Budget projections look bleak

By Diego Ruiz

Macalester’s budget projections have recently taken a somewhat distressing turn.In as short a time as three years, the college’s revenue may not be enough to meet its expenses, said David Wheaton, vice president for administration and finance.

To address this, the college is creating a presidential task force made up of professors and administrators that will “look forward and try to frame options that the President can choose from,” Wheaton said.

The root of the projected shortfall comes from two simple sources affecting Macalester, as well as many other colleges: rising staff expenses and dropping revenue from the endowment and tuition caused by the wider recession.

“This issue is not unique to Mac, or small liberal arts colleges,” Wheaton said. “This is an industry-wide phenomenon.”

Expenses typically rise about four percent each year. Most of this rise is due to increases in staff salaries and the cost of providing benefits such as health care, he said.

In order for Macalester to meet these expenses and balance its budget, revenue must also rise four percent a year. Endowment returns and tuition are the two principle sources of revenue for the college.

Both main sources are projected to slow in the future.

The endowment dropped precipitously in 2008 in the wake of financial markets dropping. Wheaton said Macalester’s endowment did not fall as much as other colleges’ because of diversified investments and a conservative strategy.

He said he expects the actual amount of money in the endowment to increase, although that may not be reflected in its returns.

“We’re pretty sure that the endowment is definitely going to rise over the next few years,” he said.

When budgeting, Macalester averages the previous four years of returns on the endowment to insulate the college from unstable financial markets. Future averages will take into account more years with a lower endowment, including 2008: thus, revenue from the endowment will be lower in the near future.

The budget crunch is expected to get serious in a few years, when the current large sophomore class graduates and there is much less tuition revenue overall.

Wheaton stressed that the college is currently in fiscally sound condition, and it was too early to start considering specific cuts or fees.