Endowment Falls Further

, by Aviva Markowitz, Staff Writer

At the end of January, Wesleyan’s endowment was $488 million dollars, a thirty two-percent loss since its peak in late 2007.

In terms of long-term budget projection, President Michael Roth has stated that for every $25 million decline in the endowment, $1.75 million has to be taken from the budget. As such, decreases in the endowment have very real and immediate as well as long-term consequences for the budget. The budget, which is approximately $208 million, will drop to roughly $188 million next year. This 10 percent budget cut will come as an extra burden considering the fact that the budget is already down 22 percent for this fiscal year.

However, according to the Wesleyan Student Assembly (WSA) report, the University was able to reduce the budget deficit by $5 million by reworking several aspects of the budget. Three million dollars had been budgeted in debt service payments.

“We would have used [the $3 million] to pay for the debt service for the new life sciences building,” said John Meertz, vice president of Finance and Administration.

Plans for the new building have been postponed so the money dedicated to debt services can be used to help with fiscal problems.

Another million dollars relates to an interest rate swap. Interest rate swaps are a group’s exchanges of a stream of interest payments for another group’s stream of cash flow. They are often used to profit from changing interest rates.

“The finance people saw some changing ratios in the stock market which will save us a million dollars on our existing debt,” said President Michael Roth.

The Lehman Brothers bankruptcy caused the University to take measures to protect itself from interest rate variability, effectively lowering the interest payments by one million dollars annually.

The last million dollars was reworked by going back to all of the departments of the University and asking them to reduce or eliminate certain budget items. These actions, in conjunction with previously announced cuts such as staff and faculty salary freezes and the increased class size have allowed the University to balance it’s projected budget for the 2009-2010 academic year. That budget will be finalized in May.

  • David Lott, ’65

    And yet Wesleyan continues to take 5.5% from endowment to fund current operations.

    Assume that Wesleyan continues to take 5.5% per year for the next five years. Assume further that the rapid decline in asset values ends, but there is a more moderate decline of 4% per year for each of these years. (A 4% yearly decline for five years is well within the realm of possibility.) That translates to a 9.5% decline per year.

    At the end of the five years, the endowment would be about $296,252,000.

    All current students should kiss a trustee whenever possible. The trustees are endangering the financial future of the university in order to keep from changing too much while you are around.

    On the other hand, if you care about the University’s future . . . .

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