<p>I don't know anything about Harvard's budget, but here's a revealing snapshot of Bowdoin College's budget as of a couple of years ago (FY2006-07). I'd imagine this is fairly typical for LACs. </p>
<p>Standard</a> Nine: Financial Resources (Bowdoin, Academic Affairs)</p>
<p>Some highlights:</p>
<p>Overall budget excluding financial aid: $105 million
Overall budget including financial aid: $122 million</p>
<p>Endowment: $578.2 million
--- 40% restricted for financial aid
--- distributed at 5% of 12-quarter moving average</p>
<p>Total long-term debt: $113.1 million
---at weighted cost of 4.60%
---average outstanding life of 16.3 years
$10 million letter of credit, used to manage cash flow and "unanticipated expenditures"</p>
<p>REVENUE</p>
<p>Tuition & fees: $52.6 million (less 31% "discount" for financial aid)
Endowment distributions: $23.4 million
Total contributions: $38.1 million
-- of which Contributions, Bequests, and Designated Funds: $18 million
-- of which Unrestricted Gifts to Annual Giving: $5.1 million
"Auxiliary income": $5 million
(Together, tuition & fees, endowment distributions, and annual giving = 81% of total operating revenue) </p>
<p>EXPENDITURES</p>
<p>Faculty & staff salaries & benefits: $63.7 million
Operating expenses: $41 million
-- Debt Service: $5 million
-- Technology Services & Equipment: $7 million
-- Facilities maintenance & renewal $3 million
-- Library acquisitions and periodical subscriptions $1.8 million
-- Utilities
-- Residence halls and dining services</p>
<p>Financial aid: $17.3 million
-- of which 65% came from endowment resources (though there may be some double-counting here as the same document also reports tuition & fees as being "discounted" by 31% or $16 million for FA; I imagine they actually spend from endowment funds restricted to support for FA since that's the only legal use they have for that money, and report the tuition "discount" for p.r. purposes only)</p>
<p>Now assuming this picture is more-or-less representative of LACs in general, I'd say schools like Bowdoin are going to have trouble on several fronts. First, demands for FA are likely to be up, even as distributions from the 40% of the endowment restricted for FA purposes decline. This means there will probably be more actual "discounting" of tuition, i.e., less available tuition revenue net of financial aid. Second, distributions from the other 60% of the endowment will also shrink. Notice that the distribution won't shrink as fast as the endowment, however, because it's based on a payout of 5% of a 12-quarter moving average---so this year's payout will be buoyed somewhat by the past two years of larger endowment, but on the other hand the reductions in payout will also be spread over the subsequent two years, so even if the endowment makes a quick recovery to something like pre-recession highs they're in for at least three years of lean times. Third, unrestricted annual giving will likely be down. As these three sources make up 81% of the budget, that spells trouble. Other sources of revenue may be hurt, too, but we don't know much about what they are. </p>
<p>That's going to put huge pressure on the school to cut costs, perhaps on the order of 10%, 15%, possibly more. But most of the costs are more or less fixed. Debt service isn't huge, but it's immovable. Financial aid will only grow (unless the composition of the student body shifts toward more full-pays). They won't cut back on technology, and probably can't cut back much on library acquisitions and subscriptions without having a negative impact on educational quality and the research environment for faculty. Salaries and benefits are by far the biggest costs, but they can't lay off tenured faculty, and it's a little dicey to start letting untenured tenure-track faculty go without hurting their competitive position going forward. They can shrink the faculty by attrition, accelerate attrition with retirement buyout "sweeteners," and freeze faculty salaries, but these measures won't bring costs down all that much, and they could have a negative impact on both faculty morale and educational quality as some courses go untaught, the student/faculty ratio increases, class sizes increase, and faculty are forced to spread themselves thinner to make the curriculum work. It's much easier to cut staff, so I'd expect to see a lot of unfilled vacancies, early retirements, and possibly even layoffs in areas like facilities management, libraries, clerical services, and various aspects of administration. They'll defer maintenance, and certainly postpone any capital projects. They'll also be forced to cut back on some non-essential student services, but what these will be, it's hard to say.</p>
<p>In short, they'll find a way to get through it, but it won't be pretty. And pretty much everything that can be cut will have a negative impact on educational quality or students' quality of life. But there will also be a lot of pressure to enhance tuition revenue, either with price increases, financial aid reductions (e.g., accepting more full-pays), or both.</p>