I read about Tulane’s staff reduction - being done for financial reasons. Is the University still essentially sound?
Extremely sound, and this is just a prudent move to help keep it that way. Tulane was running a $20 million annual operating deficit which, while easily covered in the short term through cash on hand, isn’t something you want to have go on without addressing it. Without going into boring detail, I will highlight a couple of things. First, Tulane and I presume most universities are analyzed and rated by the various agencies like Standard and Poor’s, because they sell bonds every now and then for major construction projects. Tulane’s rating is currently A2 from Moody’s:
So it isn’t A+, but Tulane had zero trouble selling out the issue for the new dorms.
Part of the issue I am sure is that the current interest rates are quite low. While I am sure Tulane gets a nice return from the investment of its endowment, to whatever extent they are invested in low risk securities the returns are not very high. Tulane’s annual operating budget, like all major research schools, relies on earnings from the investment of the endowment (schools try not to touch the core endowment) and cash flow from various sources such as tuition, grants, and of course donations/alumni giving.
Tulane has a large endowment at just over $1 billion. Few schools have endowments this high, but some of Tulane’s peers and “aspirational” schools have much larger endowments. Vanderbilt, Duke, WUSTL, and of course all the HYPS and related schools. Tulane has to compete with those schools for the best faculty, and the size of the endowment, which translates into earnings from that endowment as I said and thus a major part of the annual operating budget, is a critical factor. Of course so is annual giving, and again Tulane is better off than most schools, but not as well off as many of the schools I mentioned. One factor most people don’t think about is that New Orleans is not a hub of Fortune 500 companies. These companies often give to the local universities, especially the more elite ones, and the gifts can be quite large. One of the most spectacular examples is Coca-Cola and Emory, but there are many others. Anheuser-Busch was pretty generous to WUSTL as I understand it, as was McDonnell-Douglas, and I am sure several others. I assume they both still are, despite being owned by other companies now. There is a Mallinckrodt Center there, as well as a Mallinckrodt Radiology Center at the med school. Now when I say companies, sometimes it is the companies themselves but often it is the wealthy founders and top execs that are the actual donors, but the point is generally the same. They often stay local with their donations. USC has benefited not only from being in Los Angeles and the many successful companies there, but of course they often get generous donations from their famous acting alums.
Anyway, that is all just to give you an idea of how this works and how Tulane stacks up. It might seem like I focused towards the end on the comparisons where Tulane does not fare as well, but don’t take that as the overall landscape. Tulane is far better off than the vast majority of schools out there. Tulane has made various improvements in operating software, like many places, and I am sure could do more in this area. They have not had commensurate staff reductions that I am aware of, and I think this is simply the new president taking that needed step. I do believe the idea is to reduce staff more by attrition than by pink slips.
To address your original question, there is absolutely nothing to be concerned about. In fact, last I heard Tulane was trying to raise $1 billion over a ten year period. I believe they are on track for that, but I have not seen any official updates. I think it is early in the campaign.