Ivies face deficits

Faced with increasing financial pressure, half of the Ivy League was in the red last year.

Yale University, Harvard University, Dartmouth College and Cornell University all posted budget deficits for the fiscal year that ended Jun. 30. Yale had the highest gap between revenue and operating costs at $39.2 million, compared to Harvard’s $33.7 million deficit, Cornell’s $31 million and Dartmouth’s $1.8 million. According to financial experts interviewed, some of the world’s wealthiest universities faced budgetary gaps during fiscal 2013 because of rising operating costs, cuts to federal research funding and ambitious financial aid programs.

“I don’t think we’re about to see the clouds part — I think a lot of these issues are structural,” said David Strauss, a principal at Art and Science Group LLC, a firm that advises colleges and nonprofits. “Are there going to be some tight times? I don’t think that’s a one year phenomenon, I think it’s a multi-year phenomenon.”

Eighty percent of colleges ran deficits last year, according to Richard Hesel, another principal at Art and Science Group LLC.

Though schools are faring better than they did in the immediate aftermath of the 2008-’09 financial crisis, many are still struggling to cover costs.

After the financial downturn reduced the size of the Yale endowment by 25 percent, the University faced a projected $350 million deficit in 2009. Since then, Yale has worked to reduce the deficit and has covered the gap each year using reserve funds. But a deficit of $39.2 million still remained in fiscal 2013.

Harvard’s deficit grew from $7.9 million in fiscal 2012 to nearly $34 million in fiscal 2013.

Even some schools that posted budget surpluses for fiscal 2013, such as Brown University, had faced deficits for the year before they closed the gap with reserve funds.

According to Bloomberg News, Harvard is trying to slow growth in employee benefits and improve IT systems to save money.

In a November 2013 memo, Yale Provost Benjamin Polak and University President Peter Salovey said they would distribute three and five-year budget targets to units across the University to deal with the deficit. Without any action, Yale’s reserve funds could only cover the gap between revenue and expenses for three more years, they said.

“If we don’t deal with the deficit, we won’t be able to do the things we need to do to move forward,” Polak told the News in November.

With four of the eight Ivy League schools witnessing a reduction in net assets from operating activities, experts are blaming  increasing financial pressures and commitments.

“My understanding is that it reflects a commitment to financial aid, combined with a reluctance to really jack up tuition to meet the rising costs of providing a college education,” Michael McDonald, a financial reporter for Bloomberg, said in an email. “Ivy League schools could charge a lot more but they are committed to attracting a diverse student body.”

Both Strauss and Hesel said the need-blind financial aid policies of many Ivy League schools are a primary cause for the gap between expenses and revenue. Strauss added that the cost of providing a college education is rising faster than the family incomes of prospective students. As applicants face financial pressures at home, they need more money for aid and universities are forced to direct a greater proportion of their budget toward student aid, Hesel said.

Like other large universities, Yale relies heavily on government grants to fund much of its research. While the University received $562 million in federal grants in the 2012 fiscal year, that figure declined to $535 million in the 2013 fiscal year, largely because of the sequester. Government cuts to research funding have impacted universities across the nation.

Going forward, Strauss said universities will have to find ways to reduce cost, dip into reserves or somehow increase their revenue streams. Schools may need to consider tuition increases or reductions in financial aid, Strauss said.

Though schools made severe cuts to their expenses in the wake of the 2008-’09 recession, McDonald said he is unsure whether institutions have made adequate changes.

“They’re not fully protected from seeing these things again in the future,” Hesel added.

Princeton University, Columbia University and the University of Pennsylvania all posted budgetary surpluses for the 2013 fiscal year.

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