Reports of financial hard times in higher education continue to flow in, though one of the interesting things is how differentially the Great Recession affects different sorts of institutions. I have heard from colleagues at several universities whose endowments are sufficiently small (relative to their operating budgets) that declines in endowment revenue do not have a major impact on budgetary planning. Of course those places are being hit by other sorts of financial pressures, such as cuts in state budget allocations and anticipated declines in charitable contributions and foundation grants. Clearly no one is completely exempt from pain in this environment, and the pain has just begun to be felt.
Certainly that is true of my own university. Princeton devoted its monthly faculty meeting on Monday to a brilliant presentation by the provost, Chris Eisgruber, on the long-term financial implications of the recession for us. This is by any standard a richly endowed institution, supporting 48 percent of annual operating revenue from the endowment. It is in some sense even richer than the absolute size of the endowment would indicate, since our operating budget is not nearly so large as that of comparable universities who have a full range of professional schools, hospitals and the like. We are projecting a 25-percent decline in our endowment for FY 09 (compared to a 5.6-percent rise in FY 08) — approximately a $4-billion loss. The university is projecting a 13-percent increase in financial aid for next year, with a lower than usual increase in tuition. That makes the outlook for next year pretty bleak, since Eisgruber anticipates a $54-million loss in endowment revenue for FY09 — he estimates that even with a tightened budget for next year we will have to find $82-million in savings. This is not chicken feed, even for a massive annual budget, and various accounts will be reduced at levels from 5 to 8 percent. There will be a smaller salary pool, there will be centrally managed control of vacancies and new appointments, visiting appointments will be eliminated, and more. The provost anticipates at least a comparable set of budget reductions in the FY11 budget.
What was most interesting, and most discouraging, in the provost’s presentation was his graphic demonstration of the likelihood that even if the economy should recover quickly (in eighteen months, say), and the financial markets should resume annual 10-percent increases, our endowment revenue will not approach the FY08 levels until at least 2020. And that model is surely too optimistic. Eisgruber has labeled this situation the “New Normal,” appropriating a trenchant slogan from Human Rights First.
He is clearly right, in my judgment, which means that we have to stop thinking of FY08 and previous years as the norm, and recalibrate our expectations to the levels anticipated for FY10 and FY11. In my judgment, that means that we cannot survive in the next decade simply by slimming down. We shall have to cut back dramatically. And if Princeton is cutting back, almost every university will have to do at least as much. What do we do if slimming is not the answer? What are the systemic implications for higher education?
(Photo by Flickr user dawnzy58)
