The latest issue of Harper’s magazine (November 2009) has a two-page article on Brandeis’s finances written by Christopher Beha, which is highly critical of the University. It’s sparked a great deal of controversy among the faculty and administrators, and Pres. Reinharz has personally responded to it. Below is the article in its entirety. I’m not that impressed with it, not because I don’t agree that the University mishandled its finances, but because it is poorly-written and views Brandeis as unique among private universities when it is not. He seems to think it is unusual for a non-Ivy League school to charge a fortune for tuition, when this is the norm nationwide. But I’ll let you form your own reactions to it.
“Voodoo Academics: Brandeis University’s hard lesson in the real economy”
by Christopher R. Beha
Harper’s Magazine
November 2009
http://www.harpers.org/archive/2009/11
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.
Unbridled capitalism? He uses that like its a bad thing