Target of $73M set for 2010-11 endowment use

At the recent October meeting of the Board of Trustees, a target of $73 million was set for spending from the College’s endowment for 2010-11, in contrast with the $79 million allotted for this year’s budget.

According to the recent report released by the Investment Committee, spending from the endowment has usually accounted for about 40 percent of total operations expenditures, although Provost Bill Lenhart projected next year’s total budget to land somewhere in the range of $204 – 205 million.

According to Lenhart, the October Board meeting is usually dedicated in part to a revision of the current year’s budget and discussion of the budget for the coming two years. “The net impact of all revisions this year was modest and the revised budget was approved,” Lenhart said.

In contrast to this year’s budget, which represents a 5.6 percent spending rate ($79 million on $1.412 billion, the endowment value calculated at the beginning of the fiscal year), next year’s spending target will necessitate an asset use rate of around 5.3 to 5.4 percent, with the following year targeted for 5 percent.

However, the actual figures will depend on the market performance of the College’s endowment. “If you follow the recent performance of the markets, you’ve probably noticed that while they are trending upwards, they are still volatile, with frequent relatively large positive and negative swings,” Lenhart said.

To account for this market volatility, the College is moving from an asset use metric based on percentage to an absolute dollar amount for endowment spending. “Over the past year, and currently, we have modeled a range of investment return scenarios and have used them to establish asset use goals,” Lenhart said.

The College is currently looking into ways to accomplish the reduction in spending. “Our approach has been, and continues to be, to reduce expenditures in a controlled fashion such that we minimize the impact on the quality of the education we offer our students, while both ensuring that a Williams education remains affordable to every student we admit and protecting our current employees,” Lenhart said.

At last week’s faculty meeting, Lenhart broached several options for bridging the spending gap, including reevaluations of faculty compensation, faculty benefits, the College’s commitments to loan-free financial aid packages, need-blind aid for internationals and spending on sustainability and the Williamstown community.

Another issue brought up at the meeting was the continued delay of the ultimate phase of the Stetson-Sawyer project: the construction of the new library, which was originally slated to begin last year.

At last week’s meeting, Lenhart expressed doubt that construction would resume in the next year, a sentiment echoed by Dave Pilachowski, College librarian and chair of the Stetson-Sawyer Committee.

According to Pilachowski, a decision will have to be made at or before the upcoming April Board meeting in order for construction to begin next fall. “The Board will be making the decision on resuming the project,” he said. “It seems highly unlikely at this time that the decision will be made to authorize construction in April.”

Pilachowski said that a significant upswing in market performance would be necessary in order for the project authorization to occur.

“For this to happen, we’d need to see a more advantageous alignment of affordable regional construction pricing, a reduction in the cost of borrowing money, and significantly more room in the College’s operating budget to absorb the increase in interest payments that will be generated when we launch the project,” he said.

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