Current Univ. spending is unsustainable
The University’s current financial state is unsustainable, University President Ronald Liebowitz announced at an open meeting last Thursday. Despite an reported budget surplus over the past two years, the University’s actual finances have been declining and in need of attention for several years. “The status quo,” said Liebowitz, “cannot persist.”
As a result of a relatively high annual draw from the University’s endowment, deferral of necessary maintenance to campus infrastructure and extremely high standards for a university of its size, the University has, over the past several years, been running at a slight deficit.
The Thursday meeting was intended to increase transparency and give the University’s constituents an idea of where the University stands financially.
The meeting began with a presentation from Kermit Daniel, an economist and a consultant for the firm Incandescent, and a question-and-answer session with Liebowitz, Daniel, Provost Lisa Lynch and Executive Vice President for Finance and Administration Stewart Uretsky.
Daniel began the presentation by laying out the core issues at hand. “Brandeis has a structural imbalance … in its financial situation,” Daniel said. He explained that although the University has, for many years, been taking measures and engaging in practices to stretch its budget as far as possible, “these practices aren’t all really sustainable.”
For several decades, Daniel said, the University has been taking a relatively high amount of money from its endowment on a yearly basis. While the University’s goal for an endowment draw rate is 5 percent, the actual draw rate reached a high of 11 percent in 1990, with a current draw rate hovering around 6 percent.
If draw rates had been limited to 5 percent instead of 5.9 percent since 1997, Daniel estimated, the endowment today would be up to $180 million above its actual current value.Endowment needs to offset inflation, he explained. In other words, even if money is added to the endowment, its actual value might still drop.
In addition to limiting annual draw, Daniel said, the University needs to allocate a certain amount of money each year to growing the endowment. To illustrate this point, he showed a graph comparing Brandeis to five other research-intensive universities which, in 1990, had similar endowment sizes.
Now, 25 years later, Brandeis' endowment has fallen some hundreds of thousands of dollars behind those of four of the five other universities, in large part because of its very slow growth rate, Daniel explained. If the University had contributed 40 to 50 percent of cash gifts received to the endowment, it would currently have an endowment worth between $1.2 and $1.8 billion, about twice what it is right now. That would mean that tens of millions of additional dollars would go to the annual operating budget.
The campus’s decaying infrastructure also contributes to the financial burden on the University. “It’s been a very long time since anything was done about the infrastructure here, and … it’s beginning to show,” Daniel said in his presentation.
Essential repairs to the Science Complex would likely cost between $80 and $100 million dollars, and the library could end up costing the University an additional $10 to $15 million. Various other campus needs could cost between $92 and $119 million more.
In addition to physical infrastructure, Daniel said, information infrastructure requires serious attention. PeopleSoft (now Oracle), the company that provides various management systems to the University, needs to be updated, as do various other information systems.
The University would likely need to spend between $1 and $7 million annually to maintain competitive enough salaries to attract and retain quality faculty in the future, he said. Although salary is only one of a number of factors that play into professors’ decisions to teach at the University, Daniel said, it is still a crucial one. Retaining high-retention-risk faculty and those with lagging salaries would conservatively cost $1 to $2 million dollars. Additionally, bringing salaries across the board closer to the Association of American Universities average would likely cost between $5 and $7 million.
While the various structural imbalances Brandeis is facing are the result of years of what Daniel called “unsustainable practices,” the University’s long-term budget deficit may still come as a surprise to many.
According to a September 2014 BrandeisNow article, former University President Frederick Lawrence announced in a staff town hall meeting that the University was “moving closer to its goals for financial stability and sustainability” and was “very close to eliminating the budget deficits that have persisted for many years.” At a faculty meeting two months later, Lawrence called the University's financial position “a position of stability” and Lynch projected the surplus to hold until 2024, according to a Justice article from the same time.
However, Lynch said at the open meeting, this estimate failed to address “deeper structural conditions, things that we are not investing in. So we could do that [run at a surplus], but then we would lose faculty. We would have buildings crumbling. We would have programs not at the level or the standards that we expect at a university."
While “Brandeis has had a balanced budget on the books for auditors to see,” Liebowitz added, “underneath that came practices that … are not sustainable.”
According to Daniel, the $2.6 million surplus that the University reported in 2015 (its “biggest plus year”) reflects a much higher figure than the University actually has to spend. If all unsustainable practices had been addressed in that year — if endowment draw rate had been reduced, more gifts directed to endowment, faculty and staff shortfalls addressed, deferred maintenance attended to and essential IT infrastructure upgrades addressed — the University’s net assets from operations would fall from $2.6 million to -$29.3 million, Daniel explained.
The panel agreed that the University will have to make considerable changes to its structure and governance. “There are a number of institutional decisions ahead of us,” Liebowitz said. However, he noted, the University has not yet developed a plan to address its long-term deficit. “While we’re not in a position to articulate specific changes now, we do know that change is inevitable.”
What is important now, Liebowitz said, is to “recognize and identify what it is that makes Brandeis Brandeis, what is core to our existence and our mission, and how to prioritize things moving forward.”
One method that the University has promised it will not use to deal with financial imbalances is the raising of tuition. In an emailed statement provided to the Justice, Liebowitz wrote that there was “little more we could do to generate more revenue from tuition. Our annual increases need to be reduced over time, lest we price out too many excellent students from applying to Brandeis. Ideally, we need to reduce our dependency on tuition and reduce annual increases. That's a goal.”
Senior Representative to the Board of Trustees Emily Conrad ’17 said in an interview with the Justice that this level of transparency around the University’s financial situation is important, as even administrators struggled with getting this information in the past. “We need to know why the Board is making [the decisions they make],” she said. “We want to understand why they’re being made and what is the evidence behind that. And I think that this kind of transparency allows us to start seeing some of that evidence, seeing that the reason we have to cut X, Y, or Z program is because we don’t have the money right now.”
A second meeting with the same presentation took place yesterday in Levin Ballroom, and a third will occur on Wednesday in Sherman Function Hall.