Our Financial Model — The Past and the Future

As details of our financial situation have come out, it has become apparent that Brandeis is in worse shape than many other universities.  There are several well-known reasons for this.  Our relative youth means our endowment is much smaller than most institutions of similar standing.  The Madoff scandal affected our donor base much more heavily than most schools.  However, some of the blame has to go to the financial model that Brandeis has been working under for the past few years.  For those unfamiliar with Brandeis’s spending patterns, this post is the most comprehensive explanation I’ve seen and is definitely a must-read.  Basically, even as we were receiving record fundraising totals, our spending was so aggressive that we took on an incredible amount of debt, and the market failure has left us with obligations we can no longer come close to meeting.

For what I gather, aggressive spending has been a common feature of Brandeis’s recent history, and though recent circumstances make it tempting to view this as a complete mistake, we must also recognize the good that has come of it.  Simply put, I doubt that there is another university in the nation that has done so much with so little.  Flawed as they are, the US News and World Report rankings provide good perspective on where our reputation stands.  Brandeis is number 31 among national universities, an amazingly high position considering we are only 61 years old.  Plus, we are much smaller than every other school in our league; the only smaller school above us is the much less diverse CalTech, and the next school with an enrollment below our 5,333 is WPI at number 71.  And while the numbers obviously don’t mean everything, I think every Brandeis student realizes that we are incredibly lucky to be attending this school.  Our faculty is excellent and very well respected, our facilities have been constantly improving, and we’ve enjoyed visits from the top names in almost every field of study.  This kind of success doesn’t come cheap, and it’s safe to say that without our aggressive spending patterns, our meteoric rise to the upper echelon of academia could not have happened.

Yet this success was also gamble, as we see now.  Yes, we had an emergency fund, but it was obviously too small for a crisis of this magnitude.  And while the combination of horrible recession and Madoff could not have been predicted, I’ve seen no evidence that there was any kind of emergency plan in place for disaster, something I imagine would be elementary.  Is it possible that selling the Rose was always going to be the backup plan?  I doubt it.  If so, it would have been carried out much better.  Even if it was, it’s obviously not a very appetizing one, even if you ignore the (very convincing) arguments against using art as an ATM.

So how are we to judge the university’s past financial model?  The answer will come in how Brandeis weathers the current crisis.  If we emerge bruised but largely intact, then the failure of emergency planning is a mistake that will not come close to eclipsing what should be recognized as one of the greatest feats of university management in history — the development of a leading national school in just over half a century.  If our reputation and standing are permanently damaged, then Brandeis has gambled away its future and made all of our degrees that much less valuable.  The stakes are incredibly high.

I consider myself very lucky to be connected with a school as great as Brandeis, and I’ll view a few years of relative stagnation as a small price to pay for all the great things that Brandeis has to offer.  However, if the Brandeis I leave is fundamentally weaker than the Brandeis I decided to attend, I’ll feel cheated and used.  In short, my recommendation for the financial model of the future is one that is still very aggressive; in fact, as aggressive as possible while still providing a plan to help us survive lean years.  However, I can also understand why some people will want to see much more caution in the future.

Let’s start this discussion in the comments.  What do you think Brandeis’s long-term financial model should look like?


3 thoughts on “Our Financial Model — The Past and the Future”

  1. Cynic hits the nail on the head. We’re approaching an intersection where the light is about to go red; do we gun it, or do we slam on the brakes?

    From my vantage point in the science complex, the first option (retreating to a smaller fine liberal arts college) doesn’t seem like a winning proposition. We would lose a large fraction of our “world-class” scientists by doing so, and throw away the built-up prestige from the last 30 years. I think it’s got to be option two if you want the science faculty on board.

    I’ve made some very pointed comments elsewhere about the attitude of the university in blithely announcing 50% cuts in graduate admissions (which may not even be uniformly true), so I won’t go into that here. If we want to be a world-class university (and I hope we do), we need to make sure that we find a financial model that allows us to continue to recruit top-caliber Ph.D. students and postdocs. To an extent, the science departments have a model based on federal research and training grants. I don’t honestly know how well that can be translated to other departments.

  2. Adam,

    You’re raising a series of important questions.

    The most important point you make relates to size. Brandeis decided to try something with very few precedents – to become a ‘liberal arts university,’ as our administration likes to say. That meant keeping the undergraduate student body quite small (3,233 students) while supporting a world-class graduate school. (I’m not referring to Heller or IBS, which are largely self-sufficient, and whose faculties are largely unrelated; I’m talking about GSAS.) There’s a reason that almost no other schools have pursued this model. The classic means of climbing through the rankings is to (a) radically expand the size of the undergraduate tuition-paying population while charging ever more (b) use the proceeds to hire star faculty members (c) use those faculty members to lure top graduate students, who actually do the bulk of the teaching and (d) use the resultant prestige to increase fundraising and support the whole thing. That’s the model used by schools like BU and NYU to climb from regional commuter schools to world-class universities.

    Brandeis has eschewed this model in two separate ways. It’s kept its student-body very small, and still has faculty carry the vast bulk of the teaching load. It also helped that in the sciences, most grad students were grant-funded; that not every department had a graduate program; and that the programs that existed were quite small. The problem is that Brandeis has, apparently, never been able to balance its budget this way. It’s been covering a substantial hole with annual pledges. And that shouldn’t be surprising – why should we have been able to pull it off, if no one else has?

    That’s the real crisis facing Brandeis. It recruited a faculty that wanted to teach at a university; it suddenly finds itself only able to support a liberal arts college.

    So what’s next? Raiding the Rose or the Endowment only gets you so far – it plugs the short-term hole, but doesn’t solve the long-term imbalances. It’s going to be necessary to generate significant short-term revenue and restructure the education. That’s why the more controversial options are on the table.

    It’s a branching point. Unfortunately, the university’s decision making processes are still paralyzed, and it appears to be pursuing two mutually-exclusive strategies at the same time. The first strategy is to abandon the attempt to be a world-class university with a comprehensive graduate school. That would mean trimming the faculty to reflect the more narrow scope of its responsibilities (10% cut? Check) and eliminating all or most of the existing graduate programs (we’ve cut the number of incoming graduate students for the next two years by half, and the word is that some programs may get the axe by the end of the month). The other strategy involves pursuing something closer to the BU/NYU model – increasing the number of undergraduates (check), seeking to maximize revenue (using, for example, a summer session), and assigning more of the teaching to non-tenure-track faculty and graduate students (check).

    So what’s it going to be? A fine liberal arts college? Or a world-class university? If there’s a lesson to this crisis, it’s that Brandeis simply doesn’t have the funding to have it both ways. That’s the fight at the heart of this current crisis. It’s quite clear that the administration hasn’t yet figured out the answer. But it better figure it out soon, because we’re well on our way to the worst of both worlds – a larger and less intimate institution with fewer faculty, which also has fewer graduate students and offers an inferior education.

  3. Recessions happen; financial crises happen; ponzi schemes that swindle billions of dollars from rich northeastern Jews happen. As much as we would like Brandeis to have been a little bit more wise leading up to this crisis, we have to understand that for the past 5 years, every institution and entity was investing and growing–could we really have expected Brandeis to hold back and play it cautious when, as Adam Hughes pointed out, the college was already way behind and playing catch-up with the most elite colleges in the world?

    In the long run, Brandeis is not setting any investment or finance trends–if investors are bullish, Brandeis will be bullish, and they are bearish, Brandeis will be bearish. So for the immediate future, until the markets recover, caution will rule the day. But, there is no reason for Brandeis not to be aggressive in its future growth and development plans. Obviously precautions should be taken–a larger emergency fund for starters–but as long as this institution aspires for more, thenn it should plan that way.

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