Financial Pain on the Campuses

On February 11 art-lovers packed a meeting room at Brandeis University to protest Brandeis’s plans to shut down its on-campus art museum and auction off the museum’s entire 6,000-piece collection. The list of holdings at Brandeis’s Rose Art Museum, most of them donated since the museum’s opening in 1961, reads like a Who’s Who of prominent twentieth-century American artists – works by Max Ernst, Willem de Kooning, Jasper Johns, Roy Lichtenstein, Robert Rauschenberg, and Andy Warhol, among others – and is valued at $350 million. Museum curators, especially those associated with university – owned art collections, greeted Brandeis’s decision with shocked intimations that selling the art might violate ethical obligations to donors. Elsewhere in the art world there was fear that the fire-sale prices that the Rauschenbergs and Warhols might command if dumped onto today’s anemic, recession – beset market for luxury goods could depress the value of other art collections less stellar than Brandeis’s.

One thing is certain, however: Administrators and trustees at Brandeis, a well-regarded but not overly rich liberal arts-focused research university of about 3,900 students in Waltham, Mass., saw a need to act quickly and decisively to cut costs and raise cash at a time when nearly every university in America, private and public, is being hit by the double whammy of shrunken endowments (thanks to the tanking of Wall Street) and sharp downturns in revenues from both private donors and financially strapped state governments. Brandeis, founded in 1948 and named after the Supreme Court justice Louis Brandeis, had an endowment valued at $712 million as of last June – pocket change compared to its neighbor Harvard’s $37 billion endowment – but Brandeis’s endowment is now reportedly worth only $530 million because of the market meltdown, Furthermore, many of Brandeis’s chief donors had invested heavily with alleged Ponzi schemer Bernard Madoff, a guarantee of financial wipeout. Indeed, Brandeis’s very largest donor; the family foundation of the clothing manufacturer and philanthropist Carl Shapiro, who had several campus buildings named after him, reportedly lost $545 million, nearly all its assets, to Madoff’s alleged pyramid of fraud. Although Brandeis denies investing any of its endowment with Madoff, it has admitted to serious investment losses, and its chief operating officer, Peter French, told the online magazine The Daily Beast that the university faces an operating deficit of $79 million over the next six years together with “a tapped-out reserve fund,” as the Beast’s Judith Dobrzynski wrote, and seriously strapped donors. According to French, Brandeis faced three alternatives: sell the art, shut down 40 percent of its campus buildings, or choose between firing 30 percent of its administrative staff or 200 of its 360 faculty members. Since original works of art are inspirational but not exactly germane to a college education (Brandeis had no art museum for its first thirteen years of existence), the university axed its art, not its buildings or employees – “We’d rather use Rose” to cut costs, French said.

In fact Brandeis is actually lucky to have valuable hard assets on hand to liquidate for a desperately needed cash infusion, and even luckier to have had generous donors in the past whose gifts constitute those assets. The university does not have to decide – at least not right now – whether to shrink its faculty, trim its administrative staff, reduce undersubscribed academic offerings, or deal with the costly results of an overhead-hiking campus construction spree when times looked flush earlier in the decade. Mark Williams, a senior lecturer at Boston University specializing in risk-management told the Bloomberg news organization that one of Brandeis’s problems was that it “overbuilt at the peak of the market.” In fact, according to Inside Higher Education, the Brandeis faculty recently formed a committee to review the curriculum and review such revenue-boosting or cost-cutting options as adding business and engineering programs to the university’s traditional liberal-arts offerings and replacing its existing majors and minors with (apparently cheaper in terms of faculty deployment) interdisciplinary “meta-majors” whose vague parameters have alarmed some professors, not so much because they might dilute standards or jettison, say, Brandeis’s longstanding but low-attendance courses in ancient Greek, but because they might result in eliminating entire departments and professorial jobs.

Yet if Brandeis can go through with its plans to sell its art, it may be able to postpone, if not avoid entirely, those tough decisions about the shape of a U.S. university facing a far leaner future. Many colleges are in serious financial trouble these days, thanks to the current market collapse which has hit them, potential donors, and state budgets with equal severity. A survey released in January by the Commonfund Institute and the National Association of College and University Business Administrators found that college endowment returns at both private and public institutions dropped by nearly 23 percent during the first six months of fiscal 2009, which for most of them started last July 1. For the very richest universities, a group that includes Harvard, Yale, Stanford, the University of Texas system, and the Massachusetts Institute of Technology, all with assets in the double-digit billions, endowments still showed modest growth even as their investment returns declined by a fifth. For the rest – and that includes such prestigious institutions as Columbia, Penn, Cornell, the University of California, Swarthmore, and Emory – the value of endowment assets fell along with returns.

On the other hand, according to a survey released in December by the National Association of Independent Colleges and Universities (NAICU), an organization of 900 private institutions, mostly smaller, undergraduate-focused institutions with enrollments of fewer than 5,000 students, administrators seemed aware that both their endowments and donor contributions were shrinking. Some 97 percent of those colleges reported drops in the value of their already modest endowments, 90 percent reported fundraising difficulties, 53 percent reported higher borrowing costs in today’s tight credit market, and nearly 57 percent expected enrollment declines ranging from slight to significant for the spring 2009 semester, due mostly to the inability of students and their cash-strapped parents to afford tuition and related costs. Enrollment declines can be devastating to marginally endowed institutions that depend heavily on tuition to cover operating expenses.

Nonetheless, the NAICU survey indicated that as of the end of 2008 the vast majority of those institutions had no plans to undertake serious cost-cutting measures such as eliminating academic programs or student services or laying off faculty or staff. Although most of the colleges said they intended to halt or scrap planned campus constructions, and 39 percent said they would delay maintenance on existing facilities, much of the colleges’ proposed belt-tightening seemed marginal: freezing new hiring, restricting staff travel, and, to a lesser extent, freezing salaries. Instead of trimming budgets,, some 68 percent of the institutions seemed to be pinning their hopes for future solvency on increasing student enrollments – but not by reducing tuition, a competitive move that might win back some of those spring 2009 dropouts. Quite the contrary: 69 percent of those surveyed by NAICU planned tuition hikes in order to raise revenues.

And where, exactly, is that extra tuition money supposed to come from, given that students and parents are already having a hard time paying higher-education bills and smaller colleges have limited funds for scholarships? The answer, according to, the majority of respondents to the NAICU survey, is the U.S. government. In a series of responses to NAICU’s question, “How can the federal government help?” more than 90 percent of institutions said they wanted the government to help make student loans easier to obtain and repay via guarantees and relaxed regulations, and 98 percent said they wanted the government to hand money to students outright via increased Pell and other grants. “Pell, Pell, Pell,” was one college administrator’s answer to a question about a federal role in solving the institution’s financial problems. Besides direct student aid from the government, college administrators voted heavily for federally assisted refinancing of their own institutional debts (70 percent) and federal funding for their campuses’ construction and renovation projects (76 percent). Far from streamlining academic offerings, 41 percent of NAICU respondents planned to create new programs with the hope of attracting more students, while others begged for federal help on “renewable energy” projects, congressional subsidies for educating disabled populations, and relaxed visa requirements that might lure more education-seeking foreign students into U.S. classrooms.

Dartmouth University, although it doesn’t quite fit the NAICU demographic profile with its robust population of 5,800 undergraduate and graduate students and its equally robust $3.6 billion endowment whose value fell by a less-than-catastrophic $100 million last year, has a cost-cutting strategy that matches the NAICU budget-balancing profile: anything but streamline programs and reduce tuition. Indeed, Dartmouth plans a 5 percent annual tuition hike for future years (as does Brandeis). Instead, in a release issued on February 10, Dartmouth announced that it intends to lay off 60 non-faculty employees, institute salary and hiring freezes, halt faculty searches, and reduce working hours for many staffers (such furloughs are popular ways for administrators to cut salaries without saying so). Dartmouth expects all this, plus an early-retirement program and some canceled construction projects to save the university $47 million during the coming fiscal year. A Dartmouth-style mix of tuition increases, salary freezes, and modest overhead cuts seems to be the paradigm in the Ivy League for the coming year: Cornell will raise tuition by 4 percent next academic year, and Yale’s tuition will rise by 2.2 percent.

Rare are the universities taking a hard look at duplicative or undersubscribed academic programs, resort-quality dorms and gyms, or student services (counseling, residence life, writing centers) that devour funds but do little to increase classroom performance. One of those few is Boston University, facing a $10 million budget shortfall for the 2009-2010 academic year partly because of its shrunken endowment. Boston plans to review and possibly shut down the nearly 200 independent centers and institutes it currently helps fund, many of which operate costly and sometimes duplicative programs on the Boston campus that serve tiny numbers of students and are not self-supporting.

If private colleges and universities trade on hopes for federal first aid to their balance sheets, public universities facing waning state support boldly have their hands out. Their bluntest move was the “open letter” signed last December by thirty-one public-system presidents and trustees (including the CEOs of the California and New York systems) asking the Obama administration for $45 billion in stimulus funds in order to pay for campus construction projects. The final version of Congress’s $787 billion compromise stimulus bill contains no such allocation although it does provide for handing state officials $54 billion to spend on education at all levels, $9 billion of which could go to building or modernizing facilities. Nor, according to reports, does the stimulus bill contain an increase in federal caps on unsubsidized student loans, a pet project of lobbyists for private and for-profit colleges. The bill does appear to answer the “Pell, Pell, Pell” prayer, however, increasing spending on the grants by about $17 billion. That would nearly double the size of the current $16.3 billion Pell program. In addition the bill would provide $13 billion in expanded higher-education tax credits, according to Inside Higher Education.

It is then perhaps not surprising that efforts to control costs at state universities have so far been dilatory at best. Arizona State University, for example, under the fiscal gun from the Arizona legislature, which has ordered the state’s three universities to chop $41 million from their budgets in order to cope with a state deficit of $1.6 billion, has eliminated 550 positions, mostly non-faculty, and required the rest of its 2,000 employees to take fifteen days of unpaid furlough leave before June. Commenting on the across-the-board furloughs, San Francisco State University management professor John Sullivan told the Arizona Republic they were “the chicken’s way out” of making tough decisions about which valuable employees to keep and which less-than-valuable ones to fire. In December the University of Tennessee, facing cuts of up to $100 million in its state subsidy, announced a cost-cutting campaign – but so far, the projected savings, many based on Tennessee employees’ suggestions, don’t look substantial: eliminating vacant positions ($2 million), trying to reduce coal, oil, and natural gas consumption on Tennessee’s five campuses (another $2 million, maybe) 5 percent pay cuts and relinquishment of university-supplied vehicles for top university administrators ($400,000), using electronic pay stubs for employees ($146,000). That’s still a long way to go to reach $100 million.

Still, there are signs that a few college administrators realize that their institutions aren’t Brandeis with a valuable art collection that can be sold for hundreds of millions of dollars, and that their job when faced with a fiscal crisis isn’t to hope that the federal government will bail their institutions out. Early in January the Louisiana Board of Regents announced that it had identified 658 “low-completer” academic programs in the state’s system of universities and community and technical colleges: programs that graduated tiny handfuls of students and could be consolidated or eliminated. The board also placed a moratorium on the creation of new programs. Louisiana is facing a $341 million budget shortfall, and the eight-campus University of Louisiana System must trim $34 million from its own budget. “We have a tendency to always want to grow programs,” declared the system’s president, Randy Moffett, in a press release, adding that it was now time to “step back.”

In deciding how to deal with the current economic crisis, the Louisiana regents – along with administrators of universities public and private across the country facing drastic declines in income – might want to learn from the experience of a private university in Louisiana, Tulane, which faced a different but just as fiscally devastating crisis in 2005: Hurricane Katrina. Tulane’s prestigious New Orleans-based campus, home to nearly 11,000 undergraduate, graduate, law, medical, and engineering students, not only suffered $650 million in damages from the hurricane and subsequent flooding, but it was already running a $70 million operating deficit when the disaster struck that August. The university had to close for a semester, meaning that it lost all its students (most but not all of them eventually returned)

“We had three options,” Tulane’s president, Scott Cowen, told me in a telephone interview. “We could wait and see if things would get better on their own. We rejected that. We could make across-the-board cuts, but that would weaken both our strongest and our weakest programs. Or we could make focused cuts, voluntary and involuntary. That’s what we chose to do.”

Under Cowen’s leadership Tulane consolidated its seven different schools whose course offerings frequently overlapped into a single undergraduate college. It eliminated scores of programs and degrees, including half of its dozen engineering programs and 27 of its 45 doctoral programs. It suspended its participation in Division I athletics anmd dropped other sports programs, including golf, men’s tennis, and women’s soccer. It also laid off thousands of employees in 2005 and 2006, including 180 of its 1,100 faculty members, some of them tenured. The drastic measures paid off. The leaner post-Katrina Tulane cured its deficit, recovered $400 million from its insurers and the Federal Emergency Management Agency, managed to save its core faculty, and emerged as an even more competitive and desirable academic destination for talented high school seniors (the average combined SAT score for entering freshmen is 1,365). “We did all of this because our basic survival was at stake,” said Cowen.

The Tulane story is an object lesson in how a university can face not only a sever fiscal crisis but a threat to its very existence – and survive without a bailout, by making tough decisions that don’t make everyone happy. Institutions without valuable assets to sell like Brandeis might look to Tulane instead of the federal government for lessons in saving themselves.


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