<p>This is only half-right. State governments are typically under state constitutional requirements to balance their budgets, and they certainly won't have cash to spare to fund research. But they've never funded much research anyway---they mostly pay for undergraduate education, and that's going to take a whack in most states. </p>
<p>The big government research dollars are federal, but despite a rising tide of red ink I'm not at all convinced we're going to see big cuts in federal spending on research anytime soon. My guess is, just the opposite. Barack Obama is a big believer in science and technology, and basically comes out of a culture of elite universities---educated at Columbia and Harvard, taught at Chicago, resident of that school's Hyde Park/Kenwood neighborhood, and many of his closest friends and advisers are academics or people from academic families. Obama also believes in strategic public investments that will make the U.S. economy competitive in the years ahead---and that means science. And he's committed to transformational changes in the economy to address global warming and energy needs. So look who he just appointed as Energy Secretary---Steven Chu, head of the Lawrence-Berkeley Laboratory, one of the nation's premier government-university scientific collaborations. Chu believes we need to invest heavily in research and development of next-generation technologies to address climate change and our energy future. I think if anything we're likely to see an increased government commitment to science and technology, especially in the energy area, but potentially elsewhere as well. The scientific community generally feels as if it's been in the wilderness the last eight years, half-starved and neglected, or worse, by an administration that many feel devalued and disrespected science. Obama knows that; and he knows that universities---not just the students, but the faculty, staff, and alumni networks---are a critical part of his core political base.</p>
<p>That's not to say new research dollars will be in the pipeline in time to address universities' current budget shortfalls. But my guess is we'll see some pretty significant strategic investments in science relatively early in Obama's first term.</p>
<p>That all sounds good until you look at the federal deficit numbers. A trillion dollar bailout here, a trillion dollar bailout there, pretty soon you are talkin' about real money.</p>
<p>I think that is the last place BO will cut. It will more likely grow in some areas and maintain current levels in the rest. As most states provide very little research money there is little to lose.</p>
<p>^^ The trillion dollar bailouts aren't recurring budget items, they're one-time fixes. They'll have an impact on the total level of federal indebtedness---currently about $11 trillion---but not all that big an impact on the federal budget going forward.</p>
<p>Federal support for academic science research is only about $30 billion a year---a figure even George W. Bush said in his 2008 State of the Union address should double in order to keep the nation competitive economically (though of course it didn't happen). Heck, the Canadian federal government spends $10 billion on academic research, and their economy is one-tenth the size of ours. Whacking away at that $30 billion for science isn't going to have a significant impact on the federal budget deficit, and from a long-term economic competitiveness perspective it would be profoundly counterproductive. It's not going to happen, not in this administration which I expect to be the most strongly pro-science since . . . well, maybe since Eisenhower and Kennedy in the wake of Sputnik.</p>
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They'll have an impact on the total level of federal indebtedness---currently about $11 trillion---but not all that big an impact on the federal budget going forward.
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<p>Well, they seem to be recurring! </p>
<p>Even putting that aside, the federal budget was already shockingly out of balance. With the declining tax revenues, the underlying budget becomes a total train wreck.</p>
<p>Today's Chronicle of Higher Education reports that a survey of small private colleges found 50% are freezing hiring; 49% are cutting back on construction; 42% plan to slow the rate of salary increases; 39% plan to defer maintenance; 10% plan to cut student services; 9% plan to cut financial aid budgets; and 7% plan to cut academic programs.</p>
<p>In a related development, the Modern Language Association reports that hiring of language and literature professors (including English) will be down more than 20% this year:</p>
<p>But colleges that merely maintain their current financial aid budgets will likely fall farther behind in meeting demonstrated need. Another survey indicated that most colleges are seeing increased requests for financial aid among both current and newly admitted students, and only 61% of those surveyed said they were fully able to meet the these additional needs. As a consequence, yields on admitted students are declining at many smaller private schools, especially those with primarily regional followings. These schools are seeing applicants "trade down" to less expensive public universities or community colleges, leaving many of them in a fierce competition for a shrinking applicant pool.</p>
<p>General Administrative expense is out of control, fueled in the past by bloated tuitions and endowment earnings that they couldnt spend fast enough. There are too many $1 million admin salaries, which led to too many six figure associate and assistant admin salaries, which led to new BS admin programs so they could promote more admins and hire new ones to replace those promoted and which led to the hiring of more staff to service the bolated admins and justify their existence. </p>
<p>Hiring freezes wont do it and neither will 5 % budget cuts. Admins dont teach or do research and contribute little of value. There need to be firings in this area, and many.</p>
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so why are the high endowment colleges making so much noise about cuts?
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<p>Some of their concerns are valid. </p>
<p>However, it is also true that wealthy universities have incentive to do a lot of public hand-wringing. There has been a lot of criticism about the size of endowments and the rate of spending; for their responses to the Grassley-Baucus inquiry, universities surely talked about weathering ups and downs. Now they have a very public, alarming evidence for why institutions don't (and shouldn't) treat their endowments like a slush fund when returns are high. </p>
<p>So while I think institutions are rightfully concerned and worried, I think we're hearing more about the pain & suffering than we would have under other circumstances. </p>
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Admins dont teach or do research and contribute little of value.
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<p>Gosh, thanks. Although I don't earn a million. Or even six figures.</p>
<p>I think they high endowment schools are "making so much noise" because the size of the cuts required to offset a 30% decline in endowment spending along with a simultaneous increase in need-based tuition discounting are signficant. I don't think these colleges can get there just by cutting out some frills. The size of the cuts will, in most cases, require real cuts to faculty size or compensation.</p>
<p>Because endowment spending is based on a three-year rolling average, the hardest cuts won't start until Fiscal Year 2010-2011. You really haven't started hear the full extent of the "so much noise" yet.</p>
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Admins dont teach or do research and contribute little of value. There need to be firings in this area, and many.
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<p>Major research university don't run themselves. Staff are very important and interact with students more than some faculty. Also, most salaries are not 6 figures let alone 7. People don't work at a university to get rich, they do it because they love what they do.</p>
<p>Your numbers regarding expected budget reductions at Yale and Harvard are way off.</p>
<p>The Yale announcement refers to a budget shortfall of $100M for next year growing to $300M in 3-4 years. At a $2.7B annual budget this translates into a projected buget deficit of 3% next year growing to 11% in 3-4 years.</p>
<p>Their plan is to seek to bridge anywhere from half to two thirds of the gap through budget reductions (the remainder would be covered through increased borrowings and higher endowment distributions).</p>
<p>The NET budget cuts contemplated are therefore in the 2% range annually not 5% or 10%. </p>
<p>Cuts at Harvard may be even smaller as their dependence on endowment distribution is significantly less. They will still be hiring new faculty but at a slower rate than prior years. New facilities are still being constructed but again at a slower pace. Dorm renovations remain on schedule. </p>
<p>A $6 billion loss is still significant but it only puts Yale back where they were in January 2006.</p>
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required to offset a 30% decline in endowment spending
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<p>If any school is claiming they are immediately dropping their spending by the same amount their value dropped, I'd be surprised. It would likely represent a huge change in policy, and it would be needlessly sending themselves into a budget crisis. </p>
<p>Endowment spending is determined on a value averaged over many quarters. It's to prevent exactly the kind of crazy fluctuations you say they're going to experience. The only way endowment spending could drop by 30 percent--assuming the institution follows this norm--is if the endowment value stayed low for year after year after year.</p>
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Your numbers regarding expected budget reductions at Yale and Harvard are way off.
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<p>I didn't offer any numbers for budget cuts, although I am well aware of those numbers.</p>
<p>The full impact of the endowment losses won't be felt for three years as the spending politicies are almost all based on a 12 quarter rolling average.</p>
<p>You are correct that a handful of the wealthiest colleges and universities can partially offset endowment declines with increased percentage draw. For example, Swarthmore has been at the low end of their endowment spending policy (3.75%). They can move to the upper end (4.75%) and offset up to a 20% endowment decline. Alas, it appears that the endowment losses are even more substantial than that.</p>
<p>Cutting college operating budgets by 10% to 15% is no trivial matter. It is almost impossible to do without signficant layoffs or compensation freezes.</p>
<p>BTW, your 11% reduction in spending for Yale compared to this year's budget is even more severe. I assure you that there are built-in components of the Yale budget that would have pushed the budget higher over the next three years. To achieve an 11% savings three years from now compared to this year's budget will require even more substantial cuts. For example, health care in a labor intenstive business isn't getting any cheaper.</p>
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elimination of some marginal academic programs, departments, and (at larger universities) entire schools.
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What constitutes a "marginal" department/major/program/school? Studies programs (i.e., Women's Studies, Asian Studies, etc)? English (popular but doesn't bring in a lot of grant money)? Niche majors? I'm curious...</p>
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Endowment spending is determined on a value averaged over many quarters. It's to prevent exactly the kind of crazy fluctuations you say they're going to experience. The only way endowment spending could drop by 30 percent--assuming the institution follows this norm--is if the endowment value stayed low for year after year after year.
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<p>Of course. I thought everyone knew that.</p>
<p>Are you prepared to predict that the endowments will bounce back in 36 months? If they don't bounce back, your college or university sure better have started implementing signficant cost reduction measures long before that, or it will be too late.</p>
<p>Every college I follow is preparing 2009-10 budgets with signficant cuts and beginning the contingency planning for 2010-11 and 2011-12 budgets with cuts "we don't even want to think about". If the new 30% lower endowment numbers prove to be the new permanent baseline, colleges WILL eventually have to adjust their endowment spending to those levels. Colleges that are currently near the top of their spending policy range will have cut deeper and sooner. Those at the low end of the spending policy have a bit more leeway. Every college I know is now planning for that continegency and hoping that the market bounces back. </p>
<p>Swarthmore has said it would start implementing those contingency plans about a year from now. You have to. For example, if the plan were to include reducing staff and faculty through attrition and early retirement, you would have to start working on that plan a couple years in advance.</p>
<p>The problem here is that every revenue stream is under downward pressure: endowment spending, net tuition revenues, state funding, charitable giving, and government research. It's not like colleges can say, "oh, we're down on endowment spending, so we'll cut financial aid price discounts...."</p>
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Of course. I thought everyone knew that.
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<p>Really? Your confidence in people's knowledge is commendable! Not everyone does, not even on this forum where people have some interest in higher education finance. </p>
<p>I assumed you did, though, which is why I was surprised when you told others on this forum that endowment spending would be cut 30%. I am not much of a prognosticator, but I don't believe endowment values will stay this low for 12 quarters. Or 28 quarters, in the case of U-M (we went to a seven-year average recently, but we are an outlier to be sure).</p>
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The problem here is that every revenue stream is under downward pressure: endowment spending, net tuition revenues, state funding, charitable giving, and government research.
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</p>
<p>while charitable giving is obviously going to be down on the whole, the short-term net impact of giving on budgets may nonetheless be a positive one as i expect that lots of schools are placing more emphasis on their annual giving programs than in the recent past. an extra $2-3 million in annual giving can cover substantial losses in endowed giving in the short term.</p>
<p>there is some question as to whether downplaying endowed giving over the next few years is a good long-term strategy, of course, but that is a debate for another day.</p>
<p>I never said that endowment spending would be cut 30%. What I said, and I quote, was:</p>
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I think they high endowment schools are "making so much noise" because the size of the cuts required to offset a 30% decline in endowment spending along with a simultaneous increase in need-based tuition discounting are signficant. I don't think these colleges can get there just by cutting out some frills. The size of the cuts will, in most cases, require real cuts to faculty size or compensation.</p>
<p>Because endowment spending is based on a three-year rolling average, the hardest cuts won't start until Fiscal Year 2010-2011. You really haven't started hear the full extent of the "so much noise" yet.
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</p>
<p>I didn't give a number for the cuts, only that they would have to offset a 30% decline in endowments PLUS a simultaneous drop in tuition revenue. I also pointed out that those cuts would be phased in over time. Frankly, I don't think college and universities really know what their spending targets will be until they get some sense of how much tuition discounting will be required to maintain current enrollments. They just know it's going to get ugly fast in years 2 and 3 if endowments stay where they are today.</p>
<p>BTW, over the long haul endowment spending will have to be cut by the same percentage as the drop in endowment, offset by whatever room is left under the spending policy ceiling at a particular school. The fact that all of those cuts won't have to be made starting in July 2009 doesn't change the fact that they will eventually have to be made if the endowments stay at the current levels for 10 more quarters.</p>
<p>Ooops: my mistake. The quoted paragraph has a typo. It makes no sense for spending cuts to "offset" endowment spending cuts. The first sentence should have read: I think they high endowment schools are "making so much noise" because the size of the cuts required to offset a 30% decline in endowment along with a simultaneous increase in need-based tuition discounting are signficant. My brain wasn't even registering the extra word "spending" because that's not what I meant or thouht I was saying.</p>
<p>BTW, to provide a low-end of required spending cuts, Swarthmore has a ton of room under their spending policy ceiling. Enough to offset 20% to 25% endowment decline by simply moving the spending percentage up to the top of the range. That's still not enough. With the current 30% endowment decline, they will have to reduce their Year 3 budget 5% to 7.5%.</p>
<p>That's just the decline in endowment spending. There will be further budget cuts required to offset reduced tuition revenue and reduced charitable giving. Plus, cuts will have to found to offset line items that grow in cost over time such as health benefits, the cost of internet capacity, etc.</p>
<p>I'd say that you are looking at a bare minimum 10% cut in the overall budget and most schools will require far in excess of 10% if we get to Year 3 with the current endowment levels.</p>