Endowments are being hit hard at all Five College schools as the national economic outlook worsens.
UMass' endowment dropped 5.7 percent to $158 million. However, the University's draw from the endowment will not feel a squeeze from the current economic situation until next year, according to University spokesman Ed Blaguszewski.
"For this year's budget (fiscal 2009), the campus will draw $5.8 million from the endowment, based on a formula. That is approximately 0.6 percent of the campus' operating budget."
"The payout is based on the endowment's investment performance for a previous period, so this year's budget will not be affected by current variations in the stock market and other investments. However, that may change next year, depending on the performance of investments at the end of this fiscal year."
UMass is already facing difficult financial decisions because of statewide budget cuts. Chancellor Robert C. Holub said in an e-mail to students and faculty that he wants to make energy conservation a priority as he looks for ways to reduce spending on campus, in addition to a number of other cuts.
Holub said the campus community should look at energy usage and consumption "not only to cut costs, but to do our part to preserve and protect the environment."
Amherst College was hit hardest, with a 25 percent decrease in its endowment. The endowment had an estimated value of $1.7 billion on July 1, which decreased by $425 million.
Despite these losses, college officials remain confident in the college's long-term financial stability.
"The fact that careful investment decisions were made during boom times will help see colleges through the rainy days that appear to have arrived." said Amherst College President Anthony W. Marx in a statement.
In response to the decreased endowment, Amherst College, like the other colleges in the Five College consortium, is evaluating projects on campus and looking for ways to reduce non-essential spending, including initiating hiring freezes.
Amherst College officials have already decided to postpone renovation and expansion of the Lord Jeffrey Inn, which is owned by the college. The project will be re-evaluated in June 2009.
Across the Connecticut River in Northampton, Smith College is seeing similar losses. Its endowment has dropped 20 percent to $280 million. The endowment provides one third of the college's operating budget, according to Smith President Carol Christ.
$46.8 million of Smith College's endowment funds were invested in the CommonFund for Short Term Investments, overseen by Wachovia Bank. Wachovia is one of the many banks that failed in late September.
On Sept. 29, the assets in the CommonFund were frozen, affecting the investments of 1000 colleges and universities, Smith and Mount Holyoke Colleges among them. Since mid-October, Smith College has had access to 52 percent of its assets in the CommonFund.
To make up for its reduced endowment, Smith College is tapping into some of its reserves. Christ warned this was only a temporary solution.
"The use of reserves may buy some time, but will not likely allow Smith to avoid difficult decisions about base budget reductions," she said in a statement.
Christ wrote in a letter to the campus community that the college anticipated a $5 million reduction in the operating budget for the next school year, and a $10 million reduction in the operating budget for the 2010-11 school year.
"In the current economy, we must anticipate that endowment income will only be one part of the budgetary challenge." Christ said.
Down the road in South Hadley, Mount Holyoke is also seeing the effects of a weakened economy. Their endowment dropped 11.6 percent to $658 million. Officials say the drop hasn't caused a serious impact.
"It hasn't cost us a serious problem. The impact will be felt gradually over a number of years." said Jan Albano, associate treasurer at Mount Holyoke.
Albano explained that although some of the operating budget was invested in the CommonFund, the effect on the college has been minor since only $2 million was invested.
In a statement to the Mount Holyoke campus, President Joanne W. Creighton tried to ease concerns about the college's financial stability.
"Our spending guidelines allow some flexibility that will cushion the effects on our operations" she said.
Hampshire College, which, along with UMass, has significantly smaller endowments than the other colleges in the consortium, also lost money. Hampshire's endowment fell 6.4 percent to $41 million.
All the Five Colleges emphasized the importance of providing enough financial aid for their students, despite an economic recession. While spending cuts will have to be made, all five schools said that they would do their best to provide students the same financial aid benefits.
"We remain committed to preserving financial aid to our continuing and new students," said Hampshire College president, Ralph Hexter in a statement, "and we recognize and honor the sacrifice many students and families make to meet the costs of a Hampshire education."
Niina Heikkinen can be reached at nheikkin@student.umass.edu
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