<p>This has been touched on in many threads. Something has to go. Some think more full pay students will be accepted. Others see cuts in services for students. What do you think the approach should be?</p>
<p>The scale of budget reductions for 2009-10 and especially 2010-11 if the market doesn't bounce back will require significant cuts across the board, including faculty costs.</p>
<p>With 30% endowment losses, the short answer is that everything is on the table for being cut and everything will be cut in some way or another.</p>
<p>Well, I don't think there's a good way to do this, but here are some things I think they WILL do:</p>
<ol>
<li> Faculty hiring freeze/shrinkage of faculty by attrition and early retirement incentives (=higher student/faculty ratio). More teaching by grad students, adjuncts, and part-time faculty, and generally larger classes. Slowdown in the rate of faculty tenure and promotion.</li>
<li>Shrinkage of non-faculty staff by attrition, retirement incentives, and if necessary layoffs.</li>
<li>Deferral or cancellation of new capital projects.</li>
<li>Across-the-board cuts in non-personnel expenses including library acquisitions, new technology hardware & software, non-revenue sports, cultural events, faculty travel/expenses, admissions committee recruitment expenditures (including fewer glossy mailings), student activities.</li>
<li>At many schools (but not the wealthiest), cuts in institutional financial aid.</li>
<li>Increase in admissions of full-pay students, including internationals; at some state schools, increase in admissions of higher-paying OOS students.</li>
<li> Increased entering class size at schools where such an increase can be accommodated without additional capital expenditures (= higher student/faculty ratio).</li>
<li>Reduction in support for "non-essential" educational programs like study abroad, internships; elimination of some marginal academic programs, departments, and (at larger universities) entire schools.</li>
<li> Reduction in university-sponsored faculty research support; revision of formulas for "indirect cost recovery" to direct a larger percentage of outside research grants into central university coffers, leaving less for faculty research.</li>
<li>Move to put more student services on a fee-for-service basis.</li>
<li>Hikes in tuition and mandatory fees.</li>
</ol>
<p>This won't be pretty for faculty, staff, students, or administrators. But the cuts won't be the same everywhere. Some schools, like Yale, are heavily dependent on endowments that have lost a huge fraction of their previous value--Yale gets 44% of its operating budget from an endowment that's shrunk by at least 25%. At most schools the endowment (if any) represents a much smaller percentage of their operating budget, so even if their endowments shrink by a like proportion, the impact on their overall budget will be much less significant. On the other hand, schools without big endowments are already operating on a shoestring, so there's less to cut without damaging core programs and functions. Public universities will get whacked by their legislatures, but again there's wide variation in the severity of state budget deficits and in the level of the university's dependence on state funding. Schools with relatively low tuition probably have more room to hike tuition. And so on.</p>
<p>Have most faculty handle 3 sections per semester. That will eliminate the need for as many adjuncts.
Cut everything else 10%.</p>
<p>
[quote]
With 30% endowment losses, the short answer is that everything is on the table for being cut and everything will be cut in some way or another.
[/quote]
</p>
<p>Aren't the losses simply a reversal of past HUGE profits? Where do those endowments stand in comparison to 2001 or 2005? </p>
<p>While the losses are real in TODAY's market, it is a fallacy to claim that the schools depended on those endowments to meet their obligations. The schools depended on the DISBURSEMENTS .... and that is not exactly the same thing since the authorized and prudent disbursements are flexible and mostly in single digits per annum. </p>
<p>The reality is that the endowments at many schools grew by obscene amounts in the past decade. They should have little problem correcting their spending by cutting all the fat and deadwood that became ... normal. </p>
<p>How did the schools do a few years ago?</p>
<p>Market Value (in millions) Return Spending </p>
<p>2007 $22,530.2 28.0% $ 684.0
2006 $18,030.6 22.9% $ 616.0
2005 $15,224.9 22.3%$ 567.0
2004 $12,747.2 19.4% $ 502.0
2003 $11,034.68.8% $ 470.1</p>
<p>The endowment DOUBLED in five years!</p>
<p>Yale’s Endowment generated extraordinarily strong results in fiscal year 2007, as investment returns of 28.0 percent produced record-setting investment gains of $5.0 billion. For the third straight year, Yale enjoyed returns well in excess of 20 percent.</p>
<p>Over the past ten years, the Endowment grew from $5.8 billion to $22.5 billion. With annual net investment returns of 17.8 percent, the Endowment’s performance exceeded its benchmark and outpaced institutional fund indices. The Yale Endowment’s twenty-year record of 15.6 percent per annum produced a 2007 Endowment value of more than ten times that of 1987.</p>
<p>xiggi:</p>
<p>I'm not suggesting that the well-endowed colleges and universities won't be able to balance their operating budgets. However, even those with the most conservative endowment spending policies are facing significant spending reductions over the next three years to bring the spending down to match the new endowment levels.</p>
<p>I, personally, believe the exercise will be beneficial over the long haul for colleges. However, there is going to be some pain making the adjustments.</p>
<p>Once you drop down below the level of the endowment schools, things get ugly pretty quickly. These private schools are almost entirely dependent on tuition revenues.</p>
<p>I-Dad, I do understand, but following the example of Yale, let's assume that the school had earned a conservative 9% on its endowment and disbursed 5% to meet the annual expenses since 2003. How much would the endowent stand at in 2008? A net growth of 4% per year from a base of 11 billion would have added about 3,000,000,000 to the endowment. So, today the endowment would be about 14,000,000,000.</p>
<p>By distributing 5%, the endowment would have distributed from 550,000,000 per year to 670,000,000. </p>
<p>In other words, if Yale had earned that 9% conservative return, they would be in the same situation as today after the gigantic losses. </p>
<p>Nowhere was it ever stated that the endowment of Yale should inch in the direction of 50 or 100 billion dollars. Extraordinary times call for extraordinary measures. If there is a budget shortfall, Yale can increase the distributions without triggering spendthrift clauses. </p>
<p>Getting used to a "normal" budget might be a bit unpleasant, but after the gluttony of yesterday a bit of a diet should be exactly what the doctor ordered.</p>
<p>"Have most faculty handle 3 sections per semester. That will eliminate the need for as many adjuncts.
Cut everything else 10%."</p>
<p>Schools vary by teaching load. And good luck with that one: Teaching loads with tenure track faculty are contractual. And valued as much as (and often more than) salary. Top researchers choose research schools for their lighter teaching loads (I teach 3 courses per year, in one term). You aren't changing their employment contract just because you want to save money.</p>
<p>I agree with Xiggi: looks like they just go back to where they were. I don't get the hype. I think its just an excuse to introduce whatever changes they'd prefer regardless.</p>
<p>
[quote]
10. Move to put more student services on a fee-for-service basis.
11. Hikes in tuition and mandatory fees.
[/quote]
</p>
<p>You're telling me they're going to essentially become airlines? A-la-carte pricing where the base price doesn't ACTUALLY go down.</p>
<p>Great point Xiggi, so why are the high endowment colleges making so much noise about cuts?</p>
<p>DS's school has an office of parking. Really, can't they just tell the kids if they get caught parking improperly twice they're out and hire a guy one day per week to police rather than have a half dozen full time employees enforcing parking rules on a rural campus?</p>
<p>"2007 $22,530.2 28.0% $ 684.0
2006 $18,030.6 22.9% $ 616.0"</p>
<p>Yale adjusted its spending to a higher endowment.
Now its lower and it will have to adjust.</p>
<p>It's real easy to say, "Hey the endowment is back to 2006 levels". Ok, but spending isn't. How many people at Yale want their pay and benefits cut back to 2006 levels?</p>
<p>And what about all the capital improvement projects that are already under way? What about the expansion Yale has already done? These things add to Yale's costs too.</p>
<p>Also not all of Yale's endowment is in liquid assets. You can own a lot of assets and still have cash flow problems.</p>
<p>And it's really not that bad at Yale.</p>
<p>
[quote]
Getting used to a "normal" budget might be a bit unpleasant, but after the gluttony of yesterday a bit of a diet should be exactly what the doctor ordered.
[/quote]
</p>
<p>Xiggi, I don't disagree with that. I'm just saying that the required cuts in the current operating budgets will be deep and real. Almost every college in the country will be cutting faculty and faculty pay, whether they have admitted it yet or not. Student/faculty ratios are going to get higher. Courses are going to be eliminated. Colleges are so labor intenstive, there's just no other way to achieve the required budget cuts.</p>
<p>
[quote]
I don't get the hype. I think its just an excuse to introduce whatever changes they'd prefer regardless.
[/quote]
</p>
<p>The "hype" is that college budgets are very labor intensive and have seen rapidly escalating benefits costs (health insurance, etc). It's difficult to find signficant cuts without whacking payroll.</p>
<p>ID:</p>
<p>The point is that none of the universities with large endowments will seek to achieve a balanced budget for the next year. They will adjust gradually and will be able swallow large deficits for several years by borrowing against their endowments. Their credit rating is better than that of GE, so their cost of borrowing is low. At best, Harvard, Yale or MIT are talking about a 5% adjustment in 2009. There is no way salaries of tenured faculty will be cut. That would be killing the golden goose. What is being discussed is slowing the rate of increase, not reducing actual salaries. Top faculty is what attracts research grants, and the larger universities get a bigger portion of their revenues from research funding than from their endowments or tuition. At a number of universities, the graduate schools (at least in the sciences) are largely self-funded: they adjust expenses based on projected contract revenues, not on endowment distribution. Same thing with many of the professional schools: HMS, HLS and HBS are far from loss leaders at Harvard. Less so for the Kennedy School which is the poor sibling.</p>
<p>I don't know how it is everywhere, but at a pretty good number of institutions where I or my colleagues teach, there have been many budget cuts in recent years. When you add 2%, 3%, 5%, 10%, 12% or more over a number of years, you are soon reduced to counting the pages that faculty are allowed to copy, many have no travel budget whatsoever for faculty to attend professional meetings, support staffs have been reduced by half or more with student workers handling more and more. You can only cut so much after which there's no blood left in the turnip. </p>
<p>When maintenance gets deferred, library holdings are not maintained or are even cut, course selection is reduced, class sizes increased, and equipment can't be replaced, education will eventually suffer.</p>
<p>
[quote]
The point is that none of the universities with large endowments will seek to achieve a balanced budget for the next year.
[/quote]
</p>
<p>There is a rolling timeline here. Endowment spending is based typically on a percentage of a rolling 12 quarter or 3 year average. So, only a third of the decline will show up in 2009-10, two-thirds in 2010-11.</p>
<p>Swarthmore explicitly outlined a three stage approach which is what all the top colleges appear to be doing:</p>
<p>a) This year's money is spent, but begin putting the brakes on construction and hiring and low-hanging fruit.</p>
<p>b) Finalize the 2009-10 budget over the next few months. These budgets will start to hurt with real reductions in the 5% range that you mention.</p>
<p>c) Contingency planning for the 2010-11 budgets where the full 10% to 15% reductions will take place. This is when you'll see pay cuts, staff reductions. This stuff will be queue'd up and ready to start implementing about a year from now if the markets haven't bounced back.</p>
<p>There will be no choice but to cut salary and benefits of tentured professors. It may take the form of a pay freeze for successive years. Or changes to the insurance funding. Or reduced sabatticals. Or increased teaching load. Whatever. Colleges simply can't get to their 2010-11 budgets without whacking labor costs.</p>
<p>The research universities will be hit hardest. At an LAC, at least all the faculty is teaching. So, unless enrollment declines, there's still work to do. If the research dollars dry up, big chunks of the university faculties become redundant and generating no revenue.</p>
<p>I disagree that research universities will be hit hardest. Research budgets are not subsidized by the school's endowment, so a drop in endowment has no effect on research funding. Each department already operates by the amount of research funding it can obtain. The most successful departments have the largest budgets. Lack of capital funding may prevent a university from launching some new program but it will have little effect on existing operations. </p>
<p>A college on the other hand has no other sources of revenue outside of tuition and endowment distribution. A drop in one has to be compensated by an increase in the other. Harvard College is a huge black hole while the professional schools and graduate departments in the sciences are self-funding.</p>
<p>It doesn't take a very long look at federal and state budgets to see that government sponsored research funding is going to dry up faster than you can say "red ink".</p>
<p>President Levin sent a letter to faculty and staff (that was forwarded to students) outlining how Yale plans to respond to the economic downturn.</p>
<p>If you're interested, you can read it at: </p>
<p>Budget</a> Letter</p>