Dear Students, Faculty and Staff,
We are writing today to thank those of you who participated in the FY23 planning process and to summarize the budget that was approved by the Board of Trustees. Coincidentally, this budget is the last of Dukes’s time as Provost and Mike’s first at Williams as the Vice President for Finance and Operations. We are immensely grateful for the hours and hours of thoughtful and collaborative planning, detailed analysis, teamwork, compromise, and patience that went into the process this year, as is the case every year.
A number of themes provide important context for the FY23 budget and longer-term planning:
- The strategic plan was released last fall and many areas of the college made compelling cases for strategic investments, some of which can be incorporated into the near-term plan of the FY23 budget and some of which will be incorporated into later years.
- Last year’s endowment performance was strong, at 49.9%. Market returns have been disappointing this year, however, and we will likely lose some of those gains in FY22. We are paying close attention to the increased uncertainty about investment markets heading into FY23.
- Inflation has presented ongoing challenges to budgeting and financial planning for the college, just like it does for each of us as individuals. We are seeing the effects of inflation in almost every aspect of the college’s operating budget, including food, utilities, construction materials, and compensation.
- Interest rates are increasing as the Federal Reserve takes steps to counter inflation. While the interest rate on most of the college’s debt is fixed, rising interest rates may make future borrowing and capital projects more expensive.
- COVID continues to present challenges, as the campus and the world respond to an ever-changing pandemic.
The FY23 operating budget includes operating revenues of $124 million, an increase of 9% compared to the FY22 budget, and operating expenses of $282 million, an increase of 12% over the FY22 budget. The difference between revenues and expenses must be covered by a draw on the endowment.
To make sure we don’t draw down the endowment too quickly, in ways that could hurt the college in the future, we always calculate the average value of the endowment over the last twelve calendar quarters. Then we aim to keep the draw to less than 5% of that average. In FY23 we expect to draw $158 million, which is 15% more than the budgeted draw in the previous fiscal year. This is an unusually large increase for Williams. In the long term, expense growth cannot exceed revenue growth by this much. But when we combine the strong investment returns last year, plus needs arising from the implementation of strategic initiatives, inflationary pressures, and the challenges of returning to normal operations after severe COVID disruptions, we are confident that this level of growth in FY23 is sound.
Here are some key elements of the FY23 budget that may interest you:
- The Board approved a 3.4% increase in the comprehensive student fee, to $77,300.
- This spring we introduced the nation’s first all-grant financial aid program. This eliminated loans from the college, summer earnings, and work study from all financial aid packages. To replace these funds, we project a need to increase the student grant aid budget by more than $5 million for FY23.
- $171 million is budgeted for faculty and staff compensation (salaries and benefits), representing 60% of the college’s total budgeted expenses. This is an 11% increase compared to compensation in the FY22 budget. It includes the 3% midyear increase that was provided in January 2022, as well as the cost of new positions and raises for current employees. The pay increase for FY23 is structured to give a higher percentage increase to employees at the lower end of our pay scale.
- In regards to new positions, we budgeted for a 1.7% increase in staff, including hires to support the new Center for Teaching, student services and programs, finance and operations, the Office of Institutional Diversity, Equity and Inclusion (OIDEI) and Athletics.
- Finally, the budget includes a 15% increase in departmental managers’ budgets to $58 million total. This amount includes approved new initiatives, inflation expectations, costs of returning to normal operations, and increased demand for some college services. Among the initiatives for FY23 are the increases in funding for faculty research, as well as grants and fellowships; energy master plan funding; residential life stipends; programming support for OIDEI and the Davis Center project; and investments in core maintenance of college facilities.
Altogether, the budget reflects a combination of core priorities, strategic initiatives and our response to a variety of economic and health challenges. It also reflects careful stewardship, creativity and leadership across all areas of the college. We are truly grateful for all of the work that went into the budget process and for the focus on the core mission of the college as a living and learning community. As always, we will be happy to answer your questions about the budget process, or to hear suggestions for how we can make the process more effective or clear.
Dukes Love, Provost and Class of 1969 Professor of Economics
Michael Wagner, Vice President for Finance and Operations