Today’s New York Times has the latest revelations about New York University’s executive compensation practices. (Full disclosure: not only was Tenured Radical’s Ph.D. bestowed from those Violet walls, but my current institution recently had its own executive mini-scandal.)
As Ariel Kaminer reveals, NYU’s top execs and a few elite proffies are also offered mortgages for summer homes, “Universities in similar circumstances, like Columbia and Stanford, also have helped professors and executives with home loans,” writes Kaminer, who has been following this story for several months. “Aid for vacation properties, however, is all but unheard-of in higher education, several experts in university pay packages say.” And how many universities offer you a mortgage after you have purchased your home — and then forgive that mortgage too?How can they afford it? And accomplish it with so little fanfare? This article at Wall Street on Parade explains:
According to documents unearthed in a month-long search of public records, NYU Law School has created an array of nonprofits to funnel money into lavish perks for its professors. The money has been used by professors to buy multi-million dollar brownstones and condos in Manhattan and Brooklyn with portions of some loans forgiven over time. In some cases, even the interest charged on the loans has been reimbursed.
NYU’s AAUP chapter has asked for an investigation by the New York State Attorney General’s Charities Bureau, and Senator Charles Grassley (R-IA) has also got his teeth into it. (How very strange: last week, as I finished watching season 1 of FX’s “The Americans” I found myself cheering for the KGB, and now I am following Chuck Grassley’s Twitter feed. This is the same Chuck Grassley who, three weeks ago, was stupidly and ahistorically accusing the President of “packing” the D.C. Circuit Court of Appeals by simply filling vacancies.)
For those of you who have not been following the story, the confirmation hearings for Treasury Secretary Jack Lew, formerly an executive vice president at NYU, cracked open a Pandora’s box of fun facts. The story began with the public revelation that Lew received a so-called “exit bonus” of $685K when he left his university position (where he had earned between $700 and $800K a year) for a job at Citigroup (where I guess he earned a gajillion or two more.)
Joe Patrice, blogging at Above the Law, suggested this was a “Nixonian moment” for NYU, and it was: remember July 13, 1973, when Alexander Butterfield revealed that there was a voice-activated tape recorder in the Oval Office? Similarly, this investigation into a former employee caused a little administrative thread to hang out at NYU. When tugged upon, the university’s metaphorical sweater began to unravel.
The hearings revealed that Lew had received a mortgage of $1.5M, of which the university had “forgiven” $440,000 (this is kind of like cutting a person a check, but not.) Now pull the thread a little harder — Lew is not alone! In March, Ariel Kaminer documented several similar payouts to administrators and so-called academic stars. She also pointed out that two former NYU presidents, both millionaires, still live in subsidized university housing. When John Sexton, the current president, retires, he expects to return to the faculty at a salary of $800K annually.
Untangling this mess could be the academic equivalent of figuring out what, exactly, was in those securitized mortgages that no one seems to understands to this day. While Congress is rightly focused on the contrast between NYU’s elites and the high tuition and loan burdens borne by it’s students, I would be interested in knowing what percentage of these obscene compensation packages is being floated by university debt, tax free bond issues, and
kickbacks donations from the real estate developers on the Board of Trustees, whose corporations have been making bags of money for several decades by helping the university gobble up Lower Manhattan.
Do these kinds of loans have a place in higher education? That’s a good question. Second full disclosure: I have been the recipient of two separate below market rate mortgages, one for a little less than $100K and one for $175K, from my previous employer, and when I began my career at Zenith I rented a university subsidized apartment. These kinds of loans were intended to help faculty establish themselves, and existed long before I arrived at Zenith. However, in my final decade there, the practices changed. Zenith cashed out its real estate and now offers almost no rental housing: what still exists is rented at market rates. The university also recognized that these mortgages, paltry as they are in a Manhattan real estate world, were allowing faculty to cash out for substantial profits every time they sold a house.
In effect, even though we were taxed on the mortgage subsidy, these real estate profits were unearned — and almost always untaxed! — bonuses. Zenith, for reasons of its own, eventually closed the bottomless mortgage cookie jar: you could get exactly one loan for the duration of your employment at the university. After that, you were on your own.
Except if you got an offer from a Big Ivy. In that case, your new employer bought the house you were already living in, wrote you a mortgage on a new house, and forgave the mortgage over time. I know at least two people who cut this deal with one major research university, and one at another. Forgiving the mortgage is a way to deliver extra compensation, but it is also an incentive for the faculty member or administrator to remain for a period of time and not jump to yet another university with deeper pockets.
So NYU isn’t the only one, and one of the conversations that all faculties should be having is how much these off the books perks (which are often negotiated as part of individual contracts) make it possible to underpay that vast majority of university employees, even those on the tenure track, or with tenure, without appearing to do so. I know almost no one who has gotten a real raise, without changing jobs or getting a competing offer, in the last ten years.
Instead of high profile people (Yes, I’m talking to you, Joe Biden), blaming the cost of higher ed on “faculty salaries”what we really need right now is a non-partisan Commission on Higher Education. The NYU scandal (and it is a scandal) is one of many. It’s time to investigate the various shenanigans by which wealthy universities retain their non-profit status; rely on vast amounts of temporary, student and non-union labor; maintain vast wage disparities between faculty; spend millions on athletic programs that are disconnected from the academic mission all the while charging high tuitions and running shell games that allow them to shovel millions of dollars towards their executives and stars.