Financial clouds bring gloom to US institutions

'Perfect storm' of shrinking funding and growing dropout rates hits campuses. Jon Marcus reports

January 15, 2009

Williamsburg, Virginia - A chilling deluge poured from black clouds above the College of William and Mary, America's second-oldest university, chartered in 1693 by King William III and Queen Mary II.

The red-brick campus darkened to a bleak grey in the pounding rain, while the broad green lawns turned to mud.

The mood indoors matched the weather. State appropriations for higher education, which depend on tax revenue, have plummeted - down 15 per cent since October alone in the case of William and Mary - and interest from endowments has fallen even faster. With their parents suffering layoffs or business reversals, more students are likely to need financial aid. And donors, their own investments drying up, have less to give.

"We really are a good case study for the perfect storm," said the university's president, Taylor Reveley, rain coursing down outside the windows of his office. "And we're still early in feeling the full force."

Although some seem to have been hoping they could ride it out, the recession has now hit US universities. They have lined up behind banks and car manufacturers asking for money from the Federal Government, so far without response. They want billions of dollars for science and engineering staff, research into energy alternatives and infrastructure improvements.

And they have started to cut spending. William and Mary has delayed the implementation of a 3 per cent pay rise for all staff, for example, and has cancelled some journal subscriptions.

But the sector's financial leaders warn that this downturn will affect higher education in ways that require far more drastic action than trimming at the margins or asking Washington for a handout.

"The nature of this challenge is so much greater than any of us have seen in higher education," said Stephen Golding, vice-president for finance at Cornell University.

"If we're going to continue to teach, if we're going to continue to do research, if we're going to continue to provide students access to our institutions, we have to stop doing other things that don't support the core mission."

Radical change needed

Mr Golding and other leaders predict that American higher education will have to change its whole way of doing business - and many see that as an opportunity.

"The phrase I hear people around here use is, don't waste a crisis," Mr Golding said. "Let's go after things we've known are among our inefficiencies and make them better."

One way of doing this is to reduce duplication, be it in email systems in different departments, facilities management or administrative offices. Learning to share resources among departments and even universities is another option.

"You get into a group and go to Microsoft and say, what's your best deal?" Mr Golding said.

A national cull of support staff, whose numbers have swollen from three for every student in 1976 to more than six today, is also likely.

"I expect to see some major paring in what you might call the bureaucratic armies," said Richard Vedder, an Ohio University economist who studies higher education.

New construction is also threatened, with even Harvard announcing that it is "reconsidering the scale and pace" of a huge, already-begun campus expansion.

In addition, many institutions are rethinking their use of space and buildings.

"The square footage of a typical university facility is probably occupied 40 or 50 per cent of the time of a similar facility in the private sector," Dr Vedder said.

Some schools are also shortening their opening times. The University of Louisiana at Monroe has cut the working week to four and a half days, saving on utility costs.

There are also likely to be calls for greater productivity by academic staff, said Dr Vedder, meaning fewer vacancies and possibly downward pressure on salaries.

"Rather than saying 'Professor X has retired so we're going to replace him', they're going to say 'No, professors Y and Z will fill in'," Dr Vedder said.

But it is students who are likely to feel the most pain as they face either increased fees or reduced services.

More than two thirds of private universities plan to raise tuition fees, a survey by the National Association of Independent Colleges and Universities found. In half of those, as many as 10 per cent of students are expected to withdraw because of financial hardship.

Andrew Blasi, editor of The Virginia Informer, an independent campus newspaper serving the College of William and Mary, predicted that students would be only too happy to see cuts to amenities and "luxuries", the costs of which have spiralled in recent years, when "the only alternative right now is to increase tuition".

Wherever the savings are made, William and Mary's Dr Reveley believes it will be painful.

"Once we begin making those choices, we almost immediately hear: 'There has been a reduction in this, that, or the other thing that is important to me - why are you doing this?'" he said.

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