Dec. 8, 2008

Nationwide, universities scrimp to cope with recession

Even the nation's wealthiest universities are feeling the pinch of a constricting economy. Facing steep declines in endowments, state and federal funding and philanthropy, many university leaders are laying off staff, putting a freeze on new hires, canceling faculty searches, delaying building projects and cutting financial aid and enrollment. Although Cornell has avoided taking those measures, it is not alone in weathering the economic storm, says Interim Provost David Harris. "It's a substantial problem for higher ed and the U.S. economy. This is a challenge that everyone is facing."

In a sign of the tough economic times, Harvard University's Faculty of Arts and Sciences has frozen raises for faculty and non-union staff and has put a hold on faculty searches, it announced Dec. 8. Officials cited Harvard's Dec. 2 announcement that the value of the university's $36.9 billion endowment -- the nation's largest -- dropped 22 percent since July and could lose as much as 30 percent by the end of the fiscal year in June. "The prospect of significant endowment losses therefore has major implications for our budgets and planning, especially since our other principal revenue streams also stand to be challenged by the economic crisis," President Drew Faust said. For example, officials are assessing all aspects of the university's extensive plan to expand its campus across the Charles River into Allston.

Wealthier universities are often harder hit than less affluent ones during prolonged economic downturns, because they tend to fund about one-third of their budgets from endowments. For example, endowment income is Stanford University's largest source of revenue. And some of Harvard's schools rely on endowment income to cover more than 50 percent of their expenses. That income is steadily falling. Moody's Investors Service, which monitors college finances, recently projected that the average college endowment will have lost 5-7 percent for the fiscal year that ended June 30, and another 15-30 percent in the first four months of the 2009 fiscal year.

In the past few months, presidents of the Ivy League schools and of many of Cornell's other peers have urged their communities to adopt a more frugal mindset. Boston and Brown universities have announced selective hiring freezes. At Princeton University, Provost Christopher Eisgruber said that some construction projects will be delayed and raises reduced. And the Massachusetts Institute of Technology expects to decrease spending by about 10-15 percent over the next two to three years. "In the current budget planning cycle for FY10, we will plan for a base budget reduction of 5 percent," said President Susan Hockfield in a statement. Among its plans, the institute has delayed the $90 million renovation of a residence hall.

The situation is no better on the West Coast. Stanford officials anticipate slashing the university's $800 million general funds budget, which pays for most faculty and staff salaries, central administrative operations and non-research expenses, by as much as $100 million over the next two years, said Provost John Etchemendy in a Dec. 2 statement. Reductions of that scale will require the university to reduce its workforce, he said. "Where layoffs are unavoidable, we hope to lessen the impact on the affected employees with an enhanced severance program."

In California's public arena, the regents of the University of California chopped the annual budget by $48 million for fiscal 2009 and are requiring $100 million in further reductions. That means a 5 percent budget cut, and more may follow, President Mark Yudof said in an Oct. 21 statement.

For its part, Cornell has paused hiring of external staff until March 2009 and new construction until February 2009. President David Skorton has instituted a rigorous universitywide review to identify actions to contain costs and streamline Cornell's operations. He is encouraging staff, students, alumni and faculty to share suggestions at http://www.cuinfo.cornell.edu and at public forums.

Despite these moves, Cornell recently announced it will bolster financial aid for undergraduates by eliminating parental contribution for family incomes below $60,000 and by further reducing student loans. "Cornell has a long tradition of need-blind admission and need-based financial aid," Harris said. "We're going to stick by those commitments."