Future-proofing university finances

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Higher education and financial experts discussed how to mitigate geopolitical tensions, strengthen investment and cut costs at a THE and HSBC event in New York

At the inaugural Times Higher Education Financial Sustainability Forum, in partnership with HSBC Bank USA, the financial officers of prominent US universities gathered at the Martinique hotel in New York City on 3 October to discuss the fiscal challenges facing the sector and steps that they are taking to brace for both an economic downturn and a demographic drop-off in the years ahead.

Delegates were welcomed by Jeffrey Bartfeld, senior vice-president and national higher education sector team leader at HSBC Bank USA, who underlined HSBC’s commitment to addressing challenges such as risk management, achieving sustainable development goals and new costs associated with student demand. “Education is pillar of HSBC’s values,” he said. “The bank and its partners will continue to stay in front of the solutions, tools and ideas that sector leaders need to overcome problems on a daily basis.”

The event, titled “Future-proofing university finances”, shed light on a host of issues that the financial stewards of colleges in the New York metropolitan area have to contend with in the coming years. 

“We’re already seeing problems for small private and less-elite private institutions with 800 to 1,000 students, [which have] a business model that can longer sustain them,” said Martin Dorph, executive vice-president of New York University. “The public, too, are having a day of reckoning. The flagship public universities will have more ability [to cope] than regionals, but in both cases state support and demand will be key factors.”  

There is a fear that both the US and global economies are sliding towards recession. “We expect a high [financial] market to drop,” said Eileen Di Benedetto, vice-president for finance at Barnard College, who added that a major financial crash or a slow-moving recession would each pose unique challenges for her institution. “Both are troubling, but a slow recession is more worrisome,” she said. Barnard has more levers to manage its operating budget in the case of a crash, which would enable the college to gain a consensus on any difficult decisions that it had to make in such a market.

For state universities, the potential challenges posed by a weak economy are compounded by constrained public spending and a ceiling on how much tuition costs can be raised, said J. Michael Gower, the chief financial officer of Rutgers, the State University of New Jersey. “We are being hit by costs while public support has been stagnant for quite a number of years,” he noted. “In the face of demographic challenges and the Great Recession, the big public universities have had difficulties. As the proportion of public support we receive goes down, we are becoming more and more like private institutions.”

Recent geopolitical tensions around the globe are another stress point. The US administration has cut the number of student visas issued to international students. Barbara J. Holahan, chief financial officer and treasurer of New York Institute of Technology, said that this places additional pressure on university finances. “Our enrolment relies pretty heavily on international students from China and India and the number of visas granted to those applicants continues to decline,” she explained. Ms Holahan added that a number of international students opted to register at the college’s Vancouver campus out of both fear that they would be denied visas to enter the US and the fact that the Canadian government would allow them to work both during their studies and potentially up to two years afterwards. At the same time, she said, there has been a steady decline in the number of student visas the Indian and Chinese governments are extending to students wishing to study abroad. 

Mr Dorph said that new foreign gift and contract reporting requirements set by the US Department of Education are another sign that Washington is placing financial ties to foreign nationals under more scrutiny. The concern, after reviewing the new guidelines, said Mr Dorph, is that compliance will become both costly and time-consuming. NYU has estimated that it will take between 20,000 to 50,000 hours to complete.

Several university financial chiefs said that they are endeavouring to stay ahead of potential troubles by cutting costs. “Our philosophy starts with the question of core competencies,” said Mr Dorph. “We ask what functions we do well at and what we can push out.” He added that the analysis had led to outsourcing more building maintenance and dining services, for example. In the case of information technology, he said that NYU has had to examine how to distinguish between functions that are directly related to teaching, which the university would continue to pursue, and those such as networking and data security, which can be contracted out to save on costs.

Tessie Petion, a research head for HSBC Bank USA, said that another financial option may be to examine investment portfolios by using environmental, social and corporate governance (ESG) criteria. According to Ms Petion, screening holdings for ESG can yield several benefits for universities, including mitigating investment risks by pinpointing problems that could negatively impact holdings. “Another reason more money is being invested is that institutions and other investors are looking to help bring about positive impact,” she explained.

Edward Achtner, HSBC Bank USA’s head of digital banking, recommended an incremental approach to cost-cutting initiatives. “What we have learned is that you have to show incremental progress before embarking on large-scale transformation. It’s important to demonstrate the ability to take out costs or run capacity more efficiently before the big ask on strategic projects,” he said.

Brought to you in conjunction with HSBC