College manages revenues, expenses to plan for future

This is the first installment of a series on the College’s finances, which will address the college’s current income and expenses. Subsequent parts will be trends, projections, a comparison to peers and the ways the college manages its money.

The College held almost $2.7 billion in assets as of June 30, according to an independent auditor’s report, the College spent $218 million in fiscal year 2015 (July 1, 2014 to June 30, 2015), about $97,800 per undergraduate.

The administration of those funds determines what projects the College will undertake, which new staff will be hired, how high tuition will be and many other items.


Spending out of the endowment was the largest source of revenue last year, providing $92.5 million. The College spends approximately 5 percent of the value of the endowment each year. That five percent is calculated from the average value of the endowment over the course of the last three years rather than the current value, to give a more accurate valuation of the endowment, less influenced by short-term fluctuations.

The College can spend 5 percent of the endowment annually as long as it can return at least 5 percent real in the long run. For this to happen, the net worth of the endowment must increase 5 percent more than the rate of inflation. For example, if the value of the endowment increased from $100 to $103 in a period in which there was three percent inflation, the real return would be zero, as $103 is worth the same as $100 was at the beginning of the period due to inflation. If the value of the endowment increased to $108, it would have earned 5 percent real. Absent any other factors, if the College spent five percent of the endowment each year and it earned 5 percent real in the long-run, the real value of the endowment would be constant and its nominal value would increase at the rate of inflation.

“We need the endowment to be here forever because we want this place to be here forever,” Vice President for Finance and Administration and Treasurer Fred Puddester said.

The real value of the endowment increases when  alumni donate to it and when the Investment Office earns more than five percent real.

“The investment office has done better than 5 percent above inflation, especially recently … But I think we’re really comfortable with 5 percent. You have to be thinking 40 years out, and in today’s environment you have to be conservative to keep the endowment in perpetuity,” Puddester said.

The next largest source of revenue is tuition and fees, which yielded $79.3 million in fiscal year 2015, or about $38,800 per undergraduate. The comprehensive fee last year was $61,070. The difference the comprehensive fee and the revenue per student is due to financial aid. Admissions are need-blind for domestic applicants, so the College does not set a financial aid budget, although Finance and Administration is able to estimate how much money will be needed for financial aid using models, according to Puddester.

The other significant source of operating revenue is gifts and grants, which totaled $31.6 million in fiscal year 2015.


The College’s largest expense is employee compensation. The Office of the Provost reported spending $123 million last year on salaries, wages and benefits. The Office of Communications reported that the College has 346 instructional faculty. In 2012-13, full professors at Williams earned an average of $178,953 in total compensation, associate professors $121,287 and assistant professors $101,761, according to a report from Middlebury College.

“We spend 60 percent of our annual budget on compensation because we believe that the best education happens when you surround talented students with large number of talented teachers and mentors. It makes possible a rich curriculum, small classes, and individual attention and a whole host of support outside the classroom. That high-touch approach to undergraduate education is expensive but also what makes Williams great,” Provost William Dudley said.

The College’s 18 officers, directors, key employees and highest compensated employees earned, in total, just shy of $7 million in fiscal year 2014, according to the Internal Revenue Service form 990 filed by the College.

The next largest expenditure is managers’ budgets, or the operating budgets, at $46.5 million.

“Managers’ budgets include all the stuff: enegrgy, electricity, food, travel, books, supplies. It’s everything our students and faculty need to do their work,” Dudley said.

The budget for capital renewal, mostly building maintenance, was $12.5 million.

The College also reported spending $20.2 million on debt payments. The College owes $339.2 million in bond payments as of June 30, 2015. Puddester said the College believes it can afford to spend up to 10 percent of the operating budget on bond payments, as it did in the last fiscal year. Issuing bonds allows the College to fund projects without spending down the endowment and spreads the cost of capital improvements out over the lifetime of their use, for example, 30-year paying for a new library that is used for 30 years.

The College takes on debt to finance capital projects, such as major construction and renovation projects. According to Puddester, capital projects are often paid for in varying part by donations. The $4.5 million renovation of the Log, for example, cost the College nothing, as alumni donated all the necessary funds. The $23 million renovation of Weston Field, on the other hand, required the College to issue $7 million in bonds.

“The president [Falk] tries not to cannibalize gifts from one project to the next,” Puddester said. “The people who gave to the Log aren’t saying, ‘I was going to give to financial aid but I really like the Log so I’ll divert my money there.’ Those are people who were really interested in the Log. And some of them have or will give to the College in other ways too. Some donors are more interested in some things than others.”

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