Dear Students, Faculty, and Staff Members,

Each May, the Board of Managers carries out one of its primary fiduciary responsibilities: approving the College’s operating budget. This is a complex task under normal circumstances; this year, it was even more complicated due to the confluence of uncertainties we currently face. For instance:

• 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.
• The federal government has already terminated several research grants affecting Swarthmore faculty. The ongoing uncertainty around federal funding has forced us to make contingency plans to help us weather the potential loss of additional research funding, as well as several million dollars in federal financial aid.
• And the House Ways and Means Committee has introduced a bill that would drastically increase the tax some colleges and universities pay on endowment earnings. For Swarthmore specifically, the proposed legislation would raise the tax Swarthmore pays from approximately $2 million a year to $20 million, or perhaps even $30 million annually. More detailed information on the endowment tax is below.

Interim Measures

No one knows what impact these and other factors will have on the College’s budget in the future. But in light of these financial uncertainties, and to avoid over-correcting before we have a clearer picture of the conditions shaping the College’s finances, the Board decided to move forward with an interim operating budget to carry us through the first three months of the new fiscal year.

This measure has several practical implications for the campus community. The Finance Office will soon send more detailed guidance to all budget managers outlining how offices and departments should approach spending during this interim period.

Compensation, Recruitment, and Promotions

Implementing an interim budget means that decisions about annual pay increases for faculty, staff, and student workers will be delayed until the fall. Deferring the decision allows the Board to consider the pay increases that senior staff and I hope to be able to achieve with a more complete understanding of the College’s financial environment. I know that this news is disappointing, but I want to be clear: This is not a pay freeze, and I have made clear to the Board my intent to prioritize pay increases when the full budget is addressed in the fall.

There is one exception to deferring a decision on compensation: Last year, the Board committed to increasing the minimum wage for all non-exempt staff members to $20 per hour, beginning July 1. The Board has agreed to uphold that commitment and move forward with this adjustment.

The interim budget does not affect hiring; faculty and staff can continue to recruit for and fill open positions. We are, however, pausing decisions on market-driven compensation adjustments and staff promotions until the fall.

The Board will revisit and adopt a full operating budget in the fall, when we expect to have more clarity around how the issues noted above are influencing our financial situation. Between now and then, the senior administration and I will work with the Board on the various challenges we’re facing to minimize any negative consequences for members of our community. Given that the financial uncertainty we’re facing is due largely to federal policies and actions, I plan to have the Government Affairs Task Force engage with the Board on these and related issues.

I know the adoption of an interim budget raises many questions. Again, the Finance Office will share more detailed information with budget managers soon.

Endowment Tax Update

I have written to you in the past about anticipated changes to the tax that some colleges and universities, including Swarthmore, pay on endowment earnings. The tax, which was enacted in 2017, currently stands at 1.4% and costs Swarthmore an average of about $2 million a year. This month, the House Ways and Means Committee proposed a bill that would significantly increase the tax for many schools, including Swarthmore, based on an institution’s endowment-per-student ratio. Under the Committee’s proposal, the College would be subject to a 14% tax on endowment earnings — roughly $20 million a year based on average endowment performance. The formula in the proposed legislation puts Swarthmore very close to the 21% tier, which would cost approximately $30 million a year.

If this bill becomes law, it will require the College to make difficult decisions about future revenue and spending. That said, this is an early step in a long legislative process, and a great deal can happen between the introduction of this proposal and the point at which legislation is signed into law. We continue to work on several fronts to influence the language of the bill and reduce — or perhaps even eliminate — its negative impact on Swarthmore and other schools like us. While we can’t predict how successful we’ll be, we remain optimistic that a more reasonable outcome is possible. We’ll keep you updated on our efforts moving forward.

I appreciate your grace, patience, and flexibility as we navigate these challenging and unpredictable times.

Sincerely,

Val Smith
President