Yesterday I addressed two lessons that West Virginia higher education institutions could learn from Harvard University’s endowment implosion. Today I will focus on two more from the Vanity Fair article.
Lesson No. 3: Operate at a level you can afford.
Former Harvard University President Larry Summers remarked: ”There is a temptation to go for what is comfortable, but this would be a mistake. The universities have matchless resources that demand that they seize the moment.” And seize the moment he did, building large buildings that would need to be maintained at greater and greater expense, increasing faculty and faculty salaries significantly, and making major new investments in the sciences, in large part from revenues generated from endowment proceeds. His goal apparently was to make 21st century Boston the equivalent of 15th century Florence (his words, not mine). Making Harvard’s financial situation more precarious, the new President Drew Gilpin announced a major new “college access” initiative to ensure that no student coming from a family with an income of less than $180,000 (poverty levels being different for Harvard families than for normal families) would be charged more than 10 percent of the family’s income for tuition.
While West Virginia has no institution that has spent as extravagantly as Harvard, it does have at least one institution that has seen operating expenses exceed operating revenues for several years – West Virginia State University. There are several explanations for the situation in which WVSU finds itself, but it’s a situation that definitely needs to be corrected.
Lesson No. 4: Make meaningful budget cuts.
The Vanity Fair article includes a humorous discussion of some of Harvard University’s cost-saving strategies. Early on, for instance, the author notes that free coffee for faculty, staff and students is no more at one Harvard facility. Much later the author notes that most operating expenses are for personnel. While it’s important to make reasonable reductions in costs from every line item in a budget, where possible, anyone who knows anything about higher education knows that far more than half and as much as 75 or 80 percent of higher education operating revenues are expended for personnel, benefits and related costs. Like many higher education institutions, Harvard is ill-equipped to make personnel-related reductions.
In overseeing West Virginia higher education finance (against my will and in spite of repeated pleas to be relieved of the responsibility) for a number of years, I quickly learned that there’s really only one way to balance a higher education budget – by reducing staff. If you’re savvy, you analyze vacancies and strategically realign staff over time rather than lay off people. You can cut office supply budgets, training budgets, turn the lights off at night, etc. and won’t save nearly as much as you would by liquidating one or more positions – and the office supply and training and electricity costs associated with those positions. Yet I repeatedly hear West Virginia higher education institutions claiming that they will be able to achieve significant cost savings in these other areas. It’s not true.