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.

Swap liabilities make downgrades possible for some not-for-profits

PRESS RELEASE
New York, February 11, 2009 -- Growth in mark-to-market liabilities for interest rate swaps poses credit risks that could result in credit stress and downgrades for some not-for-profit hospitals, higher education institutions, and other non-profit borrowers, says Moody's Investors Service in a new report.

"Some borrowers have seen the fair value of their swap agreements decline significantly over the last few months, in certain cases resulting in large collateral posting requirements," said Moody's Associate Analyst Daniel Steingart, author of the report.

He said large mark-to-market swap liabilities and swap collateral posting requirements mean that "rating downgrades are possible, especially for lower-rated borrowers, who have additional balance sheet or operating stress at the time that they are required to post collateral under their swap agreements."

Additionally, he said, swap liabilities or collateral posting may cause a borrower to violate financial covenants under related documents, and expose the borrower to the risk of bond acceleration and a liquidity crunch. He said current conditions are a marked contrast from the relatively narrow band of fluctuations in the fair value of most swap agreements over the past decade when the vast majority of borrowers met collateral calls with little difficulty.

"Combined with poor investment returns over the past year and deteriorated operating results for some rated borrowers, many not-for-profit organizations find themselves ill prepared for the sudden drain on liquidity that swap liabilities can cause," Steingart said.

In addition to assessing the rating implications of large mark-to-market swap liabilities and swap collateral posting requirements, the report provides examples of rating actions taken over the last several months.

"The report does not address the impact of this risk on governmental, housing and public infrastructure issuers as collateral posting is either uncommon or structured with different terms than for not-for-profit hospitals, colleges and universities, and other not-for-profit borrowers," said Steingart.

The report, "Interest Rate Swaps Cause New Liquidity Stress for Some Healthcare, Higher Education and other Not-for-Profit Borrowers Rating Implications Will Depend on Borrowers' Other Credit Attributes," is available at moodys.com.

Surveys: Hospitals Face Capital Budget Woes

Bloomberg
CHICAGO - A pair of recent surveys show that nearly half of nonprofit hospitals have postponed or significantly cut back on their capital budgets in light of economic woes, including increased difficulty in accessing the bond market.

Nine of 10 hospitals surveyed by the American Hospital Association said they were finding it harder "or even impossible" to access tax-exempt bonds and "other important sources of debt, such as banks and other financial institutions" in recent months, according to the AHA's recent survey entitled "Report on the Capital Crisis: Impact on Hospitals."

The survey also reported that 45% of hospitals had put capital projects on hold and 13% had halted projects that were already in process. The AHA surveyed 639 hospitals from December 2008 through Jan. 6, 2009.

Similar results were reported in a recent survey conducted by the Healthcare Financial Management Association, which showed that 53% of hospitals are holding off or substantially cutting back on new construction spending.

The reports' results are reflected in the relatively low number of tax-exempt health care bond transactions completed so far this year at a time when other issuers have largely returned to the market after last year's credit crunch. While a handful of higher-rated health care credits have started to enter the market recently, issuers rated lower than A have largely been nonexistent so far in the debt markets.

"The vast majority of hospitals report that borrowing funds through tax-exempt bonds - the main source of borrowing for most hospitals - is difficult or impossible," the AHA said in a release accompanying its survey. "The vast majority of hospitals that have postponed projects have delayed updating their facilities, while more than six out of 10 hospitals have put clinical and information technology projects on hold."

One of the difficulties facing health care issuers is securing bank enhancement for bonds, according to the HFMA. The report said 18% of financially strong, or "have," hospitals reported difficulty securing a liquidity facility, and 31% of "have-not" hospitals reported difficulty. The HFMA also noted that 30% of "have" hospitals reported a substantial increase in the cost of debt compared to 43% of "have-not" hospitals.

The decision to postpone capital projects stems from the difficulty in accessing capital as well as other fiscal pressures facing hospitals. Nearly half of the hospitals surveyed by AHA said they had postponed or cut back on capital projects, and 13% said they had halted projects already in progress.

For those hospitals, 53% said a "very important" factor in the decision to cut back on capital budgets was that the "usual sources of capital were unavailable." Another 27% said interest rates were too high, and 18% said their bond ratings were downgraded. Fifty-nine percent said a decline in value of reserves, including investment portfolios, played a role in the decision.

"The broader effects of the economic slowdown play into hospital capital decisions as uncertainty mounts, operating performance declines and the value of reserves falls due to stock market and other investment woes," the AHA said in its report. Of the hospitals that have postponed capital plans, 82% have put facilities projects in particular on hold.

The postponed capital projects represent the majority of the capital budgets for those hospitals, according to the survey.

Of those hospitals that delayed projects, 39% said they would need up to $10 million to complete the plans, while 23% said they would need up to $24 million, and 17% said they would need $50 million or more to complete the projects.

Tough Times, Silver Lining: Builders Lower Their Bids

Chronicle of Higher Education

By SCOTT CARLSON

Now is a great time for colleges to get bids on construction projects — if they have the money to pay for them.

Over the past several years, colleges have endured eye-popping escalation in the cost of campus construction, with the budgets swelling by more than 40 percent in some cases. The increases resulted from similarly rising costs for energy and petroleum-based building materials, and from growing demand for staples like steel and cement amid a booming construction market, both overseas and in the United States. Construction firms consistently bid high because of the demand for their work and to cover the risk of escalating costs on materials.

But times have changed. As the financial, housing, and major-construction markets have headed toward meltdowns, those same construction firms are looking for jobs, even while the prices of energy and materials have fallen. The prices of essential construction materials like structural steel, cement, and lumber are all expected to decline through 2009, according to Engineering News-Record, a trade magazine for the construction industry, published by McGraw-Hill. Because of those declines, building costs are likely to go down slightly this year.

Commercial, nonresidential construction markets fell 17 percent in 2008, including a 28-percent drop in shopping-center and warehouse construction, a recent McGraw-Hill report said. Among the top five construction markets, only New York City showed an expansion in 2008, largely because of projects started at the former World Trade Center site. Atlanta, Chicago, Miami, and Washington were all in decline: as much as 56 percent in the Windy City.

'Firms Are Getting Hungrier'

Those numbers may mean that firms are turning to higher education for business — and that may translate into bargains for colleges.

"We are getting bids that are significantly under budget — and by significantly, I mean a $40-million job that comes in at $35-million" or even lower, says Larry H. Eisenberg, executive director of facilities planning and development at the Los Angeles Community College District. The district is pushing forward with $400-million in scores of construction projects as part of a $5.7-billion expansion plan.

"The firms are getting hungrier," he says, noting that almost 40 construction firms bid on one recent project. "That is completely unprecedented. Early last year, if we got seven or eight bids I would be really happy. The year before that, we were challenged to even get a few bidders."

Some of the most aggressive bidders are high-end companies that had never bothered to bid on community-college projects before, he adds.

Richard Stockton College of New Jersey saw a similar trend in bids on a new campus center. Michael C. Shatken, a partner at KSS Architects, which designed the center, says his firm had worked to keep the building under budget. In an effort to shave the price tag, they had even pushed some costs — like millions of dollars for kitchen equipment — off the building budget and onto the plate of the college's food-service provider.

But when bids finally came in, they were about 25 percent below a figure predicted by two cost-estimate firms. (The budget for the project has not been made public, and a contract on the bid has not yet been signed.)

"What was impressive about the bidders was that they were from a wide range of contractors," Mr. Shatken says. Companies that normally bid only on private-sector work were part of the mix, he says.

Donald E. Moore, associate vice president for operations at Richard Stockton, says that having monitored school-construction prices, he anticipated in August that they would drop for the college's projects. "That is when I put the pedal to the metal to push the project out faster, to take advantage of the market," he says.

Hands Tied

Of course, the economic downturn has brought benefits for relatively few colleges — mainly those that had money reserved for projects. The Los Angeles district, for example, is paying for construction from bonds backed by property taxes.

But many institutions just are not able to build right now. In recent months, states including Colorado, Indiana, and Missouri have either frozen public construction projects or have proposed doing so. More than 130 building projects on California State University campuses, worth about $850-million in all, have ground to a halt amid California's cash-flow problems.

And while construction costs might be coming down, other colleges are experiencing rising costs in debt service and other financial costs. Molloy College, in Rockville Center, N.Y., is planning a $53-million residence hall and student union. On the basis of a $50-million bond issue, "we are looking at a substantial increase in our annual debt service — a minimum of $700,000," says Michael McGovern, vice president for finance. "We are looking at numbers in the 7-percent range, which is unheard of in tax-exempt financing."

Estimated construction costs for Molloy's project rose almost 30 percent over the past three years. Recently the residence-hall portion went out for bid, and early bids are coming back 5 percent lower than expected, Mr. McGovern says. Molloy, which is not far from New York City, may not see the bargains that other institutions are getting because it is subject to the city's relatively steady construction market.

At institutions like the Los Angeles Community Colleges and Richard Stockton, administrators plan to push projects out to bid as fast as possible to take advantage of the market. Mr. Moore says he would like to get bids on a science center and a couple of renovation projects at Richard Stockton, in addition to the new campus center, by the end of the year.

The Los Angeles Community College District recently put out a call for bids on five projects, each worth around $40-million. The district will try to put 20 to 30 projects out for bid in the next six months, Mr. Eisenberg says. "We're spending about $80-million a month. I am expecting that will ramp up to $100-million a month."

There are uncertainties about what will happen to prices in the near future. The federal government's multibillion-dollar stimulus bill, being debated in Congress, includes many billions for school construction, higher-education maintenance, and infrastructure. But experts say those amounts, even if they remain in the legislation's final version, are not likely to reinvigorate the construction market and drive up prices.

Mr. Eisenberg sees the economic turmoil leading to a shakeout in the construction industry. On the upside, the best firms will be left standing; on the downside, fewer firms will be around to bid on jobs and help keep costs down.

Mr. Shatken, the architect, says the current market is fundamentally unsustainable. "I think this is a short-lived opportunity," he says. "The trend on costs can only go one way."

With Independent Colleges Facing Hardship, Their Association Economizes

Chronicle of Higher Education

February 5, 2009

Washington — In yet another sign of the tough times facing colleges, the National Association of Independent Colleges and Universities has frozen staff salaries and reduced its dues increase for 2009-10.

The changes, approved by members at Naicu’s annual meeting yesterday, hold the average dues increase to 1.9 percent, two percentage points lower than the average annual increase. Dues range from $600 to $11,500, depending, in part, on the size of the institution.

In a letter to private-college presidents last month, David L. Warren, the association’s president, said the cuts would be made “in light of the continuing and increasingly negative economic impact on Naicu members.”

Tony Pals, a spokesman for the group, said it had reached the decision on the basis of a survey it conducted in December, and not by any decline in the rolls. Membership, he said, was at a record level, and meeting attendance was up over previous years.

“We are quite aware of the tough choices our members are having to make, and are doing what we can to assist them in difficult financial times,” Mr. Pals wrote in an e-mail message to The Chronicle.

Other higher-education associations may follow suit. On Saturday the American Council on Education will consider a dues freeze, among other belt-tightening measures, at its annual meeting. —Kelly Field

WSJ - Families Appeal to Colleges for Extra Aid

FEBRUARY 5, 2009

Ivy League and State Schools Are Seeing Midyear Distress; Getting a 'Judgment Review'

By ANNE MARIE CHAKER

As the country slides further into recession, colleges' financial-aid offices are seeing a steep increase in requests from families for more aid -- just as their own finances are coming under increased pressure.

The University of Washington has had 3,663 requests for additional aid so far this academic year, already surpassing the 3,121 requests for all of last year. Chapman University in Orange, Calif., increased aid for 2,200 families by January, compared with 1,200 for the same period a year ago. And Syracuse University reports a 30% increase in financial-aid appeals that it has granted over the same period.

Reversal of Fortune

Colleges will often take another look at your financial-aid package if you discover that you need more aid.

• Write a letter to the financial-aid office, attaching any documentation to strengthen your case.
• Sudden changes in a family's financial circumstances -- such as a job loss, pay cut, high medical bills or death -- may weigh in your favor during a review of your aid package.

Schools are paying for the increase in requests through fund-raising appeals and by digging deeper into their endowments and budgets. Some schools say they noticed requests for aid pile in after they sent out letters assuring families of their support for aid programs. Hamilton College in Clinton, N.Y., for example, sent out a letter with the second-semester bills in December promising that despite "this time of economic turmoil ... we will continue to meet the full demonstrated financial need of every enrolled student."

After that, "the phone started ringing off the hook in the financial-aid office," says Monica Inzer, dean of admissions and financial aid.

Other colleges are sending kids to the government. For the most part, says Kay Lewis, the University of Washington's director of financial aid, that has meant helping students apply for increased state or federal grants and loans, since most of the public institution's $36 million in undergraduate aid has already been allotted.

The formula for financial aid, set by the federal government, requires colleges to look at a family's tax return from the previous year. But with rising unemployment and a sinking stock market, many families' fortunes have changed considerably since they last filed taxes. At the same time, the value of 529 college-savings plans deteriorated by as much as 40% in 2008, according to Pittsburgh-based financial-aid expert Mark Kantrowitz.

Though certain assets, such as retirement plans and home values, are sheltered from the federal-aid formula, losses there can still have a trickle-down effect -- if, say, a family was hoping to leverage home equity to pay for college.

Alamy

Syracuse University raised $850,000 to help families in financial trouble.

If you get less aid than you need, you do have other options. The government sets strict formulas for the distribution of federal student aid, but also allows aid officers latitude in assessing special circumstances. These may be things that changed since the family filed its prior-year tax return, or special expenses not otherwise explained in the forms -- such as younger children in private school, huge medical bills or even a parent attending night school.

If you feel you have such an expense that's not addressed in the aid forms, ask for a "professional judgment review." This is simply a letter addressed to the financial-aid officer, ideally supported by documentation, and can be sent anytime during the school year.

Many top-tier private colleges made headlines last year when they increased aid for families, including those in middle and upper-middle income brackets. For example, starting this school year, Columbia University eliminated loans for all students receiving financial aid, replacing them with grants. Dartmouth College eliminated tuition for families earning less than $75,000 a year. Cornell University, too, is reducing or eliminating the amount many parents have to borrow.

Some Ivy League schools say they haven't seen a big increase in requests for additional aid, perhaps helped by that increased aid. But others are: Harvard University says more families are requesting midyear reconsiderations of their financial aid, largely due to job loss or a decline in income or assets. Harvard has seen over 150 midyear appeals, compared with 113 last year.

Princeton University says it has seen an increase in additional aid requests from families experiencing job loss or lowered income, but declined to say how many. Yale University has received 56 midyear requests for additional aid, compared with 43 at this time last year.

Getting Help

Families who feel they've been shortchanged by their school's financial-aid office --or whose circumstances have changed -- can apply for a so-called professional judgment review in order to receive more aid. Apply for a review by writing to the office and attach any supporting documents. Options for families seeking more help may include one or more of the following federal loans available to undergraduates:

Princeton increased its financial-aid budget by about $5 million to meet the additional need. Yale says any additional money needed will come from a combination of endowment and general university funds. Harvard also says it's yet unclear how many additional funds will be needed, but that it will use a combination of endowment assets, gifts and the university's own unrestricted funds.

Many financial-aid officials say they are bracing for the worst next year. "I am anticipating the number of requests for financial aid in general will rise for the 2009-10 school year, given the state of the economy," says Virginia Hazen, Dartmouth's financial-aid director. That comes as the value of endowments, which many schools tap for financial aid, is sinking: A study released late last month by the National Association of College and University Business Officers shows that college endowments' investment returns fell 23% in the first five months of the fiscal year that began in July.

Meanwhile, the credit crunch is making it harder for many students to get a loan. When Syracuse sophomore Nykeba Corinaldi learned that the aid office would no longer accept certain loans from a particular lender, she wasn't able to find another loan company that would do business with her.

Fortunately for Ms. Corinaldi, Syracuse started a fund-raising initiative this year called Syracuse Responds, whose goal is to help families through the financial crisis and "ensure that no student left Syracuse due to extenuating financial situations," says Youlonda Copeland-Morgan, director of scholarships and student aid. The appeal has raised $850,000 so far, helping more than 350 students, including Ms. Corinaldi.

Chapman University, for its part, says it received a $3 million anonymous gift last summer, earmarked for financial aid, which has helped at least 1,000 families so far this year. "Whoever it was, I thank that person every day," says Gregory Ball, the school's financial-aid director.

Write to Anne Marie Chaker at anne-marie.chaker@wsj.com

Downturn Threatens the Faculty's Role in Running Colleges

Chronicle of Higher Education

By ROBIN WILSON

Professors are losing their grip. Tough economic times are leading administrators to propose swift changes that short-circuit faculty governance, long a prized principle that gives professors wide-ranging authority over educational matters.

The results, faculty members say, are hastily conceived plans that reorganize academic programs, decrease professors' roles in shaping the curriculum, and jeopardize tenure applications — all done with little advice from the faculty, in the name of saving money.

The chancellor of the Tennessee Board of Regents, for instance, has proposed a plan to stress online education, hire more adjunct teachers, and put full-time faculty members in an "oversight" role. The University of South Florida's Tampa campus merged programs and shifted some faculty members to different schools in just six months. And Ohio University has a new academic plan that was, many professors charge, an end run around some of their own recommendations.

"A decline in resources has made administrators more interested in becoming independent movers and shakers," says Cary Nelson, president of the American Association of University Professors. He wants his organization to be more aggressive in investigating cases where administrators and boards leave professors out of the loop. "It is faculty members who have the expertise about disciplines," he says, "and if they don't have input, a university's academic integrity can be threatened."

Administrators insist they do consult widely with professors, although they acknowledge they can't always spend months deliberating over a plan. Besides, they say, it is administrators who are held responsible by boards for whether a university thrives. And faculty senates — which have a reputation for being filled with disaffected professors — can be hard to work with.

Ralph C. Wilcox, provost of the University of South Florida, says he had to work fast. When he took the job in January 2008 he was immediately hit with a directive to cut spending. "In Florida, we have a state law that spells out quite clearly that it is the right and the responsibility of the public employer to determine unilaterally the organization and function of the university," he says.

Historic Role

The concept of faculty governance has been in place since the country's first universities were established, and the AAUP's writings on the concept date to 1920. Faculty governance gives professors not just a say but the predominant voice in such academic matters as hiring new colleagues, establishing the curriculum, and figuring out how much time faculty members should spend on research. It also gives professors a seat at the table when it comes to appointing administrators and preparing a university's budget.

The idea that workers, in this case faculty members, should have a major and sometimes the dominant role in an organization's management is unusual. The concept is "founded upon the assumption that faculty are not merely employees, but professionals with special training and knowledge," says a 2007 statement written by Gregory F. Scholtz, who directs the AAUP's department of academic freedom, tenure, and governance. Both the American Council on Education and the Association of Governing Boards of Universities and Colleges have agreed.

The concept, however, hasn't always translated into reality on individual campuses. In one of the higher-profile clashes lately, the provost of Rensselaer Polytechnic Institute announced in August 2007 that administrators would no longer recognize the Faculty Senate there because it had amended its rules to allow voting by those who were not on the tenure track. Professors are still working to try to reconstitute the senate and regain recognition.

Gary Rhoades, the new executive director of the professors' association, says friction between faculty members and administrators is likely to grow. "In so many cases, faculty feel administrators are making decisions without consulting them," he says. "That is going to become the case now more than ever, with administrators saying, 'We don't have time to consult. Because of the economic challenges we're facing, we have to act quickly.'"

That is precisely what some believe Charles W. Manning, chancellor of the Tennessee Board of Regents, was thinking when in late November he issued a "new business model" for the system's six universities and 13 community colleges. The plan, which faculty members had never seen before Mr. Manning unveiled it, asks the Tennessee board to consider sweeping changes. The reason? The system is facing close to a 20-percent reduction in state funds over two years.

Mr. Manning's plan (see chart above) would offer cut-rate tuition to undergraduates who agreed to take courses online "with no direct support from a faculty member." The proposal calls for full-time professors to assume an "oversight" role as the university employs more adjuncts and asks advanced students to start teaching beginning students. It says that, in general, the university system should consider "abandoning some of the ingrained structures that restrict our approach."

Mr. Manning asked professors and administrators to submit "a summary of your thoughts" about the proposal, which he said he hoped the board would act on by this spring.

When faculty members saw the plan they balked. "I agree that this economic situation is difficult, and we may need to be thinking outside the box," says Alfred Lutz, president of the Faculty Senate at Middle Tennessee State University. "But our thinking should not be beyond the pale." Mr. Lutz says the chancellor's proposal strikes at the heart of the way higher education has traditionally operated, and its language about "abandoning ingrained structures" poses a threat to academic freedom and tenure. "I don't think I've ever seen anything quite like this," he adds.

In an interview, Mr. Manning acknowledged that the faculty's reaction to his plan had been "extreme." He now says the plan "was never intended to be brought to the board for action." But the board has already begun discussing it, and the chancellor said he wanted faculty members and others to comment by March 1.

"This is fantastically quick turnaround for a system as large as ours," says Nathan Garner, an associate professor of computers and information systems at Cleveland State Community College, in Tennessee.

Timing was a chief complaint last year when administrators at the University of South Florida pushed through a sweeping reorganization in just six months. Professors say the university's new provost never formally submitted his plan to its Faculty Senate. Instead, they say, he relied on deans and department chairs to get the word out to professors. As a result, faculty members say some of them were extensively involved and some barely knew what was happening before the changes took place last summer.

"The process rubbed a lot of nerves raw," says Sherman Dorn, president of the USF chapter of the United Faculty of Florida, a union affiliated with the American Federation of Teachers. "It left a lot of faculty very skeptical and distrusting." The provost's plan was fueled by the need to cut $52-million and included reorganizing the College of Arts and Sciences, creating a new college, and downsizing the support staff for programs including the Institute on Black Life, Africana studies, the Institute for the Study of Latin America and the Caribbean, and women's studies.

Mr. Dorn says fallout from the swift reorganization has left some junior professors hanging. They found their tenure committees, which had been constituted before the reorganization took place, composed of senior professors who were no longer even in the same college. In other cases, junior professors moved to different colleges with new deans. "Which is the dean who makes the tenure decision?" asks Mr. Dorn, "the new dean or the old one?"

It has taken awhile for department chairs to help junior professors figure out the details. Some of that uncertainty might have been avoided, says Mr. Dorn, if the university had moved more slowly and involved more professors up front.

A half-dozen faculty members filed a grievance with administrators about the reorganization process at South Florida, but the Faculty Senate is now working with administrators on a "memorandum of understanding" that sets out a procedure for how the faculty should be involved in developing any future reorganization plans.

Mr. Wilcox, the provost, says he and his deans "had extensive, broad, and deep consultation with the faculty," including at public hearings on the campus. Some professors, he says, have been quite pleased with the reorganization — including those in science and mathematics who helped shape a new School of Science. But Mr. Wilcox concedes that the memorandum the Faculty Senate is establishing with new procedures is a good idea. "It has been a good lesson learned that we had no such guidelines," he says.

'They Want More Power'

At Ohio University, it is not just the president's new academic plan that has set off faculty members. Professors and administrators there have been at odds for nearly a decade as the university has seen a steady decline in state funds.

Professors charge that the number of administrators has ballooned in that time, and that university leaders have plowed money into athletics facilities, coaches' salaries, and perks for administrators. Meanwhile, they say, faculty salaries have barely budged, and professors have been asked to pay more for health care.

"This has been a long, drawn-out process that has kept pushing the faculty more and more to say: The system is broken, we can't trust the administration, and they won't listen to us," says Joseph Bernt, a Faculty Senate representative and a professor of journalism at Ohio University. Professors have grown so disenchanted that they revived a campus chapter of the AAUP and are now trying to start a union.

Roderick J. McDavis, the university's president, started the process of adopting a new academic plan — called Vision Ohio — in 2004. Faculty members believe the many ad hoc committees he appointed to review the plan side-stepped the Faculty Senate. The ad hoc committees included faculty members but, in the end, it was the administration's own vision that prevailed, says Kevin Uhalde, an associate professor of history and president of the campus's AAUP chapter.

"We spent tons of time talking, but the same plan that the administration walked in with is what they went out with," says Mr. Uhalde, who served on some of the ad hoc panels. "Everything else sort of disappeared."

Kathy A. Krendl, provost of Ohio University, suspects that the Faculty Senate is upset because, while its members were involved in Vision Ohio, the senate "wasn't the only voice" and "it wasn't in charge." Now, she says, the senate has passed a series of resolutions on faculty compensation, health benefits, and faculty governance that she has refused to sign because, she says, they had little to do with academic issues and more to do with "advocacy." She believes professors who are part of the senate have passed the series of resolutions because "they want more power back."

Professors At Fault?

Some faculty members agree. "While the rest of the campus was engaged in rethinking and reshaping the university mission ... our Faculty Senate was focused on protecting its turf," says Don M. Flournoy, a former dean at Ohio University and a professor of media arts and studies there. "In my opinion, shared governance on this campus has become nothing more than a euphemism for faculty control."

Merrill P. Schwartz is doing a study of faculty governance for the association of governing boards, which represents campus trustees and chief executives. It will look at examples of "best practices" in how board members, professors, and administrators work together.

Ms. Schwartz says professors may, in part, be responsible for the breakdown in faculty governance on some campuses. In general, she says, professors have become more focused on their research and less involved in helping to run their universities. That's decreased the faculty's voice in decision making and contributed to a decline in communication between professors and administrators.

And less talk can be dangerous in times like these. "If there isn't a good system on a campus for consultation and communication, this climate is going to make that clear," says Ms. Schwartz, who directs research at the association of governing boards. "Good communication builds trust and good will, which are essential when difficult decisions need to be made in a short amount of time."

When Donors Can't Keep Their Pledges

Wall Street Journal, By Shelly Banjo

As wealthy donors watch their portfolios shrink, a number of philanthropists are finding they may not be able to fulfill a multi-year pledge or continue annual contributions to charities they support.

"We are seeing individuals and families reconsidering amounts they are able to give on both an annual or regular basis," says Robert Seaberg, a managing director at Citi Global Wealth Management, a unit of Citigroup Inc.

Although a pledge is a legally enforceable contract in most states, charities typically don't enforce them. But a donor's ethics and reputation may still be on the line.

If you have been a steady supporter of a charity but have to cut back on your usual gifts this year, get in touch with the charity right away and consider alternative forms of donations.

Donors are likely to put off the uncomfortable or embarrassing situation of telling a charity they are suffering financially and can't meet a promised obligation, but it's important not to "procrastinate communicating with the charity," says Kim Wright-Violich, president of Schwab Charitable, a unit of Charles Schwab Corp.

Charities count on contributions from wealthy donors to help them overcome the financial pressures resulting from the deep decline in donations and dip in endowments. Since organizations typically treat pledges like receivables -- money they can rely on to fund program and operational costs -- the sooner you disclose your financial situation, the sooner they can form contingency plans to make up for the lost funds, Wright-Violich says.

Pledge Deferrals

Once pledge-fulfillment issues are on the table, advisers and charities can approach donors with a grant workout -- a strategy fit to benefit both the donor and charity. It may be helpful to include your lawyer in the discussion.

Most nonprofits will work with donors to restructure pledges and keep donors involved with the organization, says Doug Bauer, senior vice president of Rockefeller Philanthropy Advisors.

The goal is to "figure out what the donor needs to do to make the agreement work for the charity and what the charity can do to make it work for the donor," he says.

For instance, the charity might have earmarked funds from your pledge for a new building or program without having the resources to fully support the initiative. In that case, you may be able to withdraw the pledge and redirect whatever funds you can donate to a more pressing need within the organization.

The most straightforward solution to modify your gift is to reduce the amount of the grant or restructure the payment schedule. You may be able to delay the start of a gift agreement or put a pause on the pledge to resume the next year. You may also be able to spread the pledge out over a longer period of time to give, say, $50,000 over five to seven years instead of the common three-year period.

But be careful not to stretch it out too long, as financial situations and the values of gifts will likely change with time, Wright-Violich says.

If the donation is tied to a specific asset that has declined in value since you made a pledge, such as a vacation house or a stock you intended to sell, you may be able to ask charities if they can accept the equivalent value based on what the asset is worth today.

Explore Alternatives

Instead of an outright charitable gift, consider making a bequest in your will that a specific amount of money, a percentage of your estate or piece of property be given to the charity at death -- this move will show the charity you are still invested in the organization's mission.

If you still want to make the pledge now but want a steady income stream, a charitable gift annuity offers you a fixed monthly or quarterly check for your lifetime, after which the remainder will be given to charity. The annuity payments are considered to be a partial tax-free return of the donor's gift spread over years.

To make up for pledges you are unable to fulfill, offer to help raise money on behalf of the charity by hosting a fundraising event at your home or office. You could also appeal to your firm to provide pro-bono services in such fields as accounting or technology, or donate in-kind donations, such as paper or postage.

Write to Shelly Banjo at shelly.banjo@wsj.com

Harvard, Dartmouth Losses May Increase on Buyouts, Real Estate

Bloomberg

By Gillian Wee

Jan. 27 (Bloomberg) -- North American college endowments lost an average of 22.5 percent on investments from July to November and the declines probably will get bigger after returns on private equity and real estate are calculated.

The funds shed $94.5 billion in asset value in the five months ended Nov. 30, according to a study released today by Commonfund and the National Association of College and University Business Officers. In the same period, the Standard & Poor’s 500 Index fell 29 percent, including reinvested dividends, while non-U.S. stocks dropped 37 percent.

Harvard University, whose $28.8 billion endowment is the biggest in higher education, and Ivy League rival Dartmouth College have yet to disclose the value of alternative investments such as buyout funds and property, which take longer to price because they aren’t traded on exchanges. These assets probably dragged down returns further, meaning less income for schools that are already cutting budgets.

“It’s the real unknown,” John Griswold, executive director of the Commonfund Institute, said in an interview. The Wilton, Connecticut-based center is affiliated with Commonfund, a manager of more than $25 billion, and seeks to improve investment returns by nonprofit organizations. “It’s as bad as it gets.”

Endowment income is a primary source of revenue for colleges and universities, along with tuition, public financing and gifts. Schools use investment earnings to help pay for salaries, scholarships and capital improvements like new buildings.

The losses so far this year surpass those in 1974, the worst year for endowments, according to Commonfund and Brett Hammond, chief investment strategist for New York-based TIAA- CREF Asset Management, which worked on a separate survey with the Washington-based business officers association. Losses may climb to as much as 40 percent by June if the public and private markets don’t recover, Griswold said.

Budget Squeeze

Harvard is freezing salaries at the Kennedy School of Government and the Faculty of Arts and Sciences to offset endowment losses, while the Stanford Graduate School of Business fired 49 staff members, about 12 percent of its non-faculty workforce.

“You can cut expenses, borrow money and increase liquidity in your endowment fund,” said Verne Sedlacek, chief executive officer of Commonfund. “There’s not a lot of other options.”

The percentage of endowment assets in alternative investments rose in the fiscal year ended in June as stock prices fell and colleges and universities shifted cash to support operations, Commonfund said. Endowments had an average of 46 percent of assets in alternative categories as of June 30, the study shows.

At endowments managing more than $1 billion, the allocation increased to 52 percent from 47 percent, according to the study. Those with between $500 million and $1 billion in assets had the biggest increase, moving to 42 percent from 35 percent.

Ivy League Losses

Harvard, in Cambridge, Massachusetts, said its endowment fell 22 percent from July to October and is planning for a 30 percent decline, since its estimate didn’t fully reflect the value of its private equity and real estate.

The university put $1.5 billion of buyout stakes on the market last year. Most of the holdings went unsold because the offers were too low, three people familiar with the matter said last week.

Dartmouth, in Hanover, New Hampshire, lost 18 percent in the second half of 2008. Diana Pearson, a spokeswoman for Dartmouth, the smallest school in the Ivy League, said the college is studying how to value those assets.

Liquidity Paramount

The University of Virginia, which had $3.8 billion in assets as of Nov. 30, lost 25 percent in the first five months of the fiscal year, according to the Web site of its investment management firm.

The Charlottesville school’s private-equity holdings lost 38 percent, resources fell 32 percent and private real estate dropped 27 percent. The school valued those investments at “fair market value,” the site said.

“Liquidity is the biggest priority for endowments,” said Scott Malpass, chief investment officer at the University of Notre Dame, in South Bend, Indiana. “Things are changing so fast in the economy and in the market that one needs to remain vigilant and nimble and be opportunistic in making commitments.”

In the next two years, Notre Dame will focus on buying securities that protect its endowment from inflation and “enhancing our liquidity position to take advantage of select distressed opportunities in all asset classes,” Malpass said.

Malpass declined to say how much the endowment, which had $7 billion on June 30, had lost since then.

Worst Since 1974

The Commonfund-Nacubo study findings were based on market value estimates by investment professionals at 435 schools.

In fiscal year 2008, funds lost an average of 3 percent, their third decline in eight years, according to the separate study conducted by Nacubo, and TIAA-CREF, which surveyed 796 colleges and universities in the U.S. and Canada.

Endowments had their worst prior performance in the year ended June 1974, when they reported average losses of 11 percent, said TIAA-CREF’s Hammond. The slump occurred during a recession caused by oil embargo triggered by the 1973 Arab- Israeli war.

To contact the reporter on this story: Gillian Wee in New York at gwee3@bloomberg.net.

Last Updated: January 26, 2009 21:17 EST

Market Collapse Weighs Heavily on Endowments

The Chronicle of Higher Education

By Goldie Blumenstyk

College endowments earned an average return of -3 percent for the 2008 fiscal year and an estimated -22.5 percent in the five months after that, two new reports out today show.

The declines are already having an impact. More than a quarter of all institutions said they planned to draw less money from their endowment this year than they had expected to spend.

After a half-decade of soaring returns, it was the first time endowment investments lost money since the early 2000s, when, in the wake of the collapsing technology bubble and the terrorist attacks of September 11, endowments returned a -3.6 percent in 2001 and -6 percent in 2002 (see tables).

The only category of institutions that managed to eke out an average positive return in fiscal 2008 were the 77 with endowments worth more than $1-billion. Even their return—0.6 percent—was a far cry from the 21.3 percent return they posted a year earlier.

As in the previous year, the largest endowments at the end of the fiscal year were those of Harvard ($36.6-billion), Yale ($22.9-billion), Stanford ($17.2-billion), and Princeton ($16.3-billion) Universities. All have subsequently dropped in value by about 20 percent.

The investment declines were hardly a surprise. For the last year, markets have been roiled by a global recession, a credit crisis of unprecedented proportions, and the collapse and near-collapse of several major international banks.

"Things went south just as quickly in the endowment world as they did in the economy," said John Walda, president of the National Association of College and University Business Officers, the organization that conducted the annual survey with TIAA-CREF Asset Management.

For both the fiscal year and the five months that followed, colleges’ returns were better than many of the market-performance indices. The Standard & Poor’s 500 stock index returned a -13.1 percent for the fiscal year; from July 1 to November 30, the S&P fell by 29.9 percent.

Surprising Results

Despite the troubled economy and volatile markets, the 36th annual "Nacubo Endowment Study" found that more than half of all endowments ended their fiscal year in June with larger endowments than they had a year earlier, with an average increase of 0.5 percent. Fifty-five institutions reported overall endowment growth of greater than 10 percent.

The biggest endowment to see a sizable percentage gain was that of Oklahoma State University and its foundation, which grew by nearly 32 percent, bringing the endowment to $617-million at the end of fiscal year. Foundation officials said the gain was propelled by a positive investment return of 4.5 percent and the success of an April-though-June push for endowment gifts to match challenges from the state and a private donor, which brought in $65-million.

The survey included responses from 796 institutions from the United States and Canada. (The accompanying database of changes in endowment value lists 791 institutions because a few university-related foundations respond separately but report their data with the institution.)

Because of the abrupt downturn in the markets since the summer, Nacubo and its new endowment-study partner, the Commonfund Institute, conducted a follow-up study on endowment performance in December. That survey, which included responses from 435 of the survey respondents, found that endowments had fallen in overall value by an estimated average of 22.9 percent. (At least five of the largest 10 endowments did not respond.)

In dollars, that translates to an estimated decline of $94.5-billion in market value for the institutions in the annual survey.

The findings in the follow-up study reflect the two-pronged problem colleges face. Negative returns are eating into endowment values, and philanthropy hasn't been adequate to make up for the losses and endowment spending. After the markets dove, "gifts did not help to hold those values up," said John S. Griswold Jr. executive director of the institute.

Large private colleges depend on their endowment income to cover 15 to 20 percent of their operating costs, and at some of the wealthiest institutions, it provides as much as 45 percent.

(On Tuesday the institute also released its "2009 Commonfund Benchmarks Study of Educational Endowments," which found that 628 schools and colleges earned -2.7 percent on their endowment investments in the 2008 fiscal year. The study included results from 470 colleges and universities, but it does not provide data or analysis separately for each college respondent.)

Spending Plans

With markets not expected to recover quickly, many colleges are taking a cautious spending approach. Faced with substantially smaller endowments, fewer than 4 percent of respondents said they plan to increase the rate of spending from their endowment next year. (Among institutions with endowments greater than $500-million, the proportion was slightly higher, at 7.5 percent.) More than a third of respondents said they still didn't know what they would do or did not respond.

In 2008 the average rate of spending from endowments was 4.6 percent, the same as it was in 2007. The rate of spending is determined by dividing the amount of endowment money spent into the value of the endowment at the beginning of the year. Over the past 18 months, several state and Congressional leaders have criticized wealthy colleges for failing to spend at least 5 percent of their endowment value each year.

One of the most vocal of those critics, U.S. Sen. Charles E. Grassley, a Republican from Iowa, reiterated that message with a written statement timed for release with the reports. “I hope colleges won’t use the recent volatility as an excuse to raise tuition or freeze student aid,” he said. “Colleges’ smart saving and investing could really help students right now. And the right kind of modest payout requirement for endowments above a certain dollar amount might do a lot of good for universities and students regardless of economic conditions.”

Kevin P. Hegarty, chief financial officer at the University of Texas at Austin, said it was disappointing to see some colleges decide to avoid tapping deeper into their endowments now, as they face financial squeezes from declines in state financing and private giving, and increasing demand for student aid.

"Wasn't that the argument for payouts less than the returns" when the gains were stronger? he asked. Austin, part of the giant University of Texas system, which has the fifth-largest endowment in the country ($16.1-billion), plans to increase spending from its share of the endowment by the rate of inflation next year.

Mr. Walda said he sympathized with college trustees and other leaders who are now walking the "tightrope" in deciding how to respond to the severe drop in endowment values. "I'm not surprised that 35 percent just don't know at this point," he said.

Still, as he noted, endowments are designed to be long-term investments, and if you look back over the past decade, "it's still a very positive picture."

For the 10 years ending June 30, 2008, colleges' overall return was a positive 6.5 percent.

Investment Strategies

The diversification that colleges have been pursuing over the past several years has helped them, Mr. Walda and others said.

That trend continued in 2008.

Between the ends of fiscal 2007 and 2008, the proportion of all college endowment assets invested in "alternatives"—private equity, venture capital, hedge funds, real estate, and natural resources—rose from 18.9 percent to 23.5 percent. The proportion of assets invested in stocks fell from 57.6 percent to 51.9 percent.

For some colleges, which have increasingly been shifting assets away from bread-and-butter investments like stock and bonds, and into alternative investments, like hedge funds and natural resources, the worst may yet be to come.

Over the next few months, many credit-squeezed hedge funds and private-equity funds may be calling on investors to fulfill their investment pledges, which could force some colleges into selling other assets at a loss to come up with the money. And colleges that managed to cushion their overall losses in 2008 by investing in oil and natural gas could find themselves with deep losses, if plummeting prices don't recover.

"Everyone is realizing that they need more liquidity than they thought they did," said Kathryn J. Crecelius, chief investment officer at the Johns Hopkins University.

Johns Hopkins had a return of -1.3 percent for 2008, and declines in line with its peers in the months that followed. Between 2007 and 2008, the overall endowment sank in value by nearly 10 percent, to $2.5-billion, but Ms. Crecelius said most of that was attributable to a decision to remove funds the university had been counting as endowment that should not have been classified that way.

Despite the negative return, Ms. Crecelius said, Johns Hopkins is in "a very good position compared to many of our peers" because it has the capital it needs to cover its commitments. Also, it relies on its endowment for only about 5 percent of its operating costs.

By contrast, institutions like Dartmouth College and Harvard, which depend on endowment funds by as much as seven times that, have recently imposed hiring freezes and spending cuts. Dartmouth, which had already announced it won't fill all 70 positions left vacant by its retirement-incentive program, last week said that "some staff layoffs are inevitable" because of the endowment declines. Like many other institutions that pledged last year to increase financial aid, Dartmouth said it planned to maintain that program.

Beating the Market

While few institutions have managed to find market-beating investment strategies for the past several months, some who beat the averages in fiscal 2008 credited their contrarian tactics. For Texas Christian University, that meant beefing up holdings in oil and gas and cutting back on investments in stocks, particularly in stocks of companies in emerging markets (which ended up doing badly), even though for years at investment conferences, "everybody's just thumping the table about international equities," said James R. Hille, chief investment officer.

The result: Texas Christian notched a positive return of 5 percent for 2008. With energy investments accounting for 15 percent of the university's portfolio (much above the average allocation of 2.2 percent), the endowment benefited when prices surged, "Although," Mr. Hille noted, "we're going to pay for that this year."

Christopher L. Bittman, chief investment officer at the University of Colorado Foundation, followed a similar strategy, selling emerging-market stocks and loading up on bonds during the past 18 months. For a while, he said, "we looked pretty foolish," especially when international stocks "screamed ahead." But he said the positions, including an allocation to bonds that has gone from about 5 percent to about 13 percent, seems appropriate now.

Lately, he's been eyeing the kinds of investments that have been battered by the markets, including real estate, high-paying debt issued by companies in financial trouble, and shares of private-equity funds that some cash-strapped investors are unloading at bargain-basement prices.

He's even put a portion of the foundation's endowment into a cattle and sheep farm in Australia. Markets are in turmoil and the foundation, which notched a 1 percent return in 2008, is down notably since then. While few investment experts are predicting a market rally any time soon, Mr. Bittman said he sees cause for optimism. "Honestly, I think there are some opportunities in this mess."

'Score Choice': a Tempest in a Teapot?

Chronicle of Higher Education
By ERIC HOOVER

In some circles, criticizing the College Board has become like sneezing — an automatic response that often proves contagious. The most recent fit of scorn started last summer, when the College Board announced that it would soon allow students to choose which of their SAT scores to report to colleges (admissions offices now receive the results of every SAT a student takes). College Board officials tout the option, called Score Choice, as a way to ease test takers' anxiety. After all, students would know that if they earned higher scores the second time they take the exam, they could — poof! — erase their scores from the first testing date. What's wrong with that?

Everything, say some prominent admissions officials who have publicly described Score Choice as a sales tactic that will encourage more students to take the SAT multiple times, unfairly benefiting those who can afford test-preparation classes. Those dire predictions were echoed in a December 30 New York Times article, which described concerns that Score Choice "will aggravate the testing frenzy and add yet another layer of stress and complexity to applying to college."

Lost amid the brouhaha is the fact that the College Board's rival, ACT Inc., has long allowed students to decide which of their scores to send to colleges. That policy has prompted few, if any, complaints.

Perhaps that's because the controversy involves more than just the intricacies of test-score reporting. For one, it affirms that the College Board has an image problem among some admissions deans and high-school counselors, who assume the worst about its every move. Moreover, the debate reveals fundamental questions about who has control over the admissions process.

That process has evolved into a three-way tug of war among students, colleges, and testing companies. And that's one reason Michael Barron thinks Score Choice is a good idea. "Students should own their scores," says Mr. Barron, associate provost for enrollment services and director of admissions at the University of Iowa. But some colleges, he explains, are used to seeing all SAT scores. "Now that's been taken away, and that's what's caused the hubbub," he says. "Colleges don't want to be the bad guy."

That is, the bad guy who requires students to submit all their scores despite the College Board's new policy, which in no way supersedes the admissions requirements at individual institutions. Georgetown University is among several highly selective colleges that plan to ask students for all their standardized test scores.

Charles A. Deacon, Georgetown's dean of undergraduate admissions, believes colleges can and should get all the information they can, so as to make informed evaluations. "We hope that students trust us to use test scores correctly," says Mr. Deacon, who knows that some students do not.

It's not always clear what variance in an applicant's SAT scores can tell admissions officials. At some private colleges, admissions officials convert all scores into an average for each applicant. In some cases, simply knowing how many times an applicant took the SAT might provide a clue about his or her background. "Asking for all the scores is a philosophical position for us," says Mr. Deacon, whose university encourages students not to take the test more than twice, in the name of their own sanity. Slightly more than half of all SAT takers take the exam a second time, and a majority stop there, according to the College Board.

Some high-school counselors see Score Choice as no big deal. "The new policy will increase the stress level for only about 10 percent of students," says Robert T. Turba, chairman of guidance services at Stanton College Preparatory School, in Jacksonville, Fla., "the ones who are programmed to get into Harvard and are strategizing all the way."

Whatever happens, the College Board is hardly the only player in the debate. After all, colleges have helped create the very dilemma that Score Choice presents. The recent Times story asked what would happen when students tried to use Score Choice to send just some scores to a college that "requires" all of them. The answer: Not much. A "helpful reminder" about that college's policy would pop up on their computer screens, says Laurence Bunin, a senior vice president at the College Board who oversees the SAT.

That said, the College Board has no plans to become the testing police by reporting students who do not comply with colleges' policies. "The trust to send a complete application is between the student and the college," Mr. Bunin says.

Indeed, the onus will be on young adults to decide whether they should ignore a college's rules, just as they already decide whether to write their own admission essays or cheat on tests. And that is a lesson in what "choice" is all about.

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http://chronicle.com
Section: Guide
Volume 55, Issue 20, Page A4

College financial aid system facing stiff test

By DAVE CARPENTER

Associated Press

CHICAGO (AP) — Finding financial aid for college this year promises to be tougher than any final exam.

The quest for money that begins for students and parents every January has taken on new urgency in 2009 amid fears that loans and grants will be scarcer than in the past due to the recession.

"The financing system for college is in real crisis," said Barmak Nassirian, associate executive director of the American Association of College Registrars and Admissions Officers. "Every one of the participants in the system is experiencing hardship — higher education institutions, states, aid donors and families all are cash-strapped."

Federal student loans remain readily available — with some funding even increased recently by Congress. But the prospect that grants and scholarships may be cut at many schools, combined with the shrinking availability of private loans, has fueled widespread angst at a time when more people than ever are seeking help. Applications for federal aid for the current academic year already are running 10 percent above last year's record pace, according to the Department of Education.

Savings held in Section 529 plans — the state-sponsored investment funds for college that are popular for their tax breaks — have been depleted by the worst bear market in decades and home equity values have plummeted. That has sapped two sources most tapped by parents to fund their children's higher education. Colleges' endowments have been similarly walloped.

Private student loans are especially hard hit. Last year, 60 private lenders provided $19 billion to students. Now, 39 of those have stopped lending to students and the remaining firms have made it harder to borrow, according to Finaid.org, a Web site that tracks the industry.

"The stress level is high," said Rod Bugarin, financial aid adviser for the New York-based college consulting firm IvyWise.

Numerous revenue-short states are likely to consider cutting aid in one way or another, and public colleges and universities are expected to raise tuition — in some cases by double digit percentages — as they set rates for next year.

Scholarships from civic groups and local companies across the country also are likely to decline, Bugarin said, although it's too early to know the extent.

What it all means is that families and college counselors are having to hold difficult conversations about reduced savings and the need to take on more debt and lower sights to focus on more affordable schools.

"There are no sure answers because we're in new territory," said Bruce Hammond, a Washington, D.C.-based college admissions consultant and co-author of "The Fiske Guide to Getting into the Right College." "But students with high need and lesser credentials are going to have to brace themselves for less aid."

Jean Kliphuis, 46, of Huntington, N.Y., is concerned about the tightening vise of college costs and how to pay for them as she studies aid prospects for daughter Katie, a high school senior who has applied to six schools. Jean is a librarian and her husband Tim is self-employed in the office equipment business. As middle-income parents of three children, their tab for college could be overwhelming if they didn't do all their homework on aid options.

"There is money out there, but you have to jump through a lot of hoops to get it," Kliphuis said. "So my husband and I are jumping through the hoops."

The key to success in the "convoluted" financial aid process is good information, she said, and there's lots of it available through schools' aid offices and online at such sites as Collegeboard.com and Princetonreview.com.

Indeed, the news isn't all bad. The federal government has authorized some $95 billion in grants, loans and work-study assistance to help almost 11 million students and their families pay for college this year, and its recent commitments mean that total will all but certainly be exceeded next year.

"It's scary, but not as scary as people might think," said Lauren Asher of the California-based Institute for College Access and Success, an independent nonprofit group.

Among the encouraging developments for parents and students:

_ The government broadened student borrowing in the midst of the credit crunch, ensuring the continued flow of federal loans that families depend on ahead of costlier private ones. Among other changes, annual borrowing limits for unsubsidized Stafford loans, which students can take out regardless of income, were raised by $2,000 and parents can now defer repayment of federal loans until after their child leaves school.

Stimulus proposals that would give students more financial aid also are progressing through Congress.

"This certainly has been an unprecedented disruption in the student loan marketplace," said Mark Kantrowitz, publisher of Finaid.org. "But Congress and the Department of Education have acted quickly to avert a crisis."

_ No school is known to have withdrawn pledged financial aid this academic year despite financial setbacks that have prompted them to make cuts elsewhere. A number of top institutions, from Harvard, Yale and Duke to smaller institutions with large endowments, announced expanded aid last year and have insisted they will stick to those commitments.

Aid can make a huge difference in affordability. The average list price of tuition and fees for the current academic year is $6,585 for in-state students at four-year public universities and $25,143 at private colleges, with some costing far more. But grants and tax breaks lower the average net price to about $2,900 at public universities and $14,900 at private schools, according to the College Board.

_ Some students will benefit from the turmoil, especially at colleges with high tuitions and scarce resources.

"These places continue to jack it up," Hammond said of tuition increases, "so if you can pay the full outrageous fee in this economy, as long as you can walk and chew gum you will be admitted. And if you're pretty good — average, even — you might get a $10,000 merit scholarship."

Admissions experts recommend considering a range of fallback options, from lower-cost public schools to community colleges or even waiting a year to save more money. And colleges and parents alike are hedging their bets on next year and beyond.

Administrators at Ohio State University see no big immediate impact on aid from the economy but are concerned about what may happen over the longer term, said Bill Shkurti, chief financial officer. The school's endowment has fallen by as much as 30 percent from $1.5 billion a year ago but accounts for just 2 percent of operating revenue, he said.

The University of North Carolina at Wilmington, with a much smaller enrollment and endowment, similarly has taken a hit. In a scenario likely to be repeated on many campuses, financial aid director Emily Bliss says the school is bracing for unpleasant conversations with parents about next year as it relies more on loans in its aid packages and eliminates some of the "free" money.

"Grants and scholarships won't all come through," she said. "It's difficult for us to tell families that, because our heart is breaking for them knowing what they're going through."

AP Education Writer Justin Pope contributed to this report.