By Stephen Collins '74

"Another Downer of a Year for College Endowments: Typical portfolio lost 6% in 2001-02, the third consecutive dip for some institutions." That headline in the Chronicle of Higher Education appeared the week Colby trustees met in January.

But while layoffs, axed athletic teams and other budget cuts made news at other schools, some much wealthier than Colby, President William Adams told trustees, "We have experienced the pressure but not the pain that other institutions have felt."

Colby's outlook was "guardedly optimistic," Adams said in a January 31 notice to employees. That assessment was tempered by concerns that if the markets fail to rebound the College's financial position could weaken. But for now Colby remains committed to initiatives in the Plan for Colby, including benefit increases this year raising total compensation for continuing employees by an average of 6 percent, plans to expand the campus and add buildings, and incremental additions to the faculty over the next decade.

Colby isn't immune to market pressures. The endowment declined 8.7 percent in the last fiscal year, underperforming the 6 percent average loss among 654 institutions surveyed by the National Association of College and University Business Officers. At the end of December Colby's endowment stood at about $300 million, down from a high of $374 million two and a half years earlier.

But traditions of frugality and the use of intricate financial planning models have left Colby better positioned to weather what Adams called "this period of anxiety."

According to the Chronicle, "while schools of all sizes have increased their spending rates since 1999, small institutions are burning through their savings at a faster clip than their richer counterparts are." But as others spent more during the 1990s boom, Colby went against that grain. Colleges typically transfer 4.5 to 5.5 percent of their endowment to the operating budget. Between 1993 and 2002 Colby completed a gradual reduction of its spending formula from 5 percent to 4.

In addition, Colby calculates that percentage based on a five-year average of the endowment's value rather than the standard three-year average. While some schools are averaging three bad years now, and suffering, Colby's formula smoothes the depth of valleys like this one. It also restrains spending in boom years and will continue to do so as markets recover.

The conservative approach requires discipline, but it pays off with greater endowment growth, which is critical to Colby's competitive aspirations. In a relatively short time, endowment saved by spending only 4 percent produces, through the power of compounding, more expendable income than if the rate had remained at 5 percent, according to Doug Reinhardt '71, associate vice president for investments.

Reinhardt points to a pantheon of tight-fisted managers and trustees who set the institutional tone. Vice President Arthur Galen Eustis '23 is said to have bought bricks for the new campus one load at a time, as money was raised, rather than extend the debt load. Eustis hired Roney Williams '35, also known for fiscal vigilance, and Williams hired Reinhardt, who said, "That was the tradition--you make do with less."

Trustees scrutinize head counts of employees to make sure new positions don't creep in. A fairly strict staffing cap in effect at Colby since the early 1990s contrasts with the experience at a comparable college that recently announced substantial layoffs after having added 101 full-time equivalent administrative positions in three years. Colby's cap was instituted only after careful growth of the faculty to improve the student-faculty ratio; "We had a plan for how to keep quality growing while working within the budget," said President Emeritus William Cotter.

While departments have chafed under the cap, it sustained a tradition of no layoffs. "We've always looked for stability," said Doug Terp '84, associate vice president for administration. "We don't want to hire people if we're going to have to lay them off; we don't want to put things into the budget if we can't sustain them."

"The worst thing you can do," said Reinhardt, "is have the institution lurching around. It's terrible for morale and, ultimately, for the College's credibility."

President Emeritus Robert E.L. Strider confirmed that frugality was an institutional characteristic when he arrived in 1957. Each fall Helen Nichols, who ran the dining hall, prepared a "Nuts, Apples, and Fallen Leaves Dinner," using those items as decorations, Strider recalled. "At that dinner you could have a slice of apple pie for dessert if you wanted, but you had to pay 25 cents for it. And if you wanted a piece of cheese with your pie, that was an extra nickel."