Summer blockbuster season is already here, and it's a time for sequels like the new Star Trek and Night at the Museum movies. But here at LFN there's also a sequel about something no college sports fan wants to contemplate: the credit crunch around the Patriot League, which I talked about quite a bit last month.In that blog posting, I had mentioned that Lafayette "seemed to be doing fine" from all outward appearances. But nothing could have been further from the truth, as reported by Michael Duck and Genevieve Marshall of the Morning Call:
Lafayette College, Easton's biggest employer, will slash budgets, freeze salaries and cut back on building projects over the next four years because of the economic downturn and a dwindling endowment, college officials announced this week.
''Over the next four fiscal years, the college plans to decrease its operating budget by roughly 10 percent, or approximately $11 million,'' college President Daniel Weiss wrote in an e-mail to staff, faculty and students.
Lafayette has also put in some extremely strong austerity measures - while president Daniel Weiss has given himself a symbolic 5% pay cut, their University community faces a salary and hiring freeze this year and even potential non-compensated leaves of absence and "retirement incentives".
The reason for this is the shrinking of Lafayette's endowment due to the credit crunch: since June 2007, it's dropped 30% to about $540 million (from a high of $800 million) dollars. Interestingly, in the Morning Call article it was revealed that Lafayette relies on their endowment for 25% to 30% of their operational budget annually, which in retrospect left Lafayette exposed.
In light of this information, areas of the memo that Lehigh president Alice P. Gast sent out in February take on new meaning:
The economic conditions are not affecting all people and institutions uniformly. Those universities having substantial endowments supporting their operations are the hardest hit in the short term. There are institutions where endowment income funded nearly half of the operating budget. Lehigh University's endowment earnings are spent very conservatively and fund less than 15 percent of our operations. The majority of our budget is supported by revenues from tuition, auxiliaries, gifts and grants. Thus, Lehigh's immediate economic situation is stable and we must plan carefully to ensure that it remains so. I have noted that Lehigh's prudent financial stewardship has served us well, and I continue to be grateful to our Board of Trustees and their predecessors for their wisdom.That's not to say Lehigh is out of the woods entirely - not by any stretch of the imagination. Any school relying on any endowment, from Harvard to the tiniest institution, is still feeling the crunch. In the world of athletics, Lehigh reportedly chopped $250,000 from the annual budget:
At Lehigh, which has 25 varsity sports and competes in the Patriot League, athletes on the volleyball, field hockey and soccer teams will return to campus only a few days before dormitories open, instead of a full week. The change will save the athletic department about $20,000 in room and board.
Joe Sterrett, Lehigh's athletic director, trimmed $250,000 from his budget. He said he was also concerned about a potential decline in the number of athletes who attend the university's sports camps, which bring in as much as $900,000 each summer.
There are other things that may have been taken for granted, but suddenly are chopped out of the budget for all sports at Lehigh: smaller travel squads for away games, reducing pre-season expenses (as seen above), and reducing the amount of print publications. On the football side, Lehigh is extremely fortunate to have seven home games this year and only two bus trips out of the state during the regular season (one to Colgate, and the other to Fordham), so the effect on the football program might be more limited than it otherwise might be. But make no mistake - football is not exempt from the belt-tightening.
[UPDATE: Holy Cross also undertook some austerity measures as well, including voluntary retirement programs, suspension of some construction projects, and the scheduling of some "guarantee games" in basketball to help fund the athletics program. In the communique, Holy Cross announced a budget shortfall of $3 million dollars for the 2010 fiscal year. Interestingly, they were directly hit by one of the banks in the center of the financial storm: Wachovia:
On September 29, 2008, Wachovia, the trustee of the Commonfund Short-term Fund (which is used by about 1,000 tax-exempt institutions) announced its intention to close the fund and begin liquidation in an orderly manner. Holy Cross had about $27 million in the Commonfund at that time. To date, the College has received approximately 80% of its investment back in the form of cash. The remaining 20% is in high quality investments that the Commonfund believes retain value at or close to the carrying value in the fund. In the meantime, we have identified other sources of cash to compensate for the reserves still tied up in the Commonfund.Tough stuff.]
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The financial environment all over higher education is one of nervousness and intrigue - a sense that "all bets are off". The schools with the biggest endowments, like Stanford, Harvard, Duke, et. al. - have responded to their decline in endowments by issuing bonds to, in effect, sell off their debt:
Top U.S. universities, whose endowments have been hit hard by fallout from the global financial crisis, are selling bonds to raise money to shore up their financial positions.
Stanford University became the latest top university to sell taxable debt to make up for recent losses in its endowment, the third largest of any U.S. university.
Stanford on Thursday sold $1 billion worth of debt in a sale led by Goldman Sachs, JP Morgan, and Morgan Stanley.
The combination of shrinking "income" from endowments, and more generous financial aid packages have made institutions come up with new, innovative ways of getting income - like these bond issues. But expenses are also rising. To take an example, Georgetown has seen similar undergraduate admissions numbers from last year, but also has seen a spike in requests financial aid, undoubtedly due to students finding themselves in different financial situations. Equal admissions plus more need for financial aid equals more money spent by schools - that's definitely affecting things.
Even so, the Detroit News cautions people in regards to final admissions numbers:
"There's a huge wild card this year called the economy," said Kathy Orscheln, director of admissions at Eastern Michigan University. "These are tough choices for families to make. I'm not sure any of the old rules apply."
While the number of applications and admitted students is up this year at Eastern and other public universities, Orscheln is not cheering yet.
"In any other year, we would say that looks pretty good, and we can expect our (enrollment will) be healthy for the fall and probably up from last year. But with the ... economy, I'm not sure we can count on that."
Friday is the national enrollment deposit deadline that many colleges use as a gauge for their fall headcount, but typically students can still enroll or change their minds through the summer.
Jim Cotter, admissions director for Michigan State University, expects more admissions decisions will be made in this summer, as parents wait to see what happens with their jobs, economy and tuition increases.
While the subject of the article are public institutions, the air of uncertainty certainly is the same for private schools as well - maybe even more so since the amount of money involved is generally higher.
Despite the gloom, to some there is actually a silver lining: giving among the "top 20" schools actually has increased. Holy Cross also saw an increase in alumni giving despite the economic downturn (and, possibly as a result, announced recently that they were going to fund more scholarships in sports other than football). This was also true at Fordham, who recently announced a whopping $500 million alumni donation initiative to "fund more scholarships" and fund more academic chairs.
In some ways it seems like Fordham is forging forward with pretty big plans while seemingly ignoring the financial realities being talked about in coffee shops all around the country. If they can do it (and, possibly, fully fund 63 scholarships for their football team and play football as an FCS independent), bully for them - but you can't help but raise an eyebrow at how much this is going to require in fundraising.
On the other end of the spectrum, Bucknell called for a "review of merit aid and Athletics" after noting in their board of trustees meeting that "most institutions within the Patriot League are offering a more extensive merit aid program than Bucknell is via its programs in men's and women's basketball." While it's a long-range initiative, the question ought to be asked: might the result of the study be to increase merit aid within the existing forumla, to go to scholarships instead in a range of sports - or, perhaps, to disband some programs that are cost-prohibitive in terms of any sort of aid?
Meanwhile, as reported before, Colgate is looking for a new president as building infrastructure projects have quietly been put on hold.
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It's a strange landscape out there for the Patriot League. Money is tighter, expenses are higher, and even in a league with small, private institutions all seven football-playing schools seem to be facing the challenges in very, very different ways. From Fordham's "full speed ahead" to Holy Cross' "go-ahead-with-schollies-but-also-cut-back" to Lafayette's "total recession mode" to Lehigh's "austerity program" to Bucknell's study on athletics - time will tell who will navigate the rough economic seas the best of all.
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