(In Harper's, this article was accompanied by a map of the campus
with all the big-time expansions highlighted. It also dovetails
neatly with Michael Yates's latest blog entry about the rotting
foundations of academia:
http://blog.cheapmotelsandahotplate.org/2009/10/20/the-tree-trunks-are-rotting-in-the-groves-of-academe/)
Harper’s Magazine, November 2009
ANNOTATION
VOODOO ACADEMICS
Brandeis University’s hard lesson in the real economy, by
Christopher R. Beha
In January, Brandeis University, in Waltham, Massachusetts,
announced plans to close its on-campus Rose Art Museum and sell
much of the $350 million permanent collection. Brandeis’s
financial situation was grim: its $85 million reserve fund could
be spent by 2011; there were $80 million in projected operating
deficits over the next five years; and the sixty-one-year-old
institution was $250 million in debt. How could a school with an
endowment that had in June 2008 been worth $712 million be forced
to liquidate such a prized resource? Over the past decade,
Brandeis, like many of its peer institutions, adopted the American
corporate principles of fiscal shortsightedness and growth for-
growth’s sake that provoked the current economic fiasco. This map
of Brandeis’s campus-expansion projects since 1999 demonstrates
what happens when unbridled capitalism turns the marketplace of
ideas into a higher-educational superstore.
Full-time in-state tuition at UMass Amherst costs $11,000;
Brandeis runs $39,000. What that $28,000 surcharge buys—the
financial and social return on a degree from an elite private
university—cannot be found in a classroom. Thus, for middle tier
institutions, protecting their perceived rank in an ivory tower
pecking order, one in which Brandeis lags the Ivy League but laps
most public schools, is crucial. The Rose collection, which by
2009 had grown to 7,000 pieces, including works by Jasper Johns,
Roy Lichtenstein, Cindy Sherman, and Richard Serra, helped
Brandeis develop a reputable brand. Sticker shocked consumers
could be assured that here was a small university with a
world-class art museum. Subtract that glittering object, however,
and the true value of this sort of education comes into question.
Neither a “bargain value” (public university) nor a “luxury good”
(Ivy League), how might Brandeis now justify such a stiff markup?
The proximate cause of the crisis at Brandeis was a steep decline
in gifts from alumni and other donors brought on by the recession.
Brandeis’s financial stability, like that of most private American
universities, depends on these donations. They have come to be
viewed as an effectively unlimited resource, one that provides an
implicit guarantee of existence. As with “too big to fail” banks,
the schools behave as if a benefactor will meet any shortfall. The
Brandeis campus center is one of many buildings named in honor of
Carl and Ruth Shapiro, whose family and foundation have given
Brandeis $70 million since the university’s founding in 1948. The
Shapiros might have been expected to help overcome Brandeis’s
operating deficit, but their foundation reportedly lost $145
million to Bernard Madoff’s Ponzi scheme; it will not be making
any new gifts this year.
A drop in alumni giving was not the fundamental problem at
Brandeis, however. Following the lead of universities with
multibillion-dollar endowments, such as Harvard and Yale, Brandeis
shifted funds from low-risk, low-yield investments into
“alternative investments” like hedge funds and private equity. For
a time this strategy yielded double-digit returns; but when the
market “corrected,” endowments built up over many decades lost a
quarter of their value in just a few months. For Brandeis that
loss amounted to roughly $200 million. Meanwhile, like so many
American institutions (and households), Brandeis had been living
beyond its means, paying on credit for a seemingly endless string
of expansion and renovation projects. The construction of this new
science complex, budgeted at $154 million, was largely financed
with bond issuances that added over a hundred million dollars to
Brandeis’s debt.
Such capital projects have become an essential element in the
marketing ritual of college admissions. These fancy add-ons are
needed to justify the astonishing tuition hyperinflation of the
past twenty-five years, during which colleges have raised prices
by 440 percent: four times the rate of inflation, twice the
increase in health-care costs, more even than the real estate
run-up that caused the housing collapse. During that time,
colleges benefited from a large pool of qualified applicants, due
in part to the demographic “baby-boom echo,” which crested this
year. Brandeis needs bigger classes—more students mean more
revenue—but it will have to fill them with fewer applicants. A
higher acceptance rate will of course require a reduction in
standards, further diluting the value of the university’s brand.
The ability to pay full tuition will also become a criterion for
judging applicants; Brandeis’s “need blind” admissions office has
already increased acceptances of international, transfer, and
wait-listed students, none of whom are included in the need-blind
policy.
This spring, Brandeis suspended payments to all faculty retirement
accounts and enacted a 6 percent staff cut. The school then argued
that these austerity measures and the tentative recovery of the
markets had averted the most dire outcomes of the financial
crisis. There were even suggestions that the Rose collection could
be saved, and a committee formed to reconsider its fate expressed
the hope that the university had “stepped back from the
precipice.” Yet the problems exposed by the downturn remain: over
half of Brandeis’s endowment funds are still in alternative
investments; capital construction projects continue apace; and the
deficit spending shows no sign of abating. If Brandeis keeps using
money it doesn’t have to buy things it doesn’t need, it may soon
be the university itself that needs to be rescued.
Christopher R. Beha is an assistant editor of Harper’s Magazine,
and the author of a memoir, The Whole Five Feet.
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