Universities In Denial

On February 11, art-lovers packed a meeting room at Brandeis University to protest the university’s plan to sell off its $350 million collection of works by Max Ernst, Willem de Kooning, Robert Rauschenberg, Andy Warhol and other first-magnitude stars in the galaxy of twentieth-century artists. The controversy opens a window into the dire financial condition of many private and public universities during the market crisis of the past year, in which college endowment returns dropped by nearly 23 percent during the first six months of fiscal 2009.

Brandeis says it is selling because its back is against the wall. Besides facing a $79 million operating deficit, plus what one administrator described in a news report as a “tapped-out reserve fund,” Brandeis has seen its endowment, valued at $712 million last June, reportedly fall to $530 million. Many of Brandeis’s donors had invested heavily with Bernard Madoff’s alleged Ponzi scheme and have lost their fortunes. 

According to Brandeis’s chief operating officer, Peter French, the university faced three grim options: 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 crucial to a college education, the university decided to axe its art.

All across the country, colleges and universities are in the same financial straits as Brandeis. For the richest, a group that includes Harvard, Yale, Stanford, the University of Texas system, and M.I.T., endowments showed modest growth even as their investment returns declined by a fifth. For the rest, the value of endowment assets fell along with returns. State schools face the additional blow of substantially reduced legislative subsidies since many states themselves are experiencing budget shortfalls in the current recession. 

Yet many of them are shying away from making hard decisions involving, say, cutting faculty, administrators, overhead, and programs in order to restore solvency. They seem to be in denialÑputting employees on “furloughs” of unpaid leave that they hope will be temporary, eliminating already vacant positions, and generally hoping that someoneÑprobably the federal government via the stimulus billÑwill rescue them.

According to a December survey by the National Association of Independent Colleges and Universities, 97 percent of respondents–mostly small, private institutions–reported drops in their already modest endowments, and nearly 57 percent expected enrollment declines this spring. About 68 percent of the institutions seemed to be pinning their hopes for future solvency on increasing student enrollments, and hence, tuition revenues, mostly with Washington help. More than 90 percent said they wanted the government to help make student loans easier to obtain, and 98 percent wanted the government to hand money to students outright via increased Pell and other grants. 

Public universities also have their hands out. Their bluntest move was the “open letter” signed in December by 31 public-system presidents and trustees (including the CEOs of the California and New York systems) asking Washington for $45 billion in stimulus funds for campus construction projects. It is thus not surprising that efforts to control costs at state institutions have so far been dilatory, though there are signs of change. Arizona State University, for example, under the fiscal gun from the Arizona legislature, has eliminated 550 positions and also required its 12,000 employees to take fifteen days of furlough leave.

Perhaps instead those administrators could look to the example of one university, Tulane, which faced a different but just as fiscally devastating disaster in 2005: Hurricane Katrina. Tulane’s New Orleans campus not only suffered $650 million in damage, forcing it to close for a semester, but was already running a $70 million deficit. “We had three options,” Tulane’s president, Scott Cowen, told me. “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. That’s what we chose to do.” 

Tulane consolidated its seven different schools into a single undergraduate college. It eliminated scores of programs and degrees, including 6 of its 12 engineering programs and 27 of its 45 doctoral programs. It suspended participation in Division I athletics and dropped other sports. It also laid off thousands of employees, including 180 faculty members, some of them tenured. The drastic and unpopular measures paid off. The leaner post-Katrina Tulane cured its deficit, saved its core faculty, and emerged as an even more competitive and desirable academic destination for talented high school seniors. There is no reason why institutions without valuable art to sell can’t imitate Tulane instead of looking to Washington for help.