With the economy floundering, university presidents around the country have unleashed a flurry of memos in recent weeks, reacting to the crisis with varying degrees of alarm. But throughout, at least one university has been relatively sanguine: Yale.
The University has more flexibility than most, analysts said, thanks to its $22.9 billion endowment. Some of the University’s peers already know they are in trouble. But it is not yet clear how hard Wall Street’s tumble will hit Yale.
University President Richard Levin said in an interview last week that talk of further University action would have to wait, pending an examination of the economy after the holidays.
In a letter to faculty and staff Oct. 24, Levin said the University anticipated the current economic slowdown and structured its budgets accordingly. Should the economic conditions continue to deteriorate, Levin wrote then, the University would have the option of slowing some of its capital expansion projects. Levin’s memo was sent before other university presidents sent their own letters announcing cuts or hiring freezes.
“Everyone is reacting to the same uncertainty, the same sense that endowments are going to drop,” Provost Peter Salovey said Friday. “There are different approaches to how to calibrate the expectations of faculty, staff, students and donors.”
Just Monday, the Massachusetts Institute of Technology said it would cut general spending 5 percent next year and 10 to 15 percent in the next three years.
Higher education analysts and experts said the range in universities’ reactions owes to the temperament of their trustees and the depth of their coffers. Many schools stretched their budgets thin during the boom years since 2003 with ambitious expansion plans or financial aid initiatives to follow Harvard’s and Yale’s — projects they are now finding harder and harder to afford.
All universities, experts said, are facing falling revenue streams, but only a few have endowments large enough to withstand the losses. Consequently, other, less well-endowed institutions have had to carry over the losses to their spending.
“Other schools that compete with Harvard, Yale and Princeton for students — but didn’t have quite as much money — stretched a little,” said Roger Kaufman, an economics professor at Smith College who studies higher education. “Now they’re really struggling.”
With asset prices plummeting across the board, declines in endowment returns were a near certainty. In a recession, a university’s financial strength is determined by how cautious university planners were before the crisis and how overextended their spending commitments are today, said Richard Anderson, an endowment consultant at institutional fund consultant Hammond Associates.
The irony is that the wealthiest universities rely the most on their endowments as a source of operating income, said Ronald Ehrenberg, an economics professor at Cornell University and an expert on higher education. This makes them more vulnerable to market fluctuations, Ehrenberg said.
But wealthy schools still have an advantage in hard times; they can spend a smaller percentage of their endowment while still injecting significant funds into the budget.
The first distress signal in the Ivy League sounded at Ehrenberg’s own Cornell, which announced a hiring freeze, construction pause and intensive spending re-evaluation on Oct. 30.
Cornell’s endowment supplies about 10 percent of its operating budget — about a quarter of the proportion that Yale’s endowment contributes to its revenue. But that’s because Cornell’s fund is about a quarter the size of Yale’s.
“We must carefully balance our concerns about the present with our commitment to preserve this asset, the endowment, for the future,” Cornell spokesman Simeon Moss said in an e-mail message. “The endowment enables the university to weather economic storms, such as this. It allows the university to support many programs and initiatives that it wants to have thrive into the future.”
Stanford, with its $17 billion fund, is aiming to cut spending by 10 to 12 percent. Although its endowment seems large, it is almost half the size of Yale’s per capita.
In an Oct. 29 statement, Stanford provost John Etchemendy explained that each of Stanford’s sources of income are falling, especially the endowment, leading the university to project budget cuts. Stanford’s news office declined to comment further.
Harvard and Yale are not immune to market turmoil, officials said, but their wealth may help cushion them from cuts like those at other schools. Other schools have already announced reductions because their endowments cannot sustain current operations coupled with plunging returns.
But Harvard’s and Yale’s can, the analysts said. Whether they should depend on those funds during lean times — or whether they will — is an open question.
Paul Needham contributed reporting.