Budget Ax Cuts Matching Grants for Florida Colleges

Chronicle of Philanthropy

February 17, 2009

Florida lawmakers have eliminated matching grants for state universities for the 2008-9 academic year, severely curtailing an incentive to attract private donations, reports the Tallahassee Democrat.

Legislators have yet to decide if the matching-grant program will be restored for the next academic year. In the meantime, Florida institutions of higher education have attracted more than $102-million that won’t be matched by the state as planned, about half of them from the University of Florida.

Charities Set $166-Billion Worth of Construction Plans on Hold

Chronicle of Philanthropy

By Brennen Jensen

Nonprofit organizations in the United States have an estimated $166-billion worth of construction and renovation projects on hold because of the economic downturn, according to a survey released today.

The report found that 40 percent of 1,837 organizations surveyed had projects stalled for financial reasons that were "shovel ready," meaning they had been designed and were ready for bidding, with construction able to start within 90 days after contracts were awarded.

The survey aims to call attention to the "backlog of worthy, job-producing infrastructure projects" among the nation's nonprofit groups now that Congress has passed an economic-stimulus bill.

It was conducted by the Johns Hopkins University Center for Civil Society Studies, in Baltimore, as part of the Nonprofit Listening Post Project, a research effort examining the issues facing nonprofit groups.

Four Types

The organizations surveyed were drawn largely from four broad categories: children and family services, elderly services and housing, community development, and the arts. Collectively they reported a total of over $10-billion in projects on hold because of money challenges presented by current economic conditions.

Based on the survey results, and after excluding nonprofit hospitals and higher education institutions from consideration, Listening Post researchers estimated that $166-billion in charity construction projects are stalled nationwide.

Two-thirds of the more than 1,000 projects charities reported putting on hold were renovation efforts, while a third were new construction projects. Museums reported the highest rate of stalled projects, with 64 percent of such organizations reporting that they had construction work on hold.

More than 12 percent of the charities surveyed had multiple projects on hold, and 44 percent reported having less-developed projects that they were unable to make "shovel-ready" because of the economy.

Cornell Experts Discuss Colleges' Responsibilities During Hard Times

By SCOTT CARLSON

Chronicle of Higher Education

New York

When Cornell University professors, trustees, and alumni got together last week to consider whether rising costs threaten the notion that higher education can help anyone in America succeed, the event's location offered a taste of irony: It was held at the Cornell Club, an exclusive midtown haunt where you need a membership number just to buy a beer in the wood-paneled lounge near the front door.

Samuel B. Bacharach, a professor in the School of Industrial and Labor Relations at Cornell University, seemed to acknowledge this as he introduced the speakers, Ronald G. Ehrenberg, a Cornell economics professor who is an expert on higher education, and David J. Skorton, the university's president.

"We are in a room of privileged ones—all of us," he said. "Cornell has always been about education. But for me, and for many of us in this room, it is about mobility, about making it in American society."

The question of the evening, amid evidence of growing income gaps and class divisions in American society: Will higher-education institutions like Cornell continue to be able to provide the education that allows anyone to move up, regardless of their parents' financial situation?

Mr. Ehrenberg offered an assessment that was mostly bleak. The United States, he said, is no longer the leader in providing degrees for its population, and the parts of the population that are growing most rapidly are traditionally the most underrepresented in college. While Cornell's tuition equaled 28 percent of median family income in 1980, it was 57 percent in 2007, and it will increase next year.

The public subsidizes private colleges by allowing tax breaks on gifts to the institutions and by exempting from property taxes the buildings and land the institutions own. This public investment in private colleges, and the fundamental belief that even private institutions have some responsibility to offer education to every segment of American society, drove the recent Congressional scrutiny of, and pressure on, well-endowed colleges. "Absent continued evidence that the selective privates continue to remain accessible, Congressional pressure is not going to go away," Mr. Ehrenberg said.

But public colleges, which serve two-thirds of all four-year college students, are also increasingly expensive and inaccessible, he said. Tuitions there have increased at the same rate as that of the private institutions—about 3 percent above inflation—and promise to increase even more as declining revenue forces states to lessen their support.

Given those pressures, Mr. Ehrenberg said, "it is questionable whether we will be able to increase the fraction of our population that receives college degrees and to reduce the inequality of college-completion rates."

Fortunately, he said, there is hope. The Obama administration, unlike that of George W. Bush, believes that government spending and investment have significant potential to do good. States and the federal government need to increase their spending on higher education and provide incentives to colleges to enroll more students who qualify for Pell Grants, he said. Colleges, meanwhile, should be more open to accepting transfer students and should take a close look at increasing their efficiency.

He likened the typical college to Sesame Street's Cookie Monster, a beast that gobbles up resources and grows without regard for efficiency. In years past, there were no market pressures on tuition; families strove to buy the best education for their children that they could afford because they realized that an elite college might open more doors than one less esteemed (at the Cornell Club, indeed, a doorman opens the front door for visitors). But the market may be reaching a breaking point, Mr. Ehrenberg said.

Little Light on the Horizon

Dr. Skorton, for his part, dealt with the question of the evening through a discussion of the costs of running Cornell. He acknowledged the widespread perception that higher-education institutions are undisciplined with their budgets and that they are ill-equipped to adjust to an economic environment that will be much more severe, perhaps for years to come. Dr. Skorton said he expected colleges to be in tough financial shape for years, even beyond a time when the economy recovers.

He said colleges should try to figure out ways to improve their productivity, but without cutting employees' salaries or increasing their workload. Technology might be one way to do that.

He also said colleges should do what they can to protect and preserve jobs. Cornell, he noted, is the biggest employer between Albany and Buffalo. "We have to try to manage the university to blunt the effect on the work force," he said. "It is important to look forward to what our state economy should look like when it emerges from the financial mess."

Colleges should also take a more active role in trying to help the country emerge from this quagmire, he said. First, colleges should pursue research that will bring tangible benefits to the economy, through technology transfer and marketable inventions.

Second, more academics should take prominent roles in helping to form public policy. "Universities have abdicated their role to think tanks in the past 20 years," he said. "The leaders at the universities have been relatively silent."

Members of the audience asked questions about Cornell's future amid the economic uncertainty. One alumnus asked whether Ezra Cornell's goal to "found an institution where any person can find instruction in any study" was at odds with an increasingly common strategy in which colleges support their most successful programs and cut the less popular or useful ones.

"This is the toughest question [because] the only way to really save money at a university is to stop doing something," Dr. Skorton said. He said that at Cornell, unlike other universities where he has worked, it was hard to find areas to cut. "The decision to get rid of something at Cornell will be largely based on choosing between two unpleasant alternatives," he said.

But, he said, one cannot continue to reduce support across the board because all the programs suffer. Depending on how long the downturn lasts, he said, he may have to start making those unpleasant decisions.

KEY PROVISIONS FOR HIGHER EDUCATION IN THE ECONOMIC-STIMULUS COMPROMISE PLAN

Chronicle of Higher Education

Research and Science
National Institutes of Health	$8.5-billion for biomedical research and $1.5-billion to renovate university research facilities
National Science Foundation	$3-billion for basic research in science and engineering
Energy Department	$2-billion for research on climate science, biofuels, energy efficiency, and other areas
NASA	$1-billion, including for research on climate change
National Institute of Standards and Technology	$580-million, including for technology innovations
Student Aid
Pell Grant maximum	Would increase to $5,350 in 2009 and to $5,550 in 2010
Tuition tax credit	Would increase to $2,500 and allow families who do not owe taxes to claim $1,000
Work-Study program	Would provide $200-million
State Fiscal-Stabilization Fund	$53.6-billion, including for modernizing college facilities and buffering budget cuts to education
Job Training	$4-billion

Colleges and Students Cheer Congress's Economic-Stimulus Deal

Chronicle of Higher Education

By SARA HEBEL

Washington

The compromise, $789-billion economic-stimulus bill that Congress is planning to try to deliver to President Obama by Monday contains large sums of money for student aid and biomedical research, and would give states billions of dollars to ease budget cuts to colleges and schools.

College lobbyists didn't get everything they wanted in the plan, which the House and Senate are expected to approve and could take up as soon as today. The measure, for instance, doesn't include the separate pot of money for campus construction that the House had passed or money for the Perkins Loan program that the Senate had approved.

It also excludes a $2,000 increase in annual borrowing limits on unsubsidized Stafford Loans for undergraduates, a provision in the original House bill that student-aid administrators and other groups had pressed but that student groups had opposed. Student-loan companies, too, failed to win a change they sought to the way the government calculates subsidies it pays to lenders that participate in the federal student-loan program. The change, which the House had passed, would have temporarily increased their payment rate.

But, over all, advocates for colleges and students cheered the billions of dollars for education that is in the bill as details of the compromise began to be made public on Thursday. The deal worked out by House and Senate negotiators, which was first announced on Wednesday amid a flurry of intense and hurried last-minute negotiations, includes $95-billion for the Education Department to spend over two years.

The plan would raise the maximum Pell Grant to $5,550 by 2010, an increase that legislators said would help seven million students. (The current maximum award is $4,731.) The aid program would receive $17-billion from the bill, an amount that would also erase a shortfall in the program's budget.

A tax credit for tuition would be increased to $2,500, from its current level of $1,800, for the next two years and would make textbook costs an education expense that could be counted toward the benefit. People who do not earn enough money to owe taxes also would be eligible to take $1,000 of the credit.

The bill would also bolster the Federal Work-Study program, providing $200-million. And it would allow families to buy computers with money they have saved for college expenses in so-called 529 plans, whose earnings are exempt from taxes.

"Fundamentally this is a big win for our nation's students and for colleges and universities," said Larry Zaglaniczny, vice president for governmental relations at the National Association of Student Financial Aid Administrators.

Value to Economy Questioned

Some Republicans and other critics of the stimulus legislation had questioned whether pouring money into student aid would be an effective way of kick-starting the economy and argued it should be cut from the bill.

"The stimulus bill ought to be for programs that create new jobs now," Sen. Lamar Alexander, a Republican from Tennessee, former education secretary, and former college president, said in a speech earlier this week at the annual meeting of the American Council on Education. He said that many of the funds for education included in the stimulus measure should be debated separately, as part of Congress's normal appropriations process.

Higher-education lobbyists and the new education secretary, Arne Duncan, fought to preserve the money, including funds for Pell Grants, as the stimulus package moved through Congress. They considered aid to education to be vulnerable in negotiations, particularly those that occurred among moderate Democrats and Republicans in the Senate who were critical to the measure's fate.

Nancy Pelosi, Democrat of California and speaker of the House, provided a rationale for putting education spending in the stimulus measure in a summary of the compromise plan that she distributed. "Economists tell us that strategic investments in education are one of the best ways to help America become more productive and competitive," the document said.

Money for States and Facilities

The question of whether, and how much, money to include for construction at colleges and schools was one of the stickiest issues for House and Senate negotiators. The House bill had included $7-billion for higher-education facilities, but senators struck all money for college construction from their bill.

The compromise does not include a separate pot of money for campus building projects. But colleges could use some of the money they receive under a "state fiscal-stabilization fund" to repair, modernize, or renovate their facilities. The nearly $54-billion fund includes money for states to limit budget cuts to colleges and schools and to spend on other priorities.

Of that total, close to $40-billion would be set aside for states to funnel to public colleges and school districts, which could use the money in various ways, including to restore budget cuts, prevent layoffs, or modernize facilities. Governors would be given $8.8-billion to allocate to high-priority needs, which could include money for public or private colleges. The rest of the state fund would be distributed by the education secretary to reward performance, based on measures that apply mainly to elementary and secondary schools.

To be eligible to receive money for colleges under the stabilization fund, states would have to meet a minimum bar for spending on higher education, giving their public colleges at least as much in the 2009 and 2010 fiscal years as they spent on them in the 2006 fiscal year. States facing serious financial difficulties could seek a waiver from the secretary of education.

Big Amounts for Biomedical Research

The legislation provides more than $15-billion for research in science and technology, with the majority going to the National Institutes of Health for biomedical studies, and it would allocate $7-billion to extend broadband services to communities that are underserved.

The bill contains $8.5-billion for biomedical research at NIH and $1.5-billion for the agency to spend on renovating university facilities to help them compete for biomedical research grants.

The National Science Foundation would receive $3-billion for basic research in science and engineering under the compromise. And other portions of the bill would give money to research on energy efficiency, climate change, and innovative technologies, among others.

Harvard Offers Buyouts to 1,600 Employees

Chronicle of Higher Education

Harvard University will offer buyouts to 1,600 workers, or almost 10 percent of its nonfaculty employees, to help deal with the loss last year of $8-billion from its endowment, the Bloomberg news agency reported.

In an e-mail message to workers this week, Marilyn Hausammann, vice president for human resources, said the offer would be made to employees age 55 and older, or to those who had worked for the university for more than 10 years.

Employees in the Faculty of Arts and Sciences, and in the Harvard Medical and Dental Schools, will receive their offers this month, and the rest will be made in March.

Harvard’s endowment helps pay for about a third of the university’s budget. Budget cuts and hiring freezes have already been announced as a result of the 22-percent loss in the endowment’s value. —Megan Eckstein

Investors are pushing back into municipal bonds, which remain an effective way to generate relatively safe tax-free income

Business Week
By Ben Levisohn

After months of being shunned by investors, municipal bonds are back. AAA-rated municipal bonds now yield just over 3%, well below October's rates of well over 4%. For a 10-year bond with a 4% coupon, that translates to a rise in price to $105.83 from a low of $94.39. The iShares S&P National Municipal Bond exchange-traded fund (MUB), which holds primarily AAA- and AA-rated bonds, has rallied from a low of $88.76 on Oct. 15 to over $100 on Feb. 11, a gain of 13%.

One of the biggest reasons for the rally was the rise—and fall—of Treasury bonds. Historically, munis and Treasuries traded at a fairly constant ratio, with tax-free munis yielding about 85% of taxable Treasuries, with the price of the munis reflecting the tax benefit. But that all changed in 2008. By the year's fourth quarter, terrified investors had scooped up all the U.S. government debt in sight, pushing Treasury yields down near historic lows. At the same time, the municipal bond market froze up, pushing up the yields of munis. By November, a top-rated muni bond yielded almost double a Treasury bond. "You won't see another opportunity in municipals like that for decades," says Matt McCall, an investment adviser at Penn Financial Group.

Now, investors have pushed back into munis, and their yields are roughly equal with Treasuries of comparable maturities. Why the rally? For the first time, investors looking for a safe haven—and wanting to earn something beyond the negligible interest rate offered by Treasuries—looked to AAA-rated munis as an alternative. Investors also speculated that the Federal government's stimulus package would provide aid to states and municipalities, making it less likely they would default on their debt. Crossover bond funds, those not limited in the categories of debt they can purchase, saw an opportunity in bonds as well, rushing in to buy when munis were at their low-point, possibly because government intervention seemed in the offing. And individual investors, witnessing a rise in net-asset values of muni mutual funds rushed in, pushing prices even higher.

Room to Rise Further?

And that has left munis too rich for some investors. "High-grade munis are drastically overbought," says Matt Fabian of Municipal Market Advisors, a municipal bond adviser.

Not everyone agrees. Some proponents of munis point to the ratio between Treasuries and municipals—now at 100%—and say munis still have upside as they should soon trade once again near the traditional yield ratio of around 85% of Treasury bonds. But others say that the link between the two is broken. They point to the fact that historically, all fixed income securities tend to move in lock-step. Rising rates pushed all yields higher and drove prices down; falling rates drove yields down and prices up. But no longer. With Treasury yields falling to negligible levels, almost everything looks cheap, including munis. "When Treasuries are yielding two-and-change [slightly above 2%], other forms of debt look overvalued," says Rollance Verkennis, a partner with the Resource Group, a financial advisory firm in Glendale, Calif.

Municipal bonds face other, fundamental pressures as well. The Senate stimulus bill passed on Feb. 10 cut $40 billion of state aid from the House version—not a good sign for those hoping the Federal government would step in, bolster state and local finances, and thereby rescue the muni market. And some experts claim that some buyers are purchasing AAA-rated bonds in order to sell them to high-grade muni mutual funds, which will continue to buy the bonds as long as investors keep putting money into the funds. As soon as that buying stops, prices of high-grade funds could fall—and send investors fleeing once again.

Low Yields

Finally, the yields on munis are at an all-time low, making it hard to argue that they are "cheap." With credit markets unfreezing—$120 billion of municipal debt was issued in January alone—and municipalities looking to sell even more, it remains to be seen whether investors will still clamor for munis, or whether prices will drop, sending yields higher. "The biggest concern for munis is supply, says Samson Capital Advisors' Benjamin Thompson, who manages municipal-bond portfolios for high-net-worth clients. "The amount of pent-up issuance is likely to be substantial."

But that doesn't mean investors should avoid munis. The bonds remain an effective way to generate relatively safe tax-free income, and with taxes possibly on the rise, that could make munis more attractive. There's also value to be found once investors go a bit lower on the credit-quality ladder—a bit below the AAA- and AA- rated categories, though not into speculative-grade issues. Ron Schwartz, manager of the Ridgeworth High Grade Municipal Bond Fund, has been selling his AAA-rated bonds in favor of lower rated, but still investment grade, munis, which have experienced a much more subdued rally.

"We're seeing greater volatility than we're used to," Samson Capital's Thompson says. "But municipal bonds are still attractive."

Levisohn is a staff editor at BusinessWeek covering finance and personal finance.