Five years after the great recession, the college stands in good health. Our resources remain sufficient to support our core commitments to educational quality, affordable access for students from all backgrounds, competitive compensation for our employees, and well-maintained facilities. Prudent management during the crisis, which included cutting non-payroll spending on operations by almost 20% between 2008 and 2010, made this sound financial position possible. Spending has remained within those lower targets for each of the last three years. This reduction enabled the college to sustain a responsible level of asset use, despite beginning 2011-2012 with an endowment nearly $300 million smaller than originally projected.
The nominal value of the endowment has now returned to the level achieved at the beginning of 2007-08. But the real value of the endowment, adjusted for inflation, remains 10% below its peak while our reliance upon it remains as high as it has ever been. Each year the college spends $90,000 per student but the average student pays $33,000. The $57,000 difference, multiplied by 2,000 students, leaves a $114 million annual gap that must be filled by asset use and donations. Consequently, we rely on the endowment and gifts to provide 58% of every dollar we spend. The video below sheds additional light on Williams’ financial model.
To secure the college’s current level of excellence for future generations, we must maintain the real purchasing power of the endowment in perpetuity. This requires us to limit our annual spending from the endowment to between 4.5% and 5.0% of its total value. This year the endowment will contribute approximately $95 million (4.75% of just under $2 billion) directly to the college’s $197 million budget. But if the real value of the endowment were to decline and we did not remain vigilant about spending, we would face difficult choices about our competing priorities. To avoid putting ourselves in that position, we are committed to sustaining the budgetary discipline established in the last three years.
The college’s successful navigation of the financial crisis has enabled us to preserve the scope of our educational programs, to retain our talented faculty and staff, and to sustain our fundamental commitment to financial aid. None of this would be possible without the extraordinary success of the alumni fund, which contributes more than $12 million each year in unrestricted gifts that directly support every area of college life and operations.