What’s New
With federal funding in flux, Swarthmore College is taking a novel approach to financial planning.
The liberal-arts college’s Board of Managers approved a budget that only covers the first three months of the next fiscal year, which starts July 1, “to avoid overcorrecting before we have a clearer picture of the conditions shaping the college’s finances,” Swarthmore president Valerie Smith announced Monday in a letter to the campus.
Those conditions, the president wrote, include a hefty endowment tax proposed by Congress, threats to student visas, and the loss of federal research funding. In response to these headwinds, several other colleges have enacted hiring freezes or reduced their faculty ranks. A few Ivy League colleges, which are squarely in President Trump’s sights, are considering selling bonds.
Phillip Levine, a professor of economics at Wellesley College, said he has never heard of a college adopting a wait-and-see budgeting approach like Swarthmore’s. “It’s a creative solution,” he said. And “idiosyncratic of the times that we are currently living in.”
The Details
Swarthmore stands to pay a 14-percent tax on its endowment, roughly $20 million a year, if Congress were to pass a proposal advanced by the U.S. House of Representatives’ Ways and Means Committee, Smith wrote Monday. That sum represents nearly 10 percent of Swarthmore’s operating budget — about $220 million last year.
The proposal is one part of a large piece of Republican-sponsored legislation that would make permanent the tax cuts Trump signed in 2017, and enact new restrictions on Medicaid, among other measures. Republican lawmakers have said they hope to pass the budget bill this summer.
The federal budget is supposed to be finalized by October 1, when the government’s fiscal year begins, and also the date Swarthmore’s interim budget runs out.
By October 1, Swarthmore and other colleges can make more definitive budget choices. If a more expansive endowment tax becomes law, it “will require significant costs in many aspects of college operations at all affected institutions,” Levine said.
As a small liberal-arts college, Swarthmore doesn’t rake in loads of federal research funds. Swarthmore is aware of just two grant cancellations, The Phoenix, Swarthmore’s independent student newspaper, reported last month. Systematic cuts to federal research spending, such as the attempted caps on indirect costs on grants at 15 percent, could take a comparatively small bite out of the college’s budget. (Those policy changes, at the National Institutes of Health and the National Science Foundation, have been paused as a result of lawsuits.)
Smith also noted a possible hit to enrollment caused by the government’s cancellation, then apparent restoration, of legal status to thousands of international students nationwide this spring. “The federal government’s threats to student visas might prevent some of our first-year international students from obtaining visas in time for the fall semester,” she wrote. About 15 percent of the college’s roughly 1,600 students — or around 240 people total — are international students, according to the most recent federal data.
Smith also referenced the potential loss of “several million dollars in federal financial aid.” A spokesperson for the college said that the president was referring to uncertainty surrounding Pell grants and federal work-study programs. Swarthmore is among the 60 colleges that have been named by the Trump administration for alleged Title VI violations. But the administration so far has refrained from attempting to terminate financial aid to institutions it has challenged directly, such as Harvard University.
What to Watch For
While a three-month budget buys the college more time, it can also create headaches for administrators and faculty members trying to plan for the academic year. “It’s problematic that they can’t plan, but it’s not their fault,” Levine said. The interim budget means that decisions about faculty pay increases will be punted, but Smith said that the college will not stop hiring for open positions. The board will adopt a full operating budget this fall.
Ruth A. Johnston, vice president of the National Association of College and University Business Officers, called Swarthmore’s move a “wonderful idea.” She said a short-term budget is another tool for private colleges that have the freedom to make their own budget timeline. “There’s no reason not to do it,” she said.
Levine noted that the end of the semester may mean more colleges will announce other out-of-the-box approaches. He added that now is the moment for leaders to step back, see the storm that’s approaching, and ask, “What do we do?”
