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Pinched colleges squeeze alumni

As the sputtering economy takes a toll on endowments, the scramble is on to fill the void ASAP.

December 25, 2008|Gale Holland

The first e-mail to alumni was encouraging: Syracuse University would be cutting costs but remained "solidly positioned" to weather the financial downturn, college president Nancy Cantor said in mid-November. In fact, a $1-billion college campaign was on track, with $600 million raised and $200 million earmarked for scholarships, she said.

Three weeks later, the mood had darkened: 400 students would have to drop out of school unless alumni contributed $2 million in emergency aid, Syracuse fundraising co-chairman Howard Phansteil warned.

"Without additional scholarship support -- they won't be back at SU in January," Phansteil said in the e-mail. "So please give now." The last two words linked to a page listing payment options.

A Syracuse spokesman said the campaign money was intended for long-term obligations, including future financial aid, while the scholarship appeal was for emergency shortfalls. Still, the mixed messages reflect the difficulty many colleges are having in responding to an economic dive that remains very much a moving target.

Walking a narrow ledge between reassurance and realism, college presidents and chancellors have struggled to assess the effect of a slow-motion slump that has no clear beginning or end. More than one president has sent out a relatively rosy assessment, only to follow up with news of cutbacks, hiring freezes and canceled projects.

"The severity of this and the universality has taken everyone by surprise," UC Berkeley Chancellor Robert Birgeneau said in a recent interview.

For public colleges, the financial crisis was immediate. With the state budget in disarray, both the California State University and University of California systems are looking at undergraduate student fee hikes of up to 10% for next year, and Cal State also will reduce its 450,000 enrollment by 10,000 students for the same period.

The plunge also delivered a sharp punch to some of the nation's wealthiest universities. With $8 billion in losses to its $36-billion endowment, Harvard recently announced a hiring freeze and suspended faculty searches. Yale's $23-billion endowment has lost 25% of its value since June, the college announced this week. It ordered cutbacks including deferring construction projects and restricting raises, travel and new hiring.

Stanford University, citing steep losses in its $17.2-billion endowment, has reduced research funding and financial aid and ordered across-the-board budget cuts of up to 15% over two years, including some layoffs and a hiring freeze. Top officials recently took a voluntary 10% salary cut.

No one is worried about these institutions withering away -- they remain the No. 1, 2 and 3 "super-endowed" colleges in the country. But the news of financial troubles sent ripples through their communities of students, parents and alumni -- especially alumni, who often hold memories of their alma maters close and like them to remain unchanged.

"I was concerned," said Harvard alumnus Jeremy Friedman, a Beverly Hills attorney. "No matter how much money you have, $8 billion is a large amount," he said of the school's loss.

Liberal arts colleges also have seen their endowments sink by double digits, but their budgets generally rely more heavily on tuition and fees than the research schools' do. At Stanford, about 29% of the general operating budget comes from its endowment, 28% from research revenue and only 25% from tuition. Occidental College in Eagle Rock, on the other hand, derives 18% of its budget from endowment revenues, and Mount St. Mary's College in Los Angeles only 3%, with the rest coming from tuition, room and board, and other fees.

Many of the liberal arts schools enjoyed exponential investment gains in the flush years. At Pitzer College, one of the Claremont Colleges, for example, the endowment had soared 136% during the last six years, but it is now down 31% from its peak. Although some colleges have stopped new construction, many are completing major projects or renovations begun in better times. Santa Clara University has a new $95-million library and a $48-million business school; Harvey Mudd College, another of the Claremont schools, plans to complete a dorm renovation next summer.

As long as students continue to apply to, and stay in, college, many liberal arts schools could be squeezed less than their larger counterparts, administrators said. Enrollment is steady or on the rise at many California colleges -- no surprise in a dismal job market.

"It's a strange moment where rich institutions are at a financial disadvantage over institutions that are more driven by tuition," said Thomas Minar, vice president of development and alumni relations at American University in Washington, D.C. Minar is also president of the Pomona College alumni association. "We spent a lot of our lives wishing we had their endowments."

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