<p>I agree with everything you wrote about the way endowment declines will be handled. The three year trailing average is designed to smooth the impact of market fluctuations on the available spending. The big endowment schools will still be spending big dollars from their endowments.</p>
<p>I would offer one small correction/amplification. The well managed schools have already seen enough to know that the endowment declines will persist long enough to dominate the 3 year rolling averages. They are no longer waiting to see if the market bounces back. They know. They are doing budget modelling based on today's endowment values as the new reality.</p>
<p>Because the declines are so extreme, they fall outside of any school's spending policy range and ability to cushion the hits. The really well managed colleges are not going to hide behind those three-year rolling averages. Instead, they are going to plot out a path to get to the required Year 3 budget cuts and start phasing in those changes as quickly as they can. As it turns out, it's pretty hard to cut deep enough fast enough so spending percentages will likely be at or above the top of the range for the FY starting in June. Nevertheless, I think we are going to see some very serious budget cutting initiatives announced as budgets for FY2010 and FY2011 are announced this spring.</p>
<p>interestdad ...You seem to have some interesting observations, and I'm wondering if you can summarize, bullet them as to what you're suggesting?</p>
<p>"IU President Michael McRobbie has directed all IU vice presidents, chancellors and deans to immediately reduce their operating budgets by at least $4.9 million through the remainder of the current fiscal year." </p>
<p>While many states do value their flagship schools the political facts are that K-12 schools, prisons, and health care will almost always be higher priorities and higher ed is one of the few large ticket items without a very large citizen and worker political base. Colleges will take the biggest hits at budget cut time.</p>
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and higher ed is one of the few large ticket items without a very large citizen and worker political base.
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<p>Really? I'd think most state politicians graduated from their state flagships. In any case, I think it's foolish to cut university spending. A recent study done here found that for every dollar Georgia gave to GT, 15 went into the state economy. In terms of taxes, that probably means they got a return on investment.</p>
<p>Most state politicians probably did graduate from their state's flagships.</p>
<p>But school loyalty doesn't count for as much when you have teachers, police officers, firefighters, and other (non-university system) state employees all complaining about lack of raises and hiring freezes making work loads more onerous. The fact is that at any given time, there are more non-university system employees directly or indirectly on the state payroll than there are flagship university employees and students' family.</p>
<p>Furthermore, state employees are well organized and politicians know they can be counted on to vote. Alumni of flagship universities among them will throw their school under the bus if their own job or pay depends upon it.</p>
<p>There's a lot of short-term and me-first thinking when politicians need to make budget cuts. Legislators look at what's going to hurt them the least in their home districts. K-12 education? That affects a large fraction of the residents of every community in the district. Aid to local government? That also affects every community, and although it doesn't hit taxpayers directly, the connection between loss of state aid and rising property taxes and/or loss of local services like police and fire is something local officials will yell loudly about. Prisons? No; you don't want to be accused of putting criminals on the street. The state flagship university? Well, it's a huge employer in its own right, but for the vast majority of legislators it concentrates the cuts in someone else's district. cutting the University is economically counterproductive in the long run because spin-off businesses from university research and human capital in the form of well educated residents are critical to economic growth---but that's the future, consequently on someone else's watch for politicians whose time horizons generally don't extend past the next election. Then there's the pain felt by university students and their families in the form of tuition hikes to offset cuts in appropriations, and/or deterioration in the quality of the educational product and campus experience. But only a relatively small fraction of families in the district have students attending the state U at any given time. And besides, there are lots of opportunities for politicians to do compensatory grandstanding by railing against the high cost of tuition, calling for tuition freezes, and yelling about how the University should "cut the fat," make professors work harder, and so on---all of which makes it sound like the legislator who's voting to cut the University's budget is really on the side of the poor beleaguered students and their financially struggling parents.</p>
<p>Now that we have explored the near term consequences of the economic downturn lets look at things after a couple of years of financial collapse. Lets take the view of economists Roubini (nyu) and Stiglitz (columbia) that things will not turn around any time soon and most likely get worse for several more years ( grim but prudent if planning for the future). After a couple more years of financial decline endowments might not be much use as they will be gutted. More important will be a schools location, it's reputation for participation in the financial collapse, it's alumni, and its relevance to educating people for the future. Which schools will get punished first when the unemployed masses take out their revenge on the "Banksters".</p>
<p>The schools that got accustomed to endowments functioning like giant magic pots-o-gold (Harvard, Yale, Princeton, Dartmouth) and relied on the magic money-pot for 1/3 of their operating income are going to be hardest hit.</p>
<p>Then there are "poor" Ivies like Penn that only derived 7% their operating budget from their endowment. While Penn is certainly hurting, it doesn't face anywhere near as extreme cuts as its richer peers do. Planning and construction continue for the Singh Nanotech center, the new College House, and Cira II, the new skyscraper that will stand on top of what was the Post Office Annex.</p>