Macalester College, whose income is dependent upon the rapidly failing health of the stock market, is staring down the barrel of a budget deficit in the coming years.

While the 2002-2003 budget is balanced, the years ahead will see the college looking for ways to cut expenditures. Beginning in the 2003-2004 academic year and planned to continue until the 2004-2005 academic year, Macalester will fall short of income projections set in early 2002. The budget, which finances and dictates the college’s spending, is currently in the vicinity of fifty-four million dollars per year.

A memo from Macalester College President Mike McPherson provided the college’s faculty and staff with information about the deficit and announced the formation of a ‘Special Committee to the President’ (SCP).

The committee is made up of Craig Aase, Treasurer; David Wheaton, Vice President for Administration and Finance; Dan Hornbach, Provost; Laurie Hamre, Vice President for Student Affairs and Dean of Students; Joel Clemmer, Vice President for Library and Information Services (and Chair of the Resource Use Task Force); and Karl Egge, Professor of Economics. Professor Egge was the most recent Chair of the Long Range Planning Committee.

The memo, dated July 11, 2002, introduces the committee as an entity intended to advise the President how to deal with the impending deficit; in the words of the memo, the committee spent the summer trying to “identify options for balancing the budget.” The news of the budget shortfall comes at a time when many other well-endowed colleges and organizations that derive a significant portions of their income from the stock market are facing similar problems.

The expectation in early 2002 was that growth over the next year would be such that the budget by 2003-4 could climb to over fifty-six million dollars. According to Egge, “it now appears we would be lucky to hit $55 million.” While the budget will continue to grow, there is “approximately a one-million dollar problem we didn’t think we haddollar problem we didn’t think we had earlier this year.” Reductions, Egge says, will have to be made.

However, as the stock market continues to fall (the Dow Jones Industrial Average hit a four year-low on Tuesday), the potential for growth sinks with it. “The stock market is crucial to the success of the College,” emphasizes Egge. The market is the driving force that affects the financial health of the endowment as well as the portfolios of generous donors. Together, these two income sources make up roughly one half of the College’s ability to spend in any one year.

There is no one that disputes that the deficit will require Macalester to make reductions. President McPherson said “this change in economic circumstances will require us to make some adjustments.” Emphasizing that no final decisions have been made, he identified three possible areas where expenditures may be reduced: salary and tuitions adjustments, financial aid policy changes, and a slight cut in the number of international students that are admitted. McPherson also said that the college is asking its “budget centers” to examine how each can cut its spending.

Steve Colee, Macalester’s Director of Admissions, explains that the admissions office is currently “brainstorming” how to continue honoring Macalester’s commitment to international diversity while also cutting costs. International students are “on average, more expensive to the college” because they cannot receive any federal or state aid, he said. Both Colee and McPherson say that Macalester is examining the possibility of adjusting financial aid operations. McPherson continues that the college is “examining the feasibility of asking some of our international students, beginning with those entering next fall, to take loans (as U.S. students do).” The loans would likely include forgiveness provisions for students returning to their home country and provide some sort of public service through their occupation.

“We cannot spend what we do not have,” Dean of International Studies and professor Ahmed Samatar said. However, he also expressed concern about the possible reduction of international students, “it is foreboding to see ourselves in a position where we might not be able to maintain our ambition, especially when it comes to international students.”

While words such as ‘cuts’ and ‘deficits’ are very dramatic terms, the budget problems are still far from the dire situation that Macalester faced in 1971-72, when faculty and staff were laid off. Professor Egge recalls, “[at that time] we were firing people. It was absolutely horrible.” President McPherson underscored that “it’s important to remember that the deficit we are speaking of is relative to plan … For the most part, we are not talking about absolute cuts, but rather about slowed rates of increase.”