It is a great honor to join you today. As US universities and colleges grapple with serious funding challenges, we are fortunate to be able to turn to this community to share experiences and wisdom. In the hope that our conversations today will provide some mutual guidance, I am pleased to offer a perspective from higher education in the United States.
This fall, despite an economy in meltdown, students have returned in record numbers to America’s campuses. Slightly more than 18 million students attend 4,100 degree-granting universities, colleges and community colleges. This continues a remarkably steady 30-year climb in enrollment, reflecting growth in the absolute number of university-age individuals and a rising rate of enrollment, most notably among middle and lower income groups.
But the college experience of those 18 million students will be affected—in ways both significant and minor—by the economic downturn. Perhaps they’ll have to select from fewer courses in their major—or fewer breakfast choices in the cafeteria. More students will rely on financial aid. More will live at home and attend a nearby institution. In fact, the number of students living at home has increased by nearly 20 percent since 2007. Of still greater concern, a university education is now a dream deferred for many Americans who await the return of better times.
I’d like to talk a bit about the impact of the recession on our institution, about how US universities and colleges are experiencing the economic downturn and what public and private institutions are doing to counter its effects. I’ll also discuss the Obama administration’s approach to the crisis, through economic stimulus funds as well as long-term investments in higher education.
I’ll begin by looking at the impact of the recession.
Let’s first consider public institutions, which enroll about 80 percent of all undergraduates. Most public universities were founded and receive funding from state governments. As states reel from a serious decline in tax revenues, they are passing on the pain to public colleges and universities. The combined revenue shortfall for all states in FY10 is estimated at $143 billion. Twenty-two states have already announced reductions in their appropriations for higher education.
Public institutions are also heavily dependent on tuition and fees, which typically provide 55 percent of their revenue. Of course, tuition is rarely more than a down payment on the full cost of an education. As one authority on education and workforce development has pointed out, “public postsecondary education is one of the few businesses where every new customer means bigger losses.” (Anthony Carnevale, Inside Higher Ed, 1/12/09) Public institutions also receive about 8 per cent of their revenues from investments and private gifts, and these sources, too, are declining.
California, which operates the nation’s largest and arguably most distinguished public higher education system, is one of the states hardest hit by the recession. California educates 3.3 million students, almost 20 percent of the entire national college population, through a three-tier system: the competitive University of California, a research engine with 10 campuses; the undergraduate-focused California State University with 23 campuses; and a network of community colleges with 109 campuses.
No state has cut more deeply into its higher education budget than California, cuts unprecedented in size and scope. Allocations for the University of California and California State were reduced by $2 billion, a 20 percent decrease in funding. Appropriations for the state’s community colleges, which enroll about 2.7 million students, have been cut by 6 percent, despite a surge in demand from returning veterans and unemployed workers seeking new skills.
To help make up for the decline in state funding, California schools are raising tuition and fees, eliminating programs, laying off or furloughing employees, expanding class sizes, and turning away students. Some faculty question whether California’s universities, with their global reputation for research, scholarship and access, will ever fully recover.
Private colleges and universities
The financial picture for private institutions is challenging for different reasons. Typically, revenue from tuition, fees, and auxiliary enterprises contributes 73 percent of the operating budget at private, non-profit colleges and universities, while private gifts (6.4%) and endowment income (8.5%) together provide about 15 percent. By relying more heavily on investment income and philanthropy, private institutions are more exposed to the vagaries of the financial markets as well as the declining financial resources of students.
Revenues from private gifts fund far more of the operating budget at those institutions, such as Bryn Mawr, considered to be among the top liberal arts colleges. At the 20 liberal arts colleges with the largest endowments, revenue from investment income provides for 30 percent of the operating budget.
The financial crisis exposed problems in the investment strategies of the most richly endowed institutions – colleges and universities that once considered a five percent decline in endowment value to be a worst-case scenario. It was a rude awakening when those endowments lost 15 to 30 percent of their value. The downturn left many well-endowed institutions with little liquidity. To raise cash, they have been forced to borrow huge sums and to sell investments at a loss.
Famously hard hit is Harvard University, which has had to borrow $5 billion. Over the past decade, Harvard’s endowment had tripled in value to more than $36 billion. In 2008, the University tapped endowment income for about one-third of its operating budget of $3.5 billion.
Then came the calamitous market downturn. By the end of FY09, the Harvard endowment, whose spectacular growth had been fueled in part by high-risk, illiquid investments, lost 30 percent of its value. In February, the university announced across-the-board budget cuts of 10-15 percent. The Faculty of Arts and Sciences, the university’s biggest division, faces a deficit of $220 million, necessitating a budget cut of 20 percent. Construction projects have been halted, including a massive $1 billion science complex. The university has offered buyouts to 1,600 non-faculty employees.
At the other end of the spectrum of private institutions is Beloit College in Wisconsin, where vulnerability lies in the fragility of tuition income, which provides three-quarters of its revenue. Last fall, Beloit enrolled 36 fewer students than anticipated, significant for a school with an enrollment of 1,282. As a result of the anticipated revenue shortfall, 40 employees lost their jobs, including three members of the faculty.
The impact of the recession is also evident at the 31 elite private colleges and universities who belong to the Consortium on Financing Higher Education, institutions like Dartmouth, MIT, Bryn Mawr, Yale and Georgetown. About two-thirds of these institutions have paused or slowed hiring and instituted a salary freeze on staff positions. Half or more have done the same with academic positions, imposed across-the-board reductions in general spending, and deferred or re-evaluated capital projects.
Bryn Mawr is living its own challenges. We began modeling budget cuts of 5-10 percent at the end of 2008, based on projections of a downturn in our endowment and an increase in the financial aid requirements of our students.
Our primary challenge was the need to balance a quick response with the need to secure involvement and support from throughout the Bryn Mawr community. Transparency was essential so I created a process that brought faculty, staff and students together in open workshops where we debated a range of possible budget reductions and built consensus around those that we would finally implement. We kept our core priorities—faculty compensation and student financial aid—at the center of these discussions.
The work continues. One area we are currently exploring involves reducing costs and improving student services by merging some administrative functions with nearby Haverford College. Our institutions already collaborate in a number of academic programs, so this approach shows promise.
Obama administration actions
The parched economic landscape of higher education was one of many challenges facing the new Obama administration. It has responded in ways that reflect a deep appreciation for the contributions of academic institutions. After all, this is a President who taught constitutional law at the University of Chicago for 12 years and has chosen leading academics as his top advisors.
As a presidential candidate, Barack Obama articulated his belief that good educational policy is good economic policy. His first presidential address to Congress identified education, energy, and health care as the three issues “absolutely critical to our economic future.”
Twenty-eight days after his inauguration, President Obama signed into law the American Recovery and Reinvestment Act of 2009, an ambitious effort to stimulate the nation’s economy with $787 billion in government spending over two to three years. In May, he presented his FY10 budget proposal to Congress. Two months later, he announced an investment in community colleges called the American Graduation Initiative.
These significant political and financial commitments offer the potential to strengthen higher education dramatically. Provisions in each are aimed at conserving the core by improving access to postsecondary education and by investing in research. Let’s take a closer look.
The Recovery and Reinvestment Act
The Recovery and Reinvestment Act is pumping billions of stimulus dollars into universities and colleges through research grants and support for job training. It aims to improve access to education by boosting financial aid and providing new tuition tax breaks for students.
A major piece of the stimulus package is a fiscal stabilization fund of nearly $54 billion, which is being allocated to states to help them avoid catastrophic reductions in education and other essential services. While each state determines how to spend its funds and over what period of time, the Recovery Act does attach some strings to the windfall.
States must use about 82 percent of their allocation to restore funding for elementary, secondary and postsecondary programs that were cut from their education budgets through FY11. Indications are that most states will spend about 20 percent of their allocation on public universities and colleges.
The Act also requires states to fund higher education at a level at or above funding in FY06. Not all states can meet that target. Florida, which faces a $5.8 billion revenue shortfall this fiscal year, received a waiver after demonstrating that its cuts to education are proportional to the overall budget gap.
Cash-strapped California is one of 10 states to indicate it will spend its entire stabilization allocation in this fiscal year, leaving nothing for 2011. Mississippi has taken a different approach, reserving more than half of its allocation for FY11.
Stimulus funds will help make college more affordable for about seven million students. A substantial increase in funding for Pell Grants, the largest single source of financial aid, will boost individual grants from $4,850 to $5,350. Nearly four million students will be able to take advantage of a tax cut linked to tuition expenses.
Historically, the federal government has funded 63 percent of research done on university campuses. The Recovery Act delivers the most significant increase in funding for basic research in American history—$21.5 billion, which includes $3.5 billion for research facilities and capital equipment. The National Institutes of Health get the lion’s share—$10 billion to fund research grants; the National Science Foundation, the Department of Energy, and NASA will award grants totaling more than $1 billion each.
As you might imagine, this infusion of funding has unleashed a flood of grant proposals. NIH has hired extra staff to evaluate more than 20,000 applications seeking a chunk of a $200 million allocation for NIH challenge grants, which is just a fraction of the billions NIH will award.
The Department of Energy is using a portion of its allocation to establish 46 Energy Frontier Research Centers on university campuses and at research laboratories with the goal of accelerating breakthroughs in clean, renewable energy sources.
In grant competition, small liberal arts colleges are often at a disadvantage due to the scale and scope of projects they can successfully pursue. That said, scientists and researchers at Bryn Mawr have been notably successful in obtaining grants, even though we are half the size of most of our college peers. In the past two years, Bryn Mawr has averaged $5 million a year in federal grants, which is significant for an institution with an annual operating budget below $100 million.
Now the huge increase in grant opportunities provided by the Recovery Act has inspired Bryn Mawr faculty to seek millions of dollars in new funding. It’s still early in the cycle, but we are seeing a significant increase in successful awards.
FY10 federal budget
President Obama has pledged to double the budget over the next decade for three agencies that fund basic research—the National Science Foundation, the Energy Department’s Office of Science, and the laboratories of the National Institute of Standards and Technology. The Recovery Act provides the first installment of that investment; the Administration’s proposed FY10 federal budget continues the trajectory.
The federal budget would focus investment in four priority areas: basic scientific research; clean energy; biomedical and health research; and national safety and security. This final category concentrates on scientific and technological developments that could predict and prevent natural and manmade threats.
The budget contains a strong commitment to STEM education. It would triple the number of Graduate Research Fellowships at the National Science Foundation, facilitate partnerships between local school districts and higher education institutions to improve math and science education, and increase funding for an NIH program that trains the next generation of biomedical researchers.
It is now up to Congress to authorize funding for the budget. If Congress fails to pass discretionary spending legislation before the end of the fiscal year on September 30, it will likely adopt a continuing resolution that would keep spending at current levels until legislation does pass.
American Graduation Initiative
Finally, let’s look at the Administration’s investment in community colleges. Affordable, open to all, they are the largest component of the U.S. higher education system, enrolling more than six million students. President Obama has pledged to invest $12 billion over a decade to strengthen community colleges through the American Graduation Initiative.
The goal is an additional five million community college graduates by 2020, graduates who are prepared for a competitive global job market. The Initiative will seek to improve graduation rates, now only about 50 percent, modernize facilities, and create new online learning opportunities. An important aspect of the Initiative will be partnerships with businesses to create career pathways, internships and job placements.
Let me conclude with a few reflections on the ‘special relationship’ between UK and US universities and on the leadership that this relationship allows us to exercise for the benefit of students and faculty around the world. As a member of the recent UK/US Study Group, I had an opportunity to explore more closely the deep connections that exist between and among our many institutions, connections that include student exchanges, collaborative research projects, as well as dual and joint-degree programs. Even in this period of economic restriction, we must do everything possible to preserve and enhance these linkages and to use them for a broader benefit, particularly in the developing world. The saddest legacy of this recession would be a retreat to academic isolationism or a withdrawal from collaborations with struggling institutions in parts of the world where even modest efforts can have major impact.
UK and US universities and colleges remain the envy of the world. They are magnets for academic talent from around the globe. With their extraordinary demographic diversity, many of our campuses are already microcosms of the global cosmopolitanism that this century is creating. As all of us struggle during this deep economic downturn to conserve the core enterprises of our individual institutions, let us continue to reach out to each other and to institutions around the world. While sustaining existing relationships, we can take the first steps in creating new partnerships and collaborations that will flourish and bear good fruit in the future.