Crisis on Campus_ A Bold Plan for Reforming Our Colleges and Universities - Mark C. Taylor [34]
If Harvard were a serious business facing a liquidity crisis, it would have done something drastic by now: fired senior employees, closed departments, sold off real estate. But Harvard, like most other leading universities, is stubborn and inflexible. “None of these schools has the ability to cut expenses fast enough” is how a hedge-fund manager who counts Harvard among his investors explained the problem. Running the numbers for me, proving how impossible it is for a shrinking endowment to keep up with a university’s bloated, immovable costs, the hedge-fund manager concluded, “They are completely fucked.”
Sometimes facing big problems begins with small steps. In an article published in The Harvard Crimson Bonnie Kavoussi and Lauren Kiel report:
The first Faculty meeting4 of the year kicked off without a regular staple: cookies to complement professors’ tea and coffee.
“This is the first time in modern times with no cookies,” Faculty council member Harry R. Lewis ’68 said as he held a white mug of tea. “We’re sharing the pain with undergraduates.”
“As part of our cost-cutting efforts, we’re doing our little part in our Faculty meetings, saving about $500 per meeting for cookies and coffee,” Faculty of Arts and Sciences Dean Michael D. Smith explained during the meeting.
With biting irony, students expose the folly of professors who continue to sip tea and avoid hard choices while their world is unraveling around them. If as Harvard goes so goes the country, troubled times lie ahead.
Like the boards of directors of so many banks and investment firms, far too many college and university boards of trustees failed to fulfill their responsibilities for financial oversight. Alumni and donors should demand that the administrators as well as the trustees responsible for those losses be held up to scrutiny, and, if there was financial malfeasance, those involved should be held criminally accountable.
We have discovered that networks become more volatile as they become more complex. With frequent unpredictable disruptions, colleges and universities had little time to act. The situation was exacerbated because most college administrators either didn’t understand their liquidity problems or were reluctant to explain them to students, faculty members, alumni and the public. Hedge and private equity funds require investors to commit money for a set period of time, and do not allow withdrawal without costly penalties. Thus, educational institutions with these investments could not sell their plummeting assets to free up income needed to cover other losses and ongoing operating expenses. They had no backup plan. Out of avarice, most schools had let cash reserves slip below 5 percent. In June 2009, Barron’s reported that faced with little liquidity and declining revenues, several Ivy League universities were forced to take drastic measures. “To give themselves financial breathing room5 and forestall asset sales, major universities sold sizable amounts of debt last year. Harvard issued $1.5 billion; Princeton, $1 billion; and Yale, $800 million. Harvard’s debt now exceeds $5 billion. Even while borrowing heavily, many big universities have been sellers of stocks, bonds and other liquid assets in the past year.” Less wealthy schools have not been able to sell their way out of immediate financial distress so easily. Though financial managers deny it, there is a strong likelihood that increasing universities’ debt burden will compound the problems