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"Budget Essentials" SwatTalk

with Greg Brown, Vice President for Finance and Administration

Recorded on Tuesday, Sept. 24, 2019 



BoHee Yoon: ... everyone, and good evening, SwatTalks community. My name is BoHee Yoon, class of 2001. And I'm a member of the executive committee of the Alumni Council for Swarthmore College. So I'd just like to tell everyone that today's session is being recorded. And if you'd like to send a message or ask a question, please type it into the chat function down at the bottom of your screen. And it would be great if you could please include your name and your class year or your affiliation with the college when you send your question or your message so we're aware of who you are.

BoHee Yoon: So today's SwatTalk, the first of this semester, is on the college's budget essentials, with Greg Brown, who is the vice president for finance and administration since 2014. Greg is a Wesleyan alum ... and joined Swarthmore from Barnard College, where he was chief operating officer. Greg oversees all of the college's financial issues, investments, facilities, public safety, dining services, and the amazing Swarthmore Bookstore down at The Inn. So if you haven't been, you should go check it out.

BoHee Yoon: Greg has also been heavily involved with the new Maxine Frank Singer '52 Hall for biology, engineering, and psychology, as well as all things involving the Sharples/Sharples Revitalization Project. We are thrilled that you are able to join us for this SwatTalk, and welcome, Greg. I will turn it over to you.

Greg Brown: Great. Thank you, everybody. It's my pleasure to be here, especially on a topic that many people don't find as exciting as I do. I'm going to try in the next half hour or so to walk you through the budget essentials of Swarthmore College and then leave plenty of time hopefully for some good dialog that will be facilitated by BoHee.

Greg Brown: Just by way of context, we've been running a program at Swarthmore called Budget Essentials. This is going into its fifth year now. I've been here almost in my sixth year. And it's a program that's designed I would say to do myth busting and demystify our budget. It's open to students, faculty, and staff. The course usually is three 90-minute sessions. I'm going to boil it down to one 30-minute session for you tonight. Sorry. We limit the class to 45 students each year. We actually make it fairly interactive and give pop quizzes and all sorts of stuff. I'm not going to do that for you tonight.

Greg Brown: But what I'm hoping to do is give you a sense both of how we're trying to communicate about the college's finances to the campus and also to give you information that alumni that you'd probably really like to be able to share with your friends. So with that, I'm going to switch over to the share mode and start running through some PowerPoint.

Greg Brown: Great. So I will bring this back, and I will start this with the current ongoing campaign for the college. And what I would hope that you think about as we think about the college's budget is as we evaluate each decision that we have to face as an institution, we really think about how it's going to foster liberal arts, build an inclusive community, enhance social impact, and I'll finish tonight with how we want to create some vital spaces.

Greg Brown: Our budget, more so than most institutions of higher education, really relies on philanthropic support. Much of that is the endowment. I plan to spend some time talking about the endowment and how that enables us to do things that probably are counterintuitive when I share with you some of the budget numbers.

Greg Brown: So let's jump right into things. I'm not sure how many of you are classes before '99, '00, but I sort of did a 20-year horizon here. Back when in 2000, the college's total operating budget was 71,500,000. College's budget now is $180 million. So as you can see, things have grown dramatically. But what you'll see also is that the expense distribution doesn't change too radically.

Greg Brown: This next slide basically says how things are distributed over time. And as you can see, faculty and staff and salaries and compensation, which are the three bottom bars, have been fairly constant. The thing that I will draw your attention to in 2009, '10, which in part sets the stage for some of the capital issues that we're facing, is that one of the ways we got through the Great Recession was we decided to spend less on capital, which means that we now have a deferred maintenance backlog we're trying to deal with. So about 8% of our budget goes into basically sprucing up and keeping up with our buildings. Debt service is also part of our budget. We often borrow money to build. And we can talk some more about that as well.

Greg Brown: Revenue at the college. I think, again, nice thing about this is the budget balances. So one of the things we're very proud of at Swarthmore is that we are careful with the resources, and we typically generate a neutral or small surplus, so $180 million budget this year. What you'll see here is a trend, which I would say is the advantage of having a large endowment, but the challenge of having a large endowment. So if you look back in '99, only 41% of our budget, less than half, was coming from the endowment. Now, over half of our budget is coming from the endowment. That's a wonderful thing, although it makes those of us who manage the endowment have enough nervousness about making sure that when the markets get volatile or when taxes change or other things that we're prepared to deal with it.

Greg Brown: What is interesting, again, looking at the budget, so as I said, 54% of the budget is coming from the endowment. 46 million of that, or 56%, is going straight to financial aid. So the number-one priority of our endowment spending is to make sure that all of our students who qualify to come to Swarthmore can go to Swarthmore debt-free and graduate hopefully within four years. Budget support is another important part of it. I love that part because it's generally unrestricted. Plant renewal and replacement, we put money in to fund all those capital, most of the capital improvements. And then debt service comes from the endowment.

Greg Brown: Here's a slide that I will want to spend a couple of moments on. And in some ways, it answers the question of, "My God, why are we charging $70,000 a year to go to Swarthmore?" Part of the answer to that is that it actually costs us $105,000 per student per year to educate them at Swarthmore. So this data is actually from '17, '18. We haven't refreshed it yet for the current year. So two years ago, when the tuition, room, and board was 65,774, full-paying students were essentially getting a subsidy from the endowment.

Greg Brown: The average start was actually getting a subsidy of 67,000. For our average financial aid student, so the average award that year was about $50,000. So $18,000 is what was being paid in. We were subsidizing it to the tune of $86,000. This is one of the wonderful things about the position that we find ourselves in. But as we attract more and more students of need, we continue to have increased pressure to keep growing the spending from the endowment to meet their needs.

Greg Brown: Again, looking back, I went all the way back to '96 this time. When we set tuition, we look at a couple of things. And one of them is the outside indicator of what median families are making. And what we look at is the U.S. median family with a head of household of 45 to 54 years old. I think that's an obvious reason. That's a reasonable surrogate for folks with kids who are entering college. And as you can see, the average income has not grown up nearly as fast as our cost of tuition, room, and board.

Greg Brown: What is important to notice is the red line on the bottom, which is how much financially-aided students on average are paying for their education each year. So when you think about that, the subsidy has grown far faster than the cost of families. It is still a huge challenge, and I would say for us and for many of our peers, I think the biggest challenge in admissions right now is attracting students whose families make too much to get a full financial aid load but make too little to comfortably afford spending 70,000 a year. So we do have many students who are only partially aided, but for those families in particular, it's often a struggle.

Greg Brown: One of the things, though, that I would say is a key differentiator and a good reason to be really proud of the Swarthmore legacy, this is looking at a cohort of three years of graduation by whether or not the students were aided or not. What you'll see there, and what I challenge you as you read about financial aid, particularly in the for-profit sector and at other kinds of institutions, our low-income students, those with very high need and the high need students graduate at about the same rate, if not a higher rate than students with no financial need, which means we're providing the support to make sure that they get through the college in four to six years.

Greg Brown: To me, that's one of the most critical things when I look at our success as an institution. And I would say that as you think about other institutions, particularly if your kids are looking at schools right now, I would encourage you to ask the question about what percentage of those students that enter actually graduate.

Greg Brown: I'm going to shift now from sort of the overview of the budget to talk some about the endowment. So governance comes into play here in a very big way. So the board of managers has responsibility to set the investment policy as well as the asset allocation review. Our board, most of you probably know this, I think 35 of the 36 board members are alumni of the college. The investment committee is a committee that's a mixture of managers as well as investment experts, all but two of whom are actually alumni of the college.

Greg Brown: Their job is actually to figure out how to support us as we look to invest and try to figure out a way to assure that we have intergenerational equity in the endowment over a period time while spending what we need to spend to support the college. We have an investment office. Again, one of the things you'll see with some of our peers, they've outsourced this function. Our investment staff actually reports to me, and they work very closely with the investment committee. They are here on campus. They're tied to the campus.

Greg Brown: I think that's a critically important part of what we do. Our investment team does work with some of the student clubs and organizations, shares the Bloomberg terminal, that sort of thing, so that our students actually get a sense of both the people that run the endowment but also the endowment itself. The finance committee of the board decides how we're going to spend. So those are sort of the roles that we all play. And I often shuttle among them.

Greg Brown: Quick little look at how we've been doing. If you look at Swarthmore's one-year return, and this is for the year ended June 30, 2018, our audit is just finishing up, the return last year was only 7.2. But if you look at the markets in general, that's pretty good. What you'll see is we target a benchmark of inflation plus four and a quarter, which would allow us to put money back in the endowment but, more importantly, to spend. And as you can see over the one-, three-, five-, and 10-year periods, we've actually exceeded that.

Greg Brown: There's an organization called Cambridge Associates, which does a lot of consulting in this space. And if you look at their means and medians versus us, you can see that we have consistently performed in a very favorable way relative to means, medians, and our own benchmark. This has really enabled us to grow the spending as we've done the last several years, and particularly to enhance our outreach to the socioeconomically diverse student body we have. One of the stats for the class of 2023 is that 20% of those students are the first in their family to attend college. And almost 20% of those students are eligible for Pell Grants through the federal government.

Greg Brown: How do we invest the endowment? Can't tell you who the managers are, but I can tell you what our allocations are. Domestic and international equity have an equal weighting. Then we have marketable alternatives, private equity, real estate, private credit, as well as a fairly large proportion in fixed income and cash. I would encourage you, if you're curious about these things and you want to be sort of as geeky as I can be sometimes, take a look at various other institutions' websites and how they do their thing. You'll find that it's very unusual for them to have as much fixed income and cash as we do. We believe it's a good hedge and enables us to be flexible when the time comes and always to be sure, given our dependence on the endowment, that there's money available to meet operating needs.

Greg Brown: The portfolio has really changed dramatically. So I did a quick snapshot here of 1980, 2000, and 2018. Back in 1980, 81% of the portfolio was domestic equities. And now, we've moved to the world of 21%. Interestingly, fixed income and cash was about the same percentage, so we were about as conservative then as we are now. What's interesting and speaks to the complexity of managing an endowment that has diversification both the region as well as asset classes, back in 1980, we had five investment managers. We are now working with 118 independent managers, most of whom manage commingled funds.

Greg Brown: Here's another really important thing to know about. So the endowment, the original gifts really were great. But what's really been wonderful for us is that we've taken those original gifts and increased the value of them to $2.1 billion. During that time, we spent 1.25 billion. So if we were just saving that money, we'd have $3.4 billion in the bank. So having 2 billion is great. I think what's really important is constantly thinking about how we can prudently spend enough to meet the mission of the institution while at the same time preserving the endowment so there's money available for the next generation and the one after that.

Greg Brown: I will then quickly move us from there to capital budget. And I think some of you probably know this difference, but I will just lay it out for you. The capital budget is really long-term facilities issues. It's about new construction, renovations, and renewal. We have four sources of funds for this: gifts, which is of course my favorite source; the operating budget itself; reserves that we put aside over time; as well as debt when we go to borrow money. And capital expenditures for us can have a useful life of anywhere from three to 60 years.

Greg Brown: So again, I've mentioned the sources, gifts and bequests. By the way, gifts are better than bequests in terms of planning because bequests don't always get realized the moment that you need the cash. Endowment spending and reserves obviously, and then debt. Some people ask why an institution like Swarthmore might even think about borrowing money. The truth of the matter is that the debt market at this time is actually we can borrow money at around three, 3.5% on a 30-year fixed rate. Our endowment tends to perform over five. The math makes sense for itself.

Greg Brown: The picture you see there, by the way, is a fairly recent picture of Maxine Singer Hall. It's a fabulous building. If you have a reunion coming up or you happen to be in town for Garnet Weekend, or you just want to make a trip down to Swarthmore, particularly if you are an engineering student, it's truly exciting to see the transformation that's coming with this building.

Greg Brown: So what are some of the key priorities for us as we think about capital projects? First is actually sustainability. We've made dramatic changes to the campus and things like lighting and heating sources. And we have a goal to be carbon-neutral by 2035. And I'll talk a little bit about how we're going to try to get there. Changes in pedagogy and technology, that's the fastest-growing part of our non-personnel budget. Technology in the classroom changes all the time. Enrollment changes are another issue. If we're going to grow, sometimes we need more space to grow into it.

Greg Brown: A big challenge for us in Swarthmore, which I alluded to earlier, is deferred maintenance. We have buildings that are functionally obsolete and whose infrastructure is worn out. And not a day goes by when I don't find out about another roof leak or another problem that we really need to address. Obsolescence, again, is key. I would say that as we think about the Singer Hall in particular, when you see what those biology labs look like compared to what the old labs look like in Martin, right, guessing many of you remember that, if you graduated as recently as 1975, I'd say Martin looks about the same now.

Greg Brown: And again, the obsolescence of buildings sometimes makes renewal impossible. Sometimes we need to start over. And I don't want to be involved in the higher-ed arms race, but I want to serve our students. So we need to be competitive, and we need to be in a place where our students can learn, where they can engage in a good social life, and where we can make sure that they're thriving at Swarthmore and not just surviving.

Greg Brown: I love this really busy table. By the way, the alumni office will be distributing the slides to you. So if you're taking furious notes, no need for that right now. What's kind of interesting to look is sort of the fits and starts of how the college built over time. The period from 1965 to 1970 was a boom time for building at Swarthmore. As you can see, we slowed down from '75 to '90. We took a real break for a while. And now, we're back building again.

Greg Brown: What this really shows, and I really sort of focus most on the post-war period, many of those buildings that were remarkable and beautiful when they opened are really in need now of tender, loving care. So I'll touch on a couple of those later. And I'll also go back to things like in the '30s Martin Biology, but just sort of thinking about the lives of our buildings.

Greg Brown: What that means in terms of capital maintenance just of the existing structure, and this is based on age, not completely based on immediate needs, but there's probably $160 million of maintenance that we need be investing in. 94 of that is really about modernization. 37 is sort of the critical number of things that could fail tomorrow if we're not careful, which is why we're actually putting about $15 million a year into the renewal and replacement fund in order to try to keep up with that. And again, [inaudible] thinking about the renewal, lifecycle needs are going to start coming due over the next several years.

Greg Brown: Quick little comparison note, and again, I don't encourage an arms race for the sake of an arms race, but I will say for the competitive purpose, looking at just renovations alone over a 10-year period, Swarthmore did invest in its plant. But we've certainly under-spent Amherst in terms of new facilities and Pomona and Williams. And when you think about U.S. News or other things, you'll know that those are schools that are really important for us to pay attention to. I may be a Wesleyan alum, so at least I'm not always comparing to Wesleyan. But when you see these numbers, you can see that we've under-invested relative to our peers.

Greg Brown: What's more striking is what's been spent on new buildings over a 10-year period. So while we're in a bit of a building boom right now, Amherst, Pomona, and Williams have been dramatically outspending. Amherst has a beautiful new science building. Pomona's got some amazing new dorms, a wonderful dining hall, some nice classroom buildings. And Williams, if you haven't been up there ... And I don't encourage you to take your kids there. If you're looking at colleges, you should come to Swarthmore. Williams has a beautiful new library in the middle of their campus.

Greg Brown: So there's a lot that's been spent, which I would say from the four of us in particular has not been about things like climbing walls and vanity projects. It's really been about keeping up with the demands and the needs of our students.

Greg Brown: So here's another shot, a bigger shot of Maxine Singer Hall. She was here, by the way, on Friday for an opening ceremony. We've opened half of the building. The rest of it's still under construction. She's a delightful speaker, by the way. So if she makes her way to you, go see her. So looking in these spaces, we have smart classrooms, we have laboratories. It's also, and this'll be pretty shocking, it is bigger than Parrish Hall.

Greg Brown: So when you see it, I encourage you probably to start your visit of it by looking at it from the Friends Meeting House. That's the smallest-looking angle. So if you're going to be daunted by the size, that's where you'll do it. But if you look at it from the DuPont Parking Lot, it's a massive building. But it's actually quite beautiful faced in stone.

Greg Brown: Again, this is what it will look like a year from now. Right now, we're connecting the big ... We're actually constructing the big glass part, which will have a lovely common area downstairs and will have direct access out to the Nason Garden, which is between Trotter and Pearson and Beardsley.

Greg Brown: What's coming next I guess is what I should talk about. When you get your materials, I'll encourage you to read this. But in 1955, the other President Smith, President Courtney Smith, when we had 400 students, identified the need to build a new dining hall. And in 1965, that dream was realized with the opening of Sharples. And by the way, I say Sharples. Some depending on generation may say Sharples.

Greg Brown: This is what it looks like today. It doesn't look much different, but it's still there. And what I should've showed you is a picture of what it looks like at lunch hour. Sharples was built when we had about 850 students. We now have 1,640, 1,570 of whom are not abroad, so they're on campus. When they come down to lunch, they spend a lot of time in line. And at dinner time even, students find that they need to make space for other students, so they rush their way through dinner so they make space for others. That's not the kind of social life that we want to have on our campus.

Greg Brown: What we're looking to do and the board will be asked to approve this this fall, so you're getting a sneak peek of something that's really exciting, is to create a new dining hall that's connected to the existing Sharples. The dining hall will seat about 80% of the student body at any one time. So it's a big space. It will have onsite cooking facilities so students can see their food, will be able to accommodate dietary issues that we haven't been able to do very well.

Greg Brown: And the current dining hall, Sharples, will be converted into a campus community commons. Those of you who graduated by the early 1980s probably have fond memories of old Tarble before the fire. What we've heard from our students over and over again, particularly the last couple of years, is that they want a safe, inviting, and welcoming space where the campus can gather. And we believe that by repurposing Sharples, we'll be accomplishing that.

Greg Brown: The other really ambitious goal that we have for this project ... And I sometimes question my sanity, so you may also. And I give you that permission. We're trying to go for being a net-zero building. The reason I say that's a little crazy is this is a dining hall. We have to cook. So we're really looking creatively both at how we power, how we're going to be able to use the steam and other excess from power in order to regenerate. And we will most likely be cooking all electric. So it's going to become very interesting, but we also know students like their grill. So we're working that through, but it could be very exciting.

Greg Brown: The other thing that's in the current planning, which I think will come true, is we're going to use mass timber as a construction tool rather than steel, which has a higher impact on the environment. And we will of course use stone. We did save some of the stone when Hicks came down so that we can repurpose that in other buildings. So I think what you'll hear repeatedly, and I hope that this resonates for you, is how we're really trying, despite the occasions when we have to expand the size of our facilities, to be mindful of their impact on the environment. The other exciting thing with this project is we've been working closely with the Arboretum and with a new courtyard and a few other spaces, we have opportunities for some really exciting gardens.

Greg Brown: Other projects coming down the road. So come the fall of 2020, biology will fully be in Martin, it will be out of Martin Hall. We will be moving over a two-year period computer science, which is now just about the most, it is the most heavily enrolled set of courses on campus, and film and media studies into what had been the Martin Biological Library. We will drop the words "Biological" and "Laboratory" but keep the word "Martin" there. We'll probably be tearing down the greenhouses there to create additional large-space classroom space.

Greg Brown: Lang Music Hall, which opened in the early 1970s, is still operating with all of its original equipment. Any of us who've done home renovations should be shuddering when you hear that. Thanks to a really generous challenge grant from the Lang family, we will be renovating that building this summer, completely replacing all the guts, things like the air conditioning and heating system. And we will be restoring the organ, which has not been playable in over 20 years.

Greg Brown: We're starting a library master plan, which is not just about buildings. It's about what is the library, and how is it used? Athletics are also doing a master planning process there. The Matchbox is a wonderful fitness center, but it does point out the need to do a lot of other work. We're also systematically going through our various residence halls. Mertz, again, for those of you from the early '80s, and I count myself with you, that was a new dorm. Its systems all needed to be replaced. We started to do that this summer. That's a $9 million project. The building when we opened it back in the '80s was about a $3 million project to build.

Greg Brown: The big and most exciting project that we are also working on is an energy master plan, which is what we're calling the Roadmap to Zero, so the Roadmap to Zero carbon, not zero endowment. It's basically a way to get us to meet our carbon commitment. The biggest part of that will be to replace our campus-wide steam system with low-temperature hot water, which will be coming from geothermal wells located all around campus.

Greg Brown: I go back to close this with a little thing about philanthropy. There are many opportunities to help support your college through the current campaign. And we're doing pretty well with the campaign, but we're in the last-year push. So these things are things that I'm sure many of you have already seen.

Greg Brown: I'm really excited, by the way. The Swarthmore Summer Scholars program, which has just finished its fifth summer, and helps students who come from high schools that are not necessarily going to prepare them as well for Swarthmore as they might, they graduate their first class this year, 16 students a year, all of whom graduated, many of whom are going on to graduate schedule programs, again because we supported them. We got a gift this spring that has fully endowed that program.

Greg Brown: And as you'll see, the ambitious goal was 450 million. We are sitting at about 363 million right now. So we have a little way to go. But there's a plan to try to get there. And I encourage you to talk up your love of Swarthmore with others and think about what that might mean to you. But I'm not the development guy. I'm the one who spends the money.

Greg Brown: So I come back to sort of the key principles that most of what we do is done because of previous generations of generous donors, for which I'm personally grateful, and I know everybody at the college, particularly our students are grateful. So with that, I thank you. I hope that blowing through this as quickly as I have didn't cause confusion but actually raised some good questions for you. So with that, I will turn things over to BoHee and answer questions.

BoHee Yoon: Thank you so much, Greg. While you've been sharing your incredible slides, which are so informative, and all this information, we've gotten a couple of questions through our chat here. I'll read one of the first ones, which is, "How is Swarthmore able to balance attaining greater socioeconomic diversity among students and the need to have full-pay students too?" And that's from [Teresa] G., who's a parent of a student in the class of 2020.

Greg Brown: I'd say that's a big challenge. And as I mentioned earlier, I think the biggest challenge is meeting the needs of students who fall somewhere in the middle of that continuum. The lowest-income students we really do a great job I think of packaging and thinking about. For some of the middle-income students, they do have other options that are not as prestigious, so state school that might be in their home state that has an honors program. That can be a real challenge.

Greg Brown: So we do balance it carefully. We are need-blind. However, the type of students who choose to look at Swarthmore tend to balance out pretty well. A fairly high percentage of our students are athletes. Their need level is a little bit lower on average. And I'm being very careful here to often say "on average." So we really do try to balance that very carefully. And we really want to make sure that the class has socioeconomic diversity.

BoHee Yoon: A question I had for you, Greg, is you mentioned that you've been speaking with students or at least people at the college have been speaking with students about what their needs are. And that's part of the reason why Sharples will be turned into a common space. What sorts of methods are you using, formally or informally, in order to get that kind of student feedback?

Greg Brown: So we've done two things. About two years ago, we did a very sort of broad-based student experience workshop using outside consultants who did focus groups and surveys. As we started the dining project, though, and one of the reasons we chose the architecture of the project is they were committed to getting direct input. And so they spent about two weeks on campus, and they hired 10 students who hung around outside of Sharples and the Science Center Coffee Bar with iPads and asked a bunch of questions of students, basically did a survey, person on the street.

Greg Brown: They interviewed over 500 students. We collated that information to find out what their needs were and what their interests were. And then in addition to that, we did a dining survey of faculty, staff, and students to ask questions about dietary needs, about their desires. So overall, those two surveys hit about 1,000 people. And when you're a campus of 1,600, that's a pretty remarkable rate. So we've really tried do the best we can in order to make sure we get the word.

Greg Brown: We also have students working with us on the working groups. I think for some of the students, it's really exciting. The hardest part of this project, though, and I didn't give you the timeline, if all goes well, we'll be breaking ground this summer. The new dining part of the building would open in the fall of 2022. The new repurposed Sharples would open in the fall of '23. So the current first-year class would get one year. The rest of the students wouldn't get the advantage of it.

BoHee Yoon: Thank you. John [Soledar] would like to ask his question off mute. We can take it.

Greg Brown: Okay.

BoHee Yoon: John? If not, I can ask it on his behalf. How has the federal tax on schools with high endowments affected Swarthmore? Greg, I think is a topic near and dear to your heart.

Greg Brown: Oh, yeah. You saw me when I talked in New York. This is a source where I try not to let any political leaning show in my answer. So the, and I'll start by calling it the so-called, but actually it's called the 2017 Tax Cut and Jobs Act included a punitive measure intended to tackle to really affect private institutions of higher education who had endowments that were greater than $500,000 per student. Swarthmore's endowment per student, by the way, is a little over $1 million per student. So we certainly fit into that bucket.

Greg Brown: It's a 1.4% excise tax on earnings. Earnings are basically the endowment, but they do include things like faculty rental housing. So it's a tax on income on a limited number of institutions, which is costing the college, we just closed the books, $1.8 million this year. And when you think about that against what the overall endowment is, that's actually going to be a drag on us. We will reflect that as an expense of the endowment. It doesn't run through the budget. But that means there's less money to distribute to others.

Greg Brown: We will be signatories on a measure that the National Association of College and University Business Officers has been working on about this. It's tricky, though, because it's the well-off colleges who are asking for something to go away. What is interesting, and if any of you live in Kentucky, you can talk to me offline, Berea College got caught up in this as well. Berea does not charge any tuition whatsoever. They basically have a work rule as well as scholarships. Their endowment is greater than 500,000. It's in Mitch McConnell's home state. He's trying to exempt them but not the rest of us. So it's an ongoing struggle, but it's one of those things that eats into our earnings and could affect us down the road.

BoHee Yoon: There's a question from, and I hope I'm pronouncing this correctly, [Peoteeha] from class of 2009. She says, or he says, "Using timber is nice and all for maybe meeting carbon-neutral goals in the short term, but I hope the board, which approves the design, also looks at the long-term maintenance cost of these buildings. I can see the need for constant maintenance over the next decade or two because it's susceptible to weather more than other certain materials." And I'm paraphrasing.

Greg Brown: And I appreciate the paraphrase, and I will tell you that we're in sketch plan part of our design process, which means we haven't reached a final decision yet. One of the big questions is the durability of mass timber. It's used a lot in the Pacific Northwest, which kind of makes sense. It's also actually being used in Houston at Rice University right now. I'm going to be taking trip down there November just to kind of take a look at it and talk to their facilities people.

Greg Brown: But I would say that if the design changes and you don't see wood anymore it's because we don't think it can be maintained. Recently the borough of Swarthmore did a project using rammed earth, which works incredibly well in the Southwestern region of this country. But in Pennsylvania, where it seems to rain all the time, says the transplant from elsewhere, that wall is deteriorating. So it's that kind of thing where we want to know both whether it's sustainable but also whether it's durable. So we'll be checking that.

BoHee Yoon: There's a question from [Leila Bengali 00:41:06], class of 2011. She says, "I think I remember that financial aid is funded largely through the endowment. How do you think about recession risk that could lower returns from the endowment, limiting funds available for financial aid exactly at a time when there might be more families seeking aid?"

Greg Brown: I would say that's one of the biggest challenges of our financial model right now. At some schools, and again if you look at their balance sheets, you'll see that if they don't have a lot of endowment, the full-pay students are actually covering the cost of the aided students if you just kind of do the math. For us, though, because of the dependence on the endowment, downturns can really affect us negatively, which is why when those moments come, if we haven't ... And we've got a decent cushion to get through a short recession.

Greg Brown: What we did in 2008 and '09 may have not been the best thing. But it made sure that while we were shorting the money that was going into buildings, we kept our commitment to financial aid. We stayed with the no-loan program in that period of time. So when I said earlier that the first dollar of the endowment goes to financial aid, that's very much the direction the board has given to us. And it's very much what we're trying to do.

BoHee Yoon: Thank you. Kim Mullin Van Savage has a question here from class of '87. And I've been asked to read it as well. "Can you share with us the process by which you determine university spending priorities annually as well as long-term strategic financial planning?"

Greg Brown: I'll do that in less than five minutes I think. Let me try. So we have both a bottom-up and a top-down process. So the first building block obviously is figuring out how much revenue we're going to have. And that's something that we do pretty much centrally since it's mostly the endowment. And we think about what kind of tuition income we're going to need to have. We then look at financial aid. And here's I'm going to demystify financial aid just a little bit.

Greg Brown: For most students who are already here, so three-quarters of our students, their financial aid needs don't change dramatically year-over-year. So we can pretty much predict what our endowment draw for that's going to look like. We also admit almost half of our class early decision. So we know about 87% of what's happening by the time we set the revenue budget. So that's an important way of thinking about it.

Greg Brown: We then get the board in February to approve the revenue assumptions for the year. Meanwhile, starting back in November, we will have been asking departments what their needs were. And so we build from the bottom up. It's generally incremental, but we do ask departments to justify what they're doing and why they're doing it, and look for efficiencies. So a good example of that is we have reduced to almost nothing what used to be a vibrant copy center. We don't need as many paper anymore. So we've basically let that program go away over time.

Greg Brown: So what we've been trying to do is really think those things through. We meet, and "we" being our budget director and my assistant vice president, meet with all of the members of cabinet, all of the heads of large departments to not only see their written requests but also talk about them. And the questions we ask are, "How does this affect mission or support mission rather than affect? What will this do, and how will we measure it?" which is another question that is a challenging question. And then the other question that we always ask is, "If we don't do this new initiative, what will happen? So what are the negative effects of inaction?"

Greg Brown: So we spend time on that. We then gather all that together, working at the senior staff level. We review it. I sit down with my boss, the president. And then we basically take it to the board and discuss it with the board. So it's a bit of a process, but in May ... So in February, we approve the guidelines, we approve revenue. In May, we approve expenses. Long, sorry about that.

BoHee Yoon: That was pretty good. Andrew [Picken] has a question that he'd like to ask live.

Greg Brown: Sure.

BoHee Yoon: Class of '88. Andrew? Well, I can ask on his behalf then. "Was the college overexposed in the economic downturn of 2006 to '07? If so, what lessons did the college take from that experience?"

Greg Brown: Compared to many of our peers, we were not overexposed. I'll pick on Amherst just because I like to. So Amherst actually had leveraged their operating cash and commingled it with their endowment. And when the market tanked and they needed cash to make payroll, they had to hit a line of credit to do it. Swarthmore, on the other hand, I think you noticed, and at least when I was pointing it out, about 15% of our portfolio is in bonds and cash. A large portion of that's actually cash, which means that when a short-term issue comes up, we've actually got money to get through most of one whole year before we have to liquidate anything.

Greg Brown: In '08, '09, that was critical. It meant that we actually had access to the cash that we needed. We were able to spend it when we needed it. And like the prior questioner asked, there was a small uptick, not too small actually, an uptick in financial aid need during that time. But we were able to meet that as well. So as families became jobless, we were able to accommodate that. Fortunately the market recovered fairly quickly. I think we were really helped by having a diverse portfolio. But we were enormously helped by a very conservative cash position.

BoHee Yoon: Thank you. Petrina Dawson, class of '76, who's a former Alumni Council member, asks, "Are you taking advantage of the low interest rates to issue debt to cover future capital needs to hedge against potential need to cut back in an eventual recession in the near term?" Great question.

Greg Brown: That's a great question. We have a debt working group of the finance committee of the board that I work with very closely. And we just had a meeting about three weeks ago. Our original plan for borrowing, if the world didn't change and the rates didn't go down so low, was to go back in the market in fiscal, in July of 2021. That's the next time we have a bullet coming up that we need to refinance, and that's about the time we'll need cash for the other big projects.

Greg Brown: However, we are actually looking at whether it would make sense to do a larger taxable borrowing now and take advantage of what seems to be, well, they are historically low interest rates, particularly when the yield curve's been doing what it's been doing. So 30-year money probably has never been less expensive. We do recognize, though, we have to pay for it. So I don't want to over-borrow and be stuck paying debt, particularly if the market tanks. If we're doing okay in the market, we're doing okay.

BoHee Yoon: Thank you. Nancy [Hodum 00:49:20], who is a parent and community member, asks, "Does the tuition paid by full-paying students also go towards paying tuition of those students who do not?"

Greg Brown: I would say indirectly it does, since all the money essentially goes into one pot to support the institution. What I would say in a more direct way is when you think about over half of the budget coming from the endowment, you could argue that the full-pay tuition dollars are actually just going to support regular operations. So again, if it were not for the endowment, yes, I would say there's very much a one-to-one relationship there. But I think because of the endowment and because of our commitment to spending first from the endowment for aid, I would see less of that. But I will concede, of course money is fungible. But I would say that a full-pay tuition is paying $70,000 a year now towards a $105,000 cost.

BoHee Yoon: Thank you. Jim [Foley 00:50:33], class of '95, asks, "Salary growth for non-teaching staff seems to be a prominent feature of many colleges' rising tuition costs. How does Swarthmore think about this issue?"

Greg Brown: We think about it more in the local market than we think about it in the national market, with the exception of certain positions. I would say a position like mine obviously is going to be a national search. Other roles on the campus are going to be ... So leadership roles are going to be national searches. But what's most important is the local job market. I would say that a really huge challenge for us and for our peers is trying to limit the growth of staff positions but at the same time meeting the demands for some of those.

Greg Brown: So I'll cite two areas where there's been growth of 50 to 100%, even in the last three years of staffing. One is the counseling center. The demand for students for counseling nationwide has just exponentially grown. So we've had to grow that shop pretty dramatically over the last couple years. The other areas is tech support. The more technology we put in, the more people you need to actually fix it and run it. So we've had to really think about that.

Greg Brown: And as classroom support gets more complicated ... Neuroscience is a program that we do now. That means lab techs. Engineering with our great building also does. And the last one, which again since I picked on the federal government already, I'll pick on them again, there are a fair number of mandates that we just can't avoid, some of which are things I think that we would do anyway. But I would say five years ago, nobody had a office for Title IX issues. We have two full-time staff who do that now.

Greg Brown: So we've had growth in those areas. Wherever possible, we've tried to put new positions out based on eliminating something we're not doing anymore. But there's been some growth. But we're constantly watching that.

BoHee Yoon: Thank you. All right, last handful of questions here. Everyone's so excited to talk you, Greg.

Greg Brown: [crosstalk 00:52:49]. Okay, go for it.

BoHee Yoon: Adriana Aldgate, class of 2012, asks, "I understand Swarthmore is still not need-blind for international applicants. I heard repeatedly that making admissions need-blind for all applicants has been a goal. Is this still a goal? If so, how close are we to achieving it?"

Greg Brown: I would say it's a goal, but we're not there yet. And it's a great question. So what we've been able to do is we've been able to [inaudible] ... I'm trying to remember the stat off the top of my head, but it's about 15% of the class of '23 is international. We set aside 10% of the financial aid budget for international students, which actually meets most of the need of those who apply. But I think because students know that not everybody with need is going to get a full scholarship here they may not actually apply.

Greg Brown: So I don't know how that's doing. But we are pretty much meeting the need of those students who apply. The board is aware of this. The board understands the need to kind of think about this. I think it's also a good opportunity for directed philanthropy, frankly, because if there were more endowments that were specifically toward supporting international students, that'd be great.

Greg Brown: A low-income international student, and this actually applies also to our undocumented population on campus, don't have access obviously to federal funds. So if you've got a Pell eligibility, you can get over $5,000, we get $5,000 from the federal government. But for an equally needy student from abroad, we're paying for their full freight, the 70,000, not 70 minus a five. So it does cost us more. We're committed to it, but it's an ongoing challenge to fund it.

BoHee Yoon: Thank you. Michael Clapper, class of '87, asks, "How does the college set and calculate draw from the endowment?"

Greg Brown: Ah. There's actually there of course a formula. And what we do is we actually look at current spending as the baseline. We look at other new initiatives that might be out there like changes in our debt load or other things. And then we look to see how our spending needs marry up to a range of between 3.5 and 5% of the prior year's market value in order to stay within that band. So we look at incremental spending, which we obviously redistribute towards different priorities. But basically we try to stay in the 3.5 to 5% band.

Greg Brown: And when the board sets revenue in February, that's really the main driver of the revenue piece. So there's kind of what I'd call guard rails, and at the same time there's a recognition of the need to kind of spend on a constant continuum. Our budget can't afford big jumps and big drops in particular because so much of it's based on people.

BoHee Yoon: We have a question from John [Bo 00:56:08]. "Any thoughts on quote/unquote controversial donations, like the one that Epstein gave to MIT and Harvard, Saudi government, etc.? Do we have any exposure?"

Greg Brown: I don't think so. About a year ago actually, there was a little bit of a buzz happening over the Cosby Courtyard, which is over by Kohlberg Hall. And that's actually the [Fanny] Cosby Courtyard. It's not Bill. But there was both some agitation and concern as well as some soul searching before somebody in Advancement set us straight and said, "This one's not a problem." But, yeah, we really do think about where our money's coming from.

Greg Brown: I think one of the things that we don't do as much as our peers, and I don't know where this will go policy-wise, is we're not out for corporate donations in the same way other than matching gifts. So if you work, see, I'm doing my plug in, if you work for a matching gift company, please go right ahead and give a matching gift. But we're not looking to have the Pepsi Cola Dining Hall. So we try very much to think that way. And I do think some screen of who our givers are is an important one.

Greg Brown: Fortunately, I guess, or unfortunately, depending on who you are, I think the Epsteins of the world are going to give to think tanks and research organizations more than to a small liberal arts college. So we do look [inaudible] very carefully.

BoHee Yoon: Thank you. And last question is, what is your favorite part about working at Swarthmore College?

Greg Brown: Wow. I think it's actually, five years in, I would say it's the people. Val has put together a wonderful team. So if you're here for Alumni Weekend, come chat with us. I have a terrific team of professionals who work for me. The EVS staff here is great. Dining, I suspect many of you know Donny from dining from your years here, who works the grill. Last year, he got the employee of the year award. People were so happy for that.

Greg Brown: So I guess what I'm saying is that we really do work ... We like to talk about being a community, but I'd say we actually do it. And so for me, I'm kind of later in my career, I love helping my staff grow. And I just love being around this institution and seeing our wonderful, smart students and helping them thrive.

BoHee Yoon: Well, thank you so much, Greg. This has been so informational, educational, and also fun. And we really, really appreciate you taking the time to speak with us here via SwatTalks.

Greg Brown: And I might put one last plug in if it's okay. Most of what I talked about is actually on our public website. So if you want to see our financials or you want to see the facts of the college, go to the finance webpage on Swarthmore.

BoHee Yoon: Thank you, all, very much. Have a great evening.

Greg Brown: Thanks.

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