Financial Planning for 2020-21

Dear Williams community,

I want to start by thanking the more than 500 of you who participated in our recent virtual town hall on the plans for next year and the college’s response to the pandemic and its financial impact. I’m now writing to share some further details about our financial planning, including steps that we’ll take in the 2020-21 fiscal year to manage the impact of the crisis.

The Ad Hoc Committee on Financial Planning has been deeply engaged in understanding the severity of the financial shocks, the range of possible outcomes, and the steps that we can take to protect our highest priorities, while still responding responsibly to our changed financial circumstances. I am grateful to the extraordinary work of that committee and to the many comments that we received from the community that helped us define and protect our priorities and identify specific sources of savings.

One of the most important themes that we heard from all across campus was the importance of responding to the crisis in a way that would be least disruptive to the people—students, faculty, and staff—who form the heart of our college community.

Recent events have also driven home, again, the importance of investment in our mission and principles. For a school that values inclusion, this has raised the question of our commitments to support the struggle against anti-Black racism and other forms of hatred. Maud is deeply committed and working closely with Leticia Haynes, who is in conversation with local and national leaders in that fight. Her conversations are focused on what kinds of investments those leaders tell us will do the most to advance their work for racial justice and how the members of our community might be involved. Maud and Leticia will communicate with you about the outcome of those conversations soon.

More broadly, our focus on principles and people deeply informed all of our work and helped shape our decisions about spending in the upcoming fiscal year. Here are some details:

Our first step was to immediately freeze building projects that were either underway or planned. Now that the state has recently eased its public health limits on construction work, we’re restarting two such projects—the North Science building and Fort Bradshaw, the residence hall for our Graduate Program in the History of Art—that are at an advanced stage and are funded from so-called “restricted” funds (meaning the money can only be used for this purpose). All other capital projects will remain frozen. We also sharply reduced planned capital renewal expenditures, saving $5 million by postponing or canceling work that wasn’t essential to our mission, infrastructure, or people’s safety. Both building and capital renewal expenditures will be kept low until we’re more comfortable with the college’s long-term financial position and more confident about the wider public health and economic outlook.

After construction we turned to non-compensation spending. We asked the manager of every budgeted area of the college to submit a detailed proposal for how they’d achieve 5, 10, and 15 percent reductions in spending, and to explain what kind of impact those hypothetical cuts would have on their operations and contributions to our mission. This undertaking was the equivalent of an annual budgeting process compressed into about three weeks. I want to thank the innumerable managers, staff and faculty members who set your other work aside to contribute. The results helped us define a spending reduction target that would preserve our ability to do our most important work while yielding meaningful savings. Based on the recommendations from the committee, senior staff decided that the college will implement a 10 percent reduction across all Senior Staff areas relative to fiscal year 2020, amounting to an estimated $7.5 million in ongoing savings.

Since compensation makes up about 60 percent of the college’s annual spending, there was no way to address the crisis without looking at our compensation budget. However, given the importance that we collectively place on protecting staff and faculty positions, we devised a plan to achieve reductions in the total compensation budget through a combination of flattened salaries and sharp reductions in hiring. While the ideal would be to make no changes at all, this approach tries to diffuse the impact as much as possible while protecting jobs. The hiring freeze will include most new position requests and refilling of vacancies. As the economic outlook improves, we’ll begin discussions to hopefully restore merit increases and relax our strict limits on hiring.

Holding pay at current levels was an especially difficult decision since so many of you have put in extraordinary effort this year, on everything from strategic planning to the COVID-19 response. While we’re unable to recognize that fact through merit pay or bonuses for now, the college will track this work as we ordinarily would and hopefully recognize it once conditions improve. Altogether, these changes to salary and hiring generate an estimated $5.5 million in ongoing savings.

The college will of course continue to look for sources of more modest savings. In the meantime, these reductions to buildings, annual spending, and compensation will yield about $18 million in largely ongoing annual savings, out of an annual budget of $245 million.

While none of these changes was easy, this response will play a crucial role in helping us accommodate the decrease in the value of the endowment relative to our expectations, as well as projected decreases in both gift and net tuition revenues.

I’m truly impressed by how hard this community has worked to find ways of saving money while preserving our core commitments, and I believe this plan will help us navigate the near-future outlook. There are no guarantees, however. While endowment performance has recently recovered somewhat from the March 2020 lows—reason for guarded optimism, since the college depends on the endowment for over half of our annual operating budget—the pandemic and economic downturn have hit Williams families hard. We expect a meaningful decrease in gift revenues and a significant increase in the need for financial aid this year. My heart goes out to everyone affected. Meanwhile, like all schools, Williams is also being cautious about our projected fall enrollment. Nevertheless, based on the combination of prudent spending reductions, improved market outlooks, and our best models regarding the likely financial impact of various scenarios for fall 2020, Williams is in a promising position to navigate this phase of the crisis with significant but manageable sacrifices.

This year has been a powerful reminder of the difficulty of predicting the future and anticipating the full range of possible scenarios and outcomes, let alone their likelihoods. The endowment, in particular, represents an ongoing source of both essential support and also risk. That means we can’t guarantee that the cuts and responses I’ve described here will be the last. What I can promise is that we’ll continue to value and focus on our people no matter what the future brings.

The pandemic has presented us with a series of truly extraordinary challenges to our health, academic mission, and finances. In observing this community’s response, I’ve been deeply impressed by Williams’ ability to come together with goodwill, resolve, and thoughtfulness to make even the most challenging decisions. We won’t get everything right—no one will—but I’m confident that we’ll emerge from this crisis with our core mission and priorities intact. When we do, I’ll be eager to return to the work with you that until so recently seemed like it would define our year, including strategic planning.


Dukes Love
Provost and Class of 1969 Professor of Economics