisis, which is adversely affecting the College’s three revenue streams: the endowment, giving and student charges. “Spending at current levels in the face of reduced income would be irresponsible,” Schapiro wrote.
The operating budget for the 2008-09 fiscal year is $216 million, about half of which comes from the endowment. Through spending cuts, the College hopes to save a few million dollars this year and curb the growing avail rate, the percentage of the endowment that is taken annually to support operations. “As you can imagine, given that we are already a third of the way through the fiscal year, it will be a challenge to reduce by more substantial amounts without potentially significant disruptions of our activities,” said Bill Lenhart, provost. He anticipates more significant savings in the 2009-10 fiscal year.
Shrinking the faculty
To begin cutting expenditures, the College will look to curbing faculty and staff hires, considering half of the College’s annual operating expenditures go to salaries, wages and benefits for employees.
The Committee on Appointments and Promotions (CAP) will only fill vacant faculty posts that are deemed essential until economic conditions stabilize, according to Schapiro’s e-mail. Currently, the CAP plans to honor previously authorized faculty searches, but that may change. “At the moment we are considering only delaying further appointments, not eliminating any current positions or even positions that have been authorized but not yet filled,” said Bill Wagner, dean of the faculty.
These short-term measures will result in a small reduction in the size of the faculty, but not of an order of magnitude that will affect student to faculty ratios or class sizes, according to Wagner. Over the past decade the number of full-time equivalent faculty has grown from around 200 to 255 while the student population has grown at a slower rate, Schapiro said.
On average, about seven positions open each year due to retirements and resignations. In past years, the College has filled more than seven slots to take into account faculty on leave. In the coming year, however, fewer of these vacancies will be filled while ensuring that core areas of departmental and program curricula continue to be covered, said Wagner. “I think we could live with a smaller number for a bit,” Schapiro said. Despite the cuts, Schapiro is committed to maintaining competitive standards of compensation.
Limited faculty hiring could reduce expenditures by as much as $750,000 a year, depending on the types of posts that are vacated, according to Schapiro.
Decisions on whether to fill staff vacancies will be made through a collaborative effort between Human Resources, the Provost’s Office and senior staff. Lenhart did not comment about projected expenditure reductions resulting from slowed staff hiring.
As the decision to scale back on hiring was made just a few days ago, academic departments are uncertain about what to expect. The economics department, for example, had previously been authorized to hire two faculty members and began soliciting applications for the positions. “It is not clear how the actions Morty identified will affect the department,” said Stephen Sheppard, chair of economics.
“We indeed have been authorized to hire a new position in math for which we are advertising,” said Cesar Silva, chair of mathematics. “We have not heard anything beyond President Schapiro’s campus wide e-mail.”
As for faculty salaries, Schapiro does not expect the financial situation to seriously reduce payment of current faculty. “Salary increases for continuing faculty have nothing to do with future hiring,” he said. “We have been raising real compensation each year for many years (that is, salaries increase more rapidly than inflation) and we would hope that no matter how bad financial markets might get, that we come as close to the inflation rate as possible.”
Building delays and renewal project cuts
To further cut costs, the College has chosen to delay the launch of approximately $100 million in construction on the Weston Field renovations and the already-begun Stetson-Sawyer project in order to “preserve capital, put off additional interest payments and provide time to better understand the depth and breadth of the economic downturn,” according to Schapiro’s e-mail. However, when the projects do resume, they are to go forward with few, if any, changes to their original plans.
It is unclear how much savings this move will generate because of uncertain economic forecasts. The first source of potential savings would come from the changing cost of money. Delaying the projects could next year alone avoid millions of dollars in additional debt interest payments, since large capital projects are financed through the issuing of bonds, according to Lenhart. “Depending on interest rates – and right now variable rates aren’t really available and fixed rates are very high – this could be several million dollars per year,” said Steve Klass, director of operations.
Second, the delay reduces the risk of having to halt construction while it is well underway in the case that economic conditions decay further. Currently, the first phase of the Stetson-Sawyer project – the erection of the Library Shelving Facility (LSF) and Academic Buildings – is mostly complete while work on the second phase has yet to begin. Minimal work has been done on the Weston Field renovations, offering an opportune time for the College to reevaluate the merits of future construction.
“It’s much worse to have to stop major projects in mid-stream than to delay their launch – capital has been borrowed, workers have been hired, materials have been purchased and/or fabricated, [we’ve] torn up a chunk of campus,” Klass said. “It’s much wiser to study the situation for several months than to try to build project momentum you can’t maintain.” Ã‚Â
There is concern, however, that these project delays can have adverse affects on their budget since wages, costs of gas and building materials can increase, among fluctuations in other macroeconomic variables. Klass, however, is operating under the assumption that global financial constraints will lead to scaling back in construction projects in institutions of higher education and other sectors. “This means that prices should remain steady or decrease over the next several months,” he said.
Although Schapiro’s e-mail stipulated that the delays for the two projects would be a year, it could be longer. “None of us can predict where we’ll be in a year relative to either the construction or investment markets, but the breathing room afforded us by the delay can only help us make more informed decisions about when to restart,” Klass said.
The delay of the Stetson-Sawyer project has direct ramifications for many students and faculty. It will extend the period of time in which 70 percent of the Chapin Library and Archives Collections, which are currently stored in boxes in the LSF, will be inaccessible.
Librarians at the Archives and Chapin Library are considering ways to make their resources available so that they can be retrieved, but it is unlikely that their efforts will greatly increase accessibility. “It will be a slow, labor intensive process,” said David Pilachowski, college librarian and head of the Stetson-Sawyer committee. “It is already clear that we will not be able to make as many of the items from those collections available as we would like.” Ã‚Â
The delay in the Weston Field project will postpone a much-needed athletic facility facelift, as the track does not comply with NCAA regulations, preventing the College from hosting home meets. However, Fletcher Brooks, track and field head coach, believes the delay is warranted. “I understand the economic situation and would rather delay the project and have it done right than try and push something through and put the College in a tough financial position,” he said.
Because the decision to push back the Weston Field Project just two weeks before its inception, Facilities is still trying to figure out how to best postpone construction in light of purchasing supplies and contracting workers.
These questions, however, don’t pose grave concerns for Klass. “Since this project didn’t require a lot of early preparatory work, very few contractors were gearing up at this stage,” he said, adding that “some materials have been procured, but it’s stuff that we can easily hold onto. Preparation has involved only the moving of trees and acquisition of minor materials.
Finally, Facilities plans to reduce the budget for renewal projects by $3 million, a 25 percent budget decrease. According to Klass, this reduction in spending will not put undue pressure on the College because Facilities had already made plans to conduct a similar exercise before the financial crisis intensified. Further, most campus buildings have been well-maintained in the past. “Because of our resources and because of the quality of care we’ve always shown in our approach to our buildings and our grounds, it will be very easy for our in-house professionals to manage this reduction in funding in a way that will not impact the quality of our buildings, systems or grounds,” he said.
Outside of these three concrete budget reductions, the College will be discussing other potential ways to decrease expenditures. “We’ll need to find other ways to control spending this year and going forward and will use current governance and administrative structures to solicit ideas from faculty, staff and students,” Schapiro wrote in his e-mail.
The decisions to reduce spending were made members by members of Facilities, the Provost’s Office, the Weston Field and Stetson-Sawyer Project committees, senior staff and the Board of Trustees. They were based on the analysis of a large number of financial models, many discussions and evaluation of current economic conditions.
Curbing endowment withdrawals
In the last fiscal year, the endowment had a negative 1 percent return while withdrawals from the fund were based on an anticipated 8 percent annual return rate.
Since market conditions have only deteriorated since the end of the last fiscal year, further drops in returns are anticipated. “This year, if current market performance is a reliable indicator of performance for the rest of the year, the value of our assets will decline by an even greater percentage,” Lenhart said.
College staff also project that as unemployment rises, the traditionally exceptional annual giving rates will sharply decline and it will become more and more difficult for parents to pay students charges. “The ongoing economic stress will likely lead to a drop in the recent stellar fundraising numbers,” Shapiro said.
Thus, because of reduced revenue streams and a shrinking endowment, it is expected that the avail rate will only grow from its current 5.2 percent. “We are anticipating a bump in financial aid, energy prices and much else,” Schapiro said. “But the biggest reason [for the rate’s increase is] that the market has been falling, and the avail rate depends most of all on the size of the denominator.”
Schapiro hopes that spending cuts will curb the avail rate at 7 percent for the 2009-10 fiscal year budget, eventually stabilizing around a 5 percent benchmark.
The increase in the avail rate is not unprecedented. “In the early 1980s, when times were very tough in academe and beyond, Williams lived with a couple of years of avail rates around the 7 percent mark before they returned to 5 percent or so,” Schapiro said.
Today at 8 p.m. President Schapiro will be answering student questions about the ramifications of the financial crisis at the College in Paresky’s Baxter Hall, an event hosted by College Council.
Additional reporting by Kevin Waite, editor-in-chief, and Sam Weinreich, campus editor.