Schapiro discusses College finances in Q&A with the Record

As the financial crisis deepens and the College’s endowment shrinks, Williams looks to reduce spending. Last Thursday, President Schapiro sat down with the Record to discuss fresh concerns over the College’s finances.

Do you know where our endowment stands right now?

It’s a shocking turn of events. I would guess that benchmarks now are down more than 30 percent and we always outperform, so maybe we’re down 25, maybe 27 percent. Now we’re in such worse shape than we were a month ago. It’s amazing. More giant companies have gone bankrupt, and on Sunday you saw tremendous lay-offs all over the country, even at big firms. The market is just staggering.

But we’re not panicking. We still have a lot of money left over. We had $1.9 billion as of July 1 of ’07; we had $1.8 billion on July 1 of ’08. If we have $1.4 billion now I’d be shocked – it’s probably $1.3 billion. Remember, we give out $80 or $90 million a year, or 5 percent – that’s what you have an endowment for. Fortunately last year we saved about one percentage point. When you do the math, that’s $18 million, a good amount of money. We’ve been thinking that times were going to get tough, and I’m really glad we’ve tucked away $18 million over the course of that year. This year’s not a problem: 2008-09 we’re using 5.2 percent of the $1.8 billion. But if you a do a running tally, taking $90 million out of $1.3 billion is a really scary place to be. Everybody’s facing the same dilemmas, but it’s impossible for us to turn a couple of the dials that other institutions can. One of them is picking less needy students, and the other is laying off staff.

So, there are no plans to lay off any faculty or staff?

If we get to the brink of bankruptcy, who knows what’s going to happen? But as things are going, no plans for that – We come up with an attrition rate of seven faculty and 10 staff per year, which is lower than what it’s been. All over American outside of academia, people are being fired. Even within academia they’re being fired left and right. We’re the major engine of economic activity in the northern Berkshires. We talk all the time about how it’s not just the faculty are educators, but the staff as well, and they need us most when many of their partners or spouses are being laid off. Is this the time when we should lay them off too, or are we serious about the family and the community? I think we’re serious.

You’d rather have us get visitors rather than tenures because visitors are only one year, not a commitment. The other way to look at is you can make a killing in the faculty market. Students like tenured professors better generally than visitors, though not always. Teaching evaluations tend to be better for tenure or tenure track professors. I think it could be pretty short-sighted to say we could replace tenure people with visitors. This is something the CAP will be talking about. They may not share my views. I’d take a tenure track over a visitor any day, although some of the visitors are absolutely spectacular who really fill voids in the faculty. When you bring in people like that, it’s a great opportunity that you don’t want to lose. On the other hand, if you’re bringing in people to just teach temporarily on their way to teaching somewhere else, I don’t know how engaged they are in the life of the campus. I hear from my students all the time that the visitors don’t contribute as much, on average, as regular faculty.

The other big dial we can’t turn, of course, is that we can’t control the percentage of our students who are on need. I guess we could bring loans back, and all kinds of stuff, but we don’t have a lot of flexibility on reducing the discount off the sticker price. Right now, half the students pay sticker price, half do not. Of the half that do not, they pay on average 20 percent of the sticker price. If we’re need-blind and we meet full need, we don’t have a dial to turn there.

Would you consider raising the sticker price?

We always raise the sticker price. I really don’t know how it’s going to go with other schools. We’re always one of the last to announce because we want to see what everyone else does.
It is the case that many people are hurting, but many of them are on financial aid. We essentially give financial aid to the bottom 95 percent of American income distribution, although it depends on assets. Some people will say that if you’re going to have very generous aid to a wide range of Americans, then the people really at the top could probably pay an extra $1000 on the sticker price without it being painful.

You mentioned yesterday that one area of flexibility is the need-blind for policy for international students. How concrete are plans to change that?

It’s amazingly expensive. Of 1500 private colleges and universities, maybe 35 are need-blind for domestic students. Of those 35, fewer than 10 are need-blind for international students. It’s a natural thing to look at. I love to say that we take the best students in the world regardless of family circumstances. So now we could, I suppose, go back to the time when we would say we take the best students in the U.S., Canada, and most of the islands in the Caribbean regardless of family circumstances. But the answer to that is to see how bad things go. At a $1.8 billion dollar endowment, you don’t even think about it. At $1.3 billion, everything is on the table.

I’ve got to believe that over these next couple years, half of the 35 schools are going to get rid of their need-blind policies in favor of being need-aware. Are we going to be in that half? I don’t think so. It tests your institutional values.

Speaking of other schools, do you know how other NESCAC schools are responding to the financial crisis?

There are a number of letters that have been written now and every day a few more letters come out. There are very different situations, with very different things to say. I’ve got at least 100 different responses to the one that I sent – some parents, a couple students, mainly alumni. The most gratifying thing was that all but a handful of them were very positive. Some said that this is a time when we need to double our support of Williams because in tough times, communities come together. There were two that were really angry – asking how Williams could go bankrupt.

One of the biggest confusions was the idea of a small increase in the number of students. I’ve answered that at least 15 times trying to explain the difference between marginal and average costs. Yes, we spend on average about $90,000 to $100,000 on every student, so the average revenue is far below the average cost. But if you know economics, and if you really have rooms that are meant to be doubles that are now singles, as we now do, and if you really have some classes that are under-enrolled, and could easily go from eight kids to 10 kids, then the marginal cost may not be zero, but it’s relatively low, and the marginal revenue – if you have 20 kids, right now 10 will pay $50,000, and the other 10 will pay 20 percent, and you just made $600,000. That’s what we save in a whole year of not hiring faculty.

One of the things that was in an earlier draft of the letter – this was draft 17 – was that we were already thinking about a really small increase. When you admit rate gets below 17 percent, it’s natural to start thinking about whether should we constrain the gift of a Williams education as severely as we are when we all know that the next 1000 kids who are wait-listed are virtually as good as the 1000 kids who are admitted. If you have the capacity, and we’re holding on to faculty, it’s kind of crazy not to grow the student body a small number. If it’s 20, that could be five a class, so we can go to 543 students per class and no one would notice. Do that for four years and you have $600,000 dollars at the end.

You could do 20 in one year, and then 20, 40, 60, or 80. I don’t think I could support that; I think we would really feel that. But probably a few more kids is not a bad idea. Now that we could use a couple bucks, we could see more reason to do it. We’re not going to jeopardize the educational experience of the students. This is about the students, and we try to protect the future generations of students, faculty and staff. We’re not going to protect the future unduly on the backs of current generations.

At the last faculty meeting (Oct. 15), you talked about the need to assess Williams in New York (WNY) on its intellectual merits and not on its financial solvency. Is that now a criterion for you?

What I tried to say is that there are a lot of folks whose job is to make these tough budget decisions – those of us in Hopkins Hall, the Committee on Priorities and Resources and others. And when you get the faculty together, this is what we really need them to figure out: is this a program that we’re proud of academically, or could be proud of academically? And then we can crunch it out and see when we could raise money. Perhaps at the November meeting, some faculty may say, “I feel that we can fix it, but it’s not worth it financially. I’d rather have my program supported.” I wish we didn’t talk that way, but are we more likely to talk about it that way in November? Absolutely. I’m going to say again that I’d prefer them to think more about where it is academically and where it could be.

I talked to the chairs of departments yesterday, and – we’ve been running simulations about what the endowment would be based on. We look at larger percentages – a 5 percent decline, 10, 15, 20, 25, [or] 30. You can’t sustain expenditures when you lose that percentage of your wealth almost overnight. I wish we had a better idea of how much the endowment will be down next July 1. The volatility is just extraordinary. Now, what are the scenarios we should run to figure out what the most reasonable outcome would be? We outperform world markets and benchmarks, but I can just imagine what’s going on basically everywhere else. We have the 10th highest endowment per student in the country out of 4000 colleges and universities.

Is there a chance also that Williams would reevaluate the decision to re-implement Williams in Africa (WiA)?

I just saw the latest plan, and it’s not going to cost us a lot of money, and it’s a really interesting program. We’re waiting to see what the CEP thinks. A couple people said maybe we can have a kind of WNY that is a version of WiA – just as the students in Cape Town are students at the Economic Policy Research Institute, those in New York could be students at Columbia, taking advantage of alumni connections too. WiA doesn’t cost a lot of money, but it takes advantage of the people we have there already. But I like having a presence in New York. It’s an incredible city, and we have incredible strength in that city in terms of alumni and friends. My view is that if you just pull out of it, you might be missing an opportunity.

Is there also a possibility that Williams could scrap construction projects like Weston field if the prices steepen and the economy worsens?

We made a one-year decision. The problem is that the foundation under the track has eroded. We spent a lot of money redoing the track a few years ago, but we did that knowing we’d only get a couple years out of it. I’m much less worried about frills like new bleachers, bathrooms and concession stands than the health and safety of our athletes. People wonder why we do this for four home games a year, but it matters for the 75 football players, and also men’s and women’s track, field hockey and men’s and women’s lacrosse. Having two turf fields with lights will ultimately free up the field at lower Cole for JV sports, intramurals and for the town. It’s a really important project, one that has made me as excited as I’ve been about Paresky, the North and South Academic Buildings, Sawyer and the ’62 Center. We could solve a lot of problems with that $17.6 million. We worry about staph infections at Cole Field House, which never seem to end, we worry about the safety of the track, we worry about people throwing javelins and hitting each other; it’s really dangerous down there. But even about football, I hate hearing from the parents of opposing football players that their sons have to run the gauntlet, especially through the tailgates on Homecoming – it’s just awful.

I don’t know how low the endowment has to go for us to rethink that project and others. And I don’t know where the endowment’s going to go. It’s a year-to-year decision, but we have postponed it, not abandoned it.

Looking at the budget right now, do you see and “frills” that could be eliminated fairly painlessly?

I think that we’re going to need input from faculty, staff and students about that. Your priorities become very clear at times of financial stress. It was interesting that all three groups that I talked to [last Wednesday] said there’s probably some fat there, not that it’s completely wasted, but it’s not muscle and bone. I can’t immediately tell you the things that are easiest to cut out, but I think the students can give some serious input. I don’t know how much we saved not having lobster at the harvest dinner, but maybe that allows us to make bigger investments, or add to the speakers budget; there are a lot of trade-offs.
This year, our budget is set at 5.2 percent of the endowment. That’s respectable, close enough to 5 percent, and it allows us to do business as usual. But every dollar we save this year is going to be another dollar for next year. And next year’s going to be tough – [the avail rate] is probably going to be back up at 7 percent of the endowment again. It went up for a couple years in the past, but they had a plan to bring it back down. They had a tough plan too, to keep it at 7 percent, if you know what happened here in the early 80s: all the row houses had their own dining halls and their own staff, but they closed them all and kept five. Maybe we should close a couple of the dining halls, I don’t know.

Do you anticipate a need to shrink student organization and club budgets for the coming years?

I think they did in the early 80s, but I’m [not sure]. There are different ways you can save money. You do 1000 cuts, taking a little bit out of every budget, or just try to jettison certain larger items. I prefer the latter. It’s going to be a scalpel, not a blunt instrument. Now if the endowment goes down to $500 million and we lose three-quarters of our wealth, come back to me. It’s easy to cut everything the same, but I think we know enough about priorities at Williams College not to cut the important things.

What about cutting departmental budgets?

That’s a lot of money. Program budgets are a substantial percentage of our expenditures and the compensation budget is about 50 percent of our expenditure. In the immediate future, it’s hard to believe we’ll be doing raises above inflation. We try to raise the standard of living and equalize purchasing power. We might not be able to do that, so we’re going to have to find money. The art museum was going to buy a big painting, they’re probably going to have to wait a little bit; we were going to do some technological upgrades to enhance our ability to teach with technology, we’ll have to slow that down; the economics department has planned a big conference-speaker series, we’ll probably have to moderate that. I can’t see us increasing program budgets. I don’t know how much we’d have to cut, but that’s what we have control over, and depending on the economic situation, we’ll decide if we have to make dramatic cuts or just minor postponements.

Do you think you’ll be more likely to turn to the Early Decision pool, knowing that you can probably bolster the budget that way?

No. If you’re need-blind, you figure out how much you’ll spend for financial aid. It’s not a control variable, it’s just a number you’re presented with and you accommodate it with other expenditures. If things get desperate enough, I suppose we could be more pro-active about taking control over that, but there’s not a lot you can do unless you’re need-aware. I suppose you can pretend to be need-blind and not be, but that’s not the business of Williams College. We perhaps tend to be overly honest in explaining everything we do. We said, “hey, we’re going to go up a few students.” I could have easily said that we over-yielded. No one would know the difference, but it’s the nature of the way that we are here. We feel like we should be completely transparent. There are a lot of games that people play with financial budgets that we’re not interested in playing.