Endowment Declines 10 Percent Amid Nationwide Inflation

The college’s endowment declined 10 percent over the 2022 fiscal year due to high inflation, which is also increasing the college’s operating costs. The administration indicated that they expect to have to make cuts in the next few years as a result.

Endowment Declines 10 Percent Amid Nationwide Inflation
After 52 percent positive returns in 2021, the college's endowment declined 10 percent over the 2022 fiscal year. Graphic courtesy of Nina Aagaard ’26.

High inflation and price instability resulted in a 10 percent loss on the college’s endowment over last fiscal year, according to interim Chief Financial Officer Tom Dwyer. It marked the first time the endowment has declined since the 2016 fiscal year.

Because the college relies mainly on its endowment for revenue, rather than tuition, the loss may have an acute impact on the college’s budget in coming years. Departments such as dining services, whose budgets are especially susceptible to the effects of inflation, are expected to be hit the hardest.

President Michael Elliott, however, maintained in an interview with The Student that the college’s commitment to the “people” in the Amherst community, particularly through its financial aid program and support for low-income students, will not be affected by these changes.

The college also has no plans to reduce its staff in light of the loss, at least for the foreseeable future, Elliott said. “Very clearly we are not considering, at this time, layoffs or anything like that.” Despite these assurances, Elliott said that “there is no way that we can make this pain-free for the campus.”

The loss follows a 2021 fiscal year (the 2020-2021 academic year) which saw the highest endowment return in the college’s history: 52 percent. While inflation was already elevated during this period, there was still a belief that it might be “transient,” and would return to normal levels after a short period of time, Dwyer said.

But rather than falling, inflation rose even further the following year. “The financial situation became more challenging, not only for Amherst but in the broader world. Inflation continued to rise and became more persistent,” Dwyer said. We also saw significant cost increases in our capital projects.”

According to a list compiled by Moody’s Investor Services from the 2021 fiscal year, among NESCAC and Ivy League schools with an AA or AAA credit rating, only Princeton University had a higher reliance on its endowment.

This high dependence on the endowment means that much of the College’s revenue is tied up in investments. In fact, according to the Moody’s list, 64.5 percent of Amherst’s total revenue comes from investment income. On the opposite end of the spectrum, that percentage was less than 10 percent for the University of Pennsylvania and Cornell University.

While a heavy reliance on endowment has many upsides, it also presents key challenges. Since high price instability and soaring inflation rates generally have a negative impact on investment markets, these trends will likely have a greater effect on Amherst than its peer institutions. “Given the fact that our endowment is our single largest revenue source, inflation presents special challenges for Amherst,” said Dwyer.

Dwyer stressed that inflation “disproportionately” impacts certain departments.  “If you look narrowly at food, food inflation has been significantly higher than [the average inflation rate],” he said. “So that impacts, for instance, our dining services operation more significantly than some other areas within the college.”

Executive Director of Dining and Hospitality Services Joe Flueckiger said that while normal inflation is currently between eight to nine percent, that number is between 16 to 20 percent for food. Upon receiving the first quarterly report at the end of September, Flueckiger said that “it was like, ‘Wow, this is alarming.”’

While Flueckiger noted that right now the college has been “absorbing” this change and not “withholding product,” he acknowledged that this could change if current inflation trends continue. “What it might mean is if we are buying a specific cut of beef we might have to switch to another one, or buy different poultry, or serve seafood less days a week, for example,” he said. Among the food products at Val most heavily affected by inflation are staples such as beef, eggs, butter, and chicken.  

In addition to food, Elliott mentioned utility and construction costs as areas that could be affected by inflation, though he added that in the long term the college hopes to become less dependent on natural gas and oil. On Tuesday, the Office of the President sent an email to all students, faculty, and staff which noted that the next phase of the college’s plan to reach net zero emissions by the end of 2030 will commence this spring.

At a faculty meeting last month, Elliott said that incremental new revenue will almost certainly fail to meet inflation rates. He noted that the college may have to think less about injecting money into new programs and more about moving money across these programs. One idea he said the college is considering is a pause on hiring of new staff.

Several months after the 2021 fiscal year concluded, Amherst capitalized on its revenue increase by making a number of new investments, “the most significant of which was on the financial aid side. This was at the same time that the legacy announcement was made — there were a number of investments to further support students,” Dwyer said. Indeed, at an October 2021 board meeting, the college approved a $4.5 million increase in financial aid, $2 million in targeted wage increases, $1.1 million in faculty-student research and more, totaling between a $9 to $10 million increase in the college’s budget.  

Due to high returns on the endowment in previous years, Dwyer said that the negative 10 percent return this year will not affect any of these changes.

Following up on Dwyer, however, Elliott did say that “we are trying to forecast what the budget will be in two years, three years, four years, and that’s where some of these assumptions about what we think the market returns on the endowment will start to play in,” suggesting that the budget may suffer more in coming years.

With respect to financial aid support for low-income students, Elliott said, “We are absolutely remaining committed to the financial aid program, to committing to supporting and recruiting a diverse student body in every way. Those are the core commitments of the college, everything else falls from that. So there’s no sense that we will back down from that,” he remarked.

In addition to these programs and the “people” of Amherst, Elliott listed two other main priorities in the budget. “We also do want to make sure that we can continue on the path towards the climate action plan, achieving the goal of being carbon neutral,” he said. “And then of course we are hoping to move ahead with the construction of a new student center and dining commons, but we will need to make sure that we have the financing lined up in a way that makes us feel comfortable about the long-term financial health of the College.”

Dwyer and Elliott ultimately stressed the novelty of inflation-related challenges. “A challenge for me and for Tom and for all of us who are in the administration is that we have lived our entire professional lives in a world where inflation has been around 1 or 2 percent. This will be a different reality and will feel different,” Elliott said. For Dwyer, “the unique thing about inflation versus other challenges is that it truly affects every single person on our campus community both personally and professionally.”

The college will be providing budget guidance to departments in January or February before reviewing scenarios in the spring. The new budget will then be presented to the Board of Trustees at the end of May.

Corrections, Dec. 7, 2022: An earlier version of this article stated that the decrease in the endowment over the 2022 fiscal year was “greater than that suffered during the 2008 financial crisis,” when it, in fact, was not. An earlier version also misstated that “the college is considering a pause on hiring of new faculty.” It is considering, instead, a pause on hiring of new staff.