BY MOLLY WESTON

In print | Published March 18, 2010

Over the past several weeks, this column has explored the income side of the college’s budget — how tuition, fees, endowment spending and annual fund donations come together to fund over $100 million worth of spending every year. This week, we’ll move to the spending side to find out what all that money really gets us. However, before we dive in, it is worth taking a brief moment to appreciate a major development in the college’s financial future that occurred since the last column was written.

First, a bit of background about the budgeting process is useful. Each year, the Board of Managers adopts the college’s budget for the following budget year at its spring meeting. For the 2009-2010 budget, the Board adopted $8 million in spending cuts from the previous year, as recommended by the Ad Hoc Financial Planning Group. Because the value of the endowment and the state of the economy overall remain down compared to earlier years, the Financial Planning Group again advised the board on the 2010-2011 budget.

For the 2010-2011 budget, the group recommended a second “$8 million plan.” This did not represent an additional $8 million in cuts on top of the 2009-2010 reduction (i.e., it did not reduce spending from $107 million to $99 million). Instead, this plan offered a framework for permanently adjusting the college’s spending in light of the new economic and endowment realities to replace the temporary reductions of this year’s budget. The plan, adopted by the Board of Managers in December 2009, combined planned increases (and changes in) fundraising, slightly raised enrollment targets, lowered (but not permanently ended) capital spending, reduced academic and administrative department budgets, slight changes in financial aid, changes in faculty/staff benefits and compensation, and other measures. Those changes, however, only covered $6.9 million of the needed $8 million adjustment, leaving the remaining $1.1 million to be determined through the college’s normal budgeting process.

We now know how we will cover most of the $1.1 million per year gap for the immediate future. At its most recent meeting, as reported by The Phoenix on March 4, the Board of Managers committed as a group to donate $1 million for each of the next three years, giving the college time to carefully weigh where to make further permanent cuts. This effort was led by Emeritus Chair of the Board Eugene Lang ’38, who personally pledged $700,000 per year to this end. A second major pledge from the Board came from another familiar last name: Gil Kemp ’72, who was largely responsible for the building of David Kemp Hall (named after his grandfather). While Lang, Kemp and the other Managers will not prevent spending cuts, their generosity will make those cuts hurt a great deal less in the near future.
Understanding the most recent cuts brings us back to our original topic: Where do those $108.6 million (the total budget spending for the 2010-2011 fiscal year) go? As reported in the 2010-2011 Operating Budget, released by the Finance Office in February, the single biggest category is compensation, which will make up $67.9 million or 63 percent of spending. Compensation does not, however, only include salaries, as faculty and staff benefits of various kinds are also included under this number. This increases the costs of compensation, particularly as the costs of health insurance premiums have tended to rise faster than inflation.

While further breakdown of expected 2010-2011 compensation spending is not yet available in published reports, the most recent college financial report states that in the 2008-2009 budget year, when faculty and staff compensation made up just 57 percent of the budget (though absolute spending, due to that year’s larger budget, was essentially the same at $66 million), faculty compensation represented 25 percent of overall expenses, while staff compensation made up 32 percent of expenses.
Non-compensation departmental expenses make up the next largest share of the budget at a project $22.4 million, or 20 percent of the total budget, for 2010-2011. This represents a virtually identical absolute spending commitment to this year’s spending, though a slight decrease in percentage terms (from 21 percent) given the growth in the size of the overall budget. What exactly do non-compensation department expenditures cover? The “departments” in question include not only academic departments, but ITS, admissions, the library system, dean’s offices, athletics, human resources, dining services, EVS, public safety and the Health Center, among others. Therefore, this section includes most of the physical objects the college buys, from books, lab supplies, periodicals and paper to athletic equipment, medicine, cleaning supplies and food. It also includes costs like printing, mailing, on-campus transportation, travel, payment for outside speakers and performers, and much more.

The third major category of college spending is debt service, totaling $11.8 million or 11 percent of overall expenditures in projected spending for 2010-2011 (down slightly from $11.9 million in 2009-2010). This is reflective of the way the college finances some of its spending, particularly on capital campaigns (such as building projects), through issuing bonds via the borough of Swarthmore. For example, the proceeds from the bonds issued in 2001 helped build the science center and Alice Paul as well as other big projects. As of June 30, 2009, the college had a total outstanding debt of $180.8 million, an amount equal to approximately 16 percent of the value of the endowment. Servicing this debt (paying back those who bought Swarthmore bonds) is a necessary part of the college’s ability to continue issuing bonds for major projects and reflects an overall responsible borrowing practice. For 2010-2011, debt service will include projected payments against the principal of $3,275,000 and against interest of $8,349,000; the seeming skew reflects the fact that no bonds will come due next year (the next year bonds will mature is the 2013-2014 budget year).

The fourth and fifth categories are both comparatively small. Capital expenditures, at $3.0 million, will represent just 3 percent of the budget, up from 2009-2010 ($2.5 million or two percent) but down substantially from 2008-2009 ($10.8 million or 10 percent). Cuts to capital expenditures, such as building and renovation projects and technology, have been a major part of the college’s short-term budget adjustment strategies and their impacts will be discussed at greater length in the next column. Finally, utilities such as heating and air, electricity, and phone services make up the final $3.5 million and 3 percent of next year’s budget.

As always, I’d love to hear from you if you have questions, comments, or concerns about the budget, the endowment, or any other related issues. Please join us in two week as the column explores what it will mean for Swarthmore to live on less as we discuss cuts to this year’s budget and the permanent adjustments for next year’s budget.

Molly is a senior. She can be reached at mweston1@swarthmore.edu.

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