American prosperity has long rested on how well we educate our children. But this has never been more true than it is today. In the twenty-first century, when countries that out-educate us today will out-compete us tomorrow, there is nothing that will determine the quality of our future as a nation and the lives our children will lead more than the kind of education that we provide them. Nothing is more important.
—President Barack Obama, “Remarks on Strengthening America’s Education System,” November 4, 2009
Rough financial seas had been buffeting many colleges and universities for years before the recession that began in late 2007. Then in mid-September 2008, an economic tsunami crashed into our campuses, challenging our ability to provide the accessible, high-quality education necessary to achieve long-term national goals. As the economy weakened at the end of 2008 and into 2009, college and university presidents, business officers, admissions deans, financial aid directors, faculty, staff, students, and parents wondered whether higher education would find a refuge from the worst of the storm, as it had in prior recessions.
Eighteen months later we have some of the data needed to answer this question, and the answer is a resounding “no!” Current budgetary woes result less from rising costs than from reductions in revenue from virtually all sources. Even so, this year’s report reveals tremendous differences in the nature of budgetary woes across institutions. But what holds true among the roughly thirty five hundred colleges and universities across the country is that faculty members are on the front lines interacting with students in the classroom, in the laboratory, in the studio, on the stage, and in the field. Because of the importance of our work in determining “how well we educate our children,” to quote President Obama, it is essential that professors play a meaningful role in identifying measures for dealing with financial difficulties, so that the impact of cuts on the fundamental elements of our academic institutions is limited. Moreover, faculty members must continue to contribute to decision making as our institutions chart their course for a return to normalcy.
The average salary for a full-time faculty member was only 1.2 percent higher in 2009–10 than in the previous academic year, the lowest year-to-year change recorded in the fifty years of this comprehensive annual survey. As indicated in table A, this is well below the rate of inflation recorded between December 2008 and December 2009, 2.7 percent, which means that the earning power of many (if not most) full-time faculty members is less than it was one year ago. But even these sobering statistics provide only a partial glimpse of the situation facing faculty members across the country.
We know, for example, that faculty members and other employees of colleges and universities in many states have been forced to take unpaid furloughs during 2009 and 2010. For the most part, however, the reductions in pay resulting from these furloughs are not reflected in our data—although we cannot say for certain how much of a distortion this represents. Many institutions report data for this and similar surveys on the basis of salary levels rather than payroll disbursements. An unpaid furlough, while it represents less money paid by the institution to the employee, technically does not alter that person’s base salary. To the extent that data reported here are based on salary levels that are actually higher than the pay received, our figures disguise some of the negative impact of the current economic situation on faculty members.
Our survey is also limited to faculty members who are currently employed full time, and the data we have available are aggregates by academic rank and gender. We do not have the ability using these data to track the financial situation of individual faculty members from one year to the next. We attempt to provide that information, discussed in the following section, by tabulating separate statistics on salary for faculty members who remain at the same institution from the prior year. Even so, in compiling a large aggregated data set, we lose some of the individual information that would give us more insight into the variety of financial situations confronting faculty members. It is clear that some faculty members, both those formerly employed full time and those employed part time, have been “nonreappointed”—to use a technical term that fails to convey fully the dramatic impact of the current higher education downturn on individual lives. In the aggregate, new appointments and movements between institutions obscure these departures.
As part of the standard suite of aggregate tables presented in this annual report, survey report tables 1 and 2 give some indication of the differing situation of faculty members at different types of institutions. Table 1 shows the two types of data we collect to document the change in salaries from year to year. The left side of the table shows changes in absolute salary levels; in other words, it calculates the average salary of all faculty members currently employed at an institution and then compares that to the same figure for the previous year. It is a measure of the situation of the faculty as a body rather than of the situations of individuals. Because it includes all faculty members employed in a given year, this figure is influenced by both departures and new appointments. Table 1 includes only institutions reporting data in both 2008–09 and 2009–10. The right half of the table documents the other measure available: the change in salary for continuing faculty members, which we will discuss in more detail in the following section.
Table 1 indicates that while the year-to-year growth in overall average salaries was minimal at all types of institutions and for all faculty ranks, it was especially depressed at baccalaureate colleges. The overall increase here was less than 1 percent, but even that low figure summarizes significant variation between institutional categories. Salary levels at the relatively small number of public baccalaureate colleges grew by 1.9 percent, while the change in average salaries at both groups of private colleges was only 0.6 percent. Virtually every number in this table is below the 2.7 percent rate of inflation.
Survey report table 2 shows the amount of change in overall salary levels in the various categories of institutions. As is always the case, overall averages include significant variation, and that variation represents real differences in the economic situation of faculty members at different institutions and differences among individuals as well. From table 2 we can see that the overall average salary level declined at nearly one-third of colleges and universities, with greater frequency at baccalaureate and associate’s degree colleges. Average salary levels increased only very slightly at another third of institutions: about 20 percent of all institutions reported an increase in overall average salary that was 1 percent or less, and an additional 15 percent reported increases of between 1 and 2 percent. Taken together this means that two-thirds of all colleges and universities reporting data reduced overall average salary or increased it by 2 percent or less, well below the rate of inflation.
A Near Freeze
As we have noted, the AAUP survey includes a unique data element, the one-year change in salary for continuing faculty members. Although the data underlying this figure are also aggregates by faculty rank, they are an attempt to measure the change in economic situation from the prior year experienced by individuals who remained employed full time at the same institution. The salary change captured in this measure includes the results of both across-the-board and discretionary salary increases—or in some cases this year, decreases—and promotions in rank. The results of this tabulation are presented in historical context in table A. The average change in salary for continuing faculty members this year was 1.8 percent, well below the historical levels of about 4 percent. Because this figure falls well short of the rate of change in the Consumer Price Index, it represents the first inflation-adjusted decrease in salaries for continuing faculty since the hyperinflation years of the late 1970s.
Although the aggregate analysis and presentation in the form of table after table filled with numbers tend to obscure it, this figure is more than a mere statistical calculation. Because in typical years a decrease in salary for an entire category of continuing full-time faculty members is unusual, we ask survey respondents to verify decreases reported in this section of their institutional data. Time and again, we read reports of faculty members taking cuts in salary as a consequence of the financial situation at their institutions. From these data we do not know how those cuts were decided or whether the financial information used to justify them was accurate and complete. Reports from AAUP chapters across the country leave us skeptical that the process was as inclusive and objective as it should have been, and we encourage our colleagues to continue to demand the meaningful participation in the financial decision-making process called for by long-established principles of shared governance.
The right half of survey report table 1 displays the average salary change for continuing faculty members by rank and institutional category. The only institutional category where overall increases for continuing full-time faculty exceeded the rate of inflation was that of public associate’s degree colleges. It is worth noting that the proportion of full-time faculty at many of these community colleges is only about one-third of the total instructional faculty, and as indicated in table 4, they are some of the lowest-paid faculty members.
Survey report table 3 provides expanded detail on the distribution of various levels of salary change across the reporting institutions, with percentage calculations based on numbers of both institutions and faculty members employed. Ten percent of all institutions reported either no change in salaries for continuing faculty or an overall decrease. A much higher proportion of institutions are in this situation than in recent years, which is especially significant because these figures represent not only fluctuations in the composition of the faculty at an institution but also actual salary cuts and freezes for whole categories of faculty members. When we tabulate these categories of salary change together with the increases that fell below 2 percent, we see that, for 65 percent of continuing full-time faculty members, salary did not keep up with the rate of inflation.
Dimmed Retirement Prospects
A brief glance at the standard tabulated data on average retirement contributions (survey report tables 10a and 10b, presented in this report annually) shows only a slight change from recent years. But beneath the surface of the overall figures, we see troubling signs for the retirement prospects of current faculty members.
The overall rate of retirement contributions by institutions responding to our 2009–10 survey was 10.4 percent of average salary for those individuals participating in the retirement plan. The data collected here are the expenditures by the institutional employers on contributions to retirement and pension plans; they are the institutional “match” to whatever contributions come from faculty members themselves. The number most useful for this discussion is the average (and rate as a percentage of salary) for faculty members actually participating in the retirement plan, shown in the bottom half of tables 10a and 10b. The levels reported in this table have held essentially steady for several years. What these overall figures do not reveal, however, is the change between 2008–09 and 2009–10 in retirement contributions made by specific institutions. Table B describes this one-year shift at the level of the individual institutions.
While most institutions reported retirement contribution rates for 2009–10 that were essentially the same as those reported the previous year, about 13 percent of institutions reported a decrease in rates of more than half a percentage point from 2008–09 levels. This proportion was highest among baccalaureate colleges, most of which are private, and lowest among doctoral and master’s degree universities, the largest of which are public and therefore more immediately subject to political constraints on changes to retirement plans.
The group of institutions reducing their retirement contributions for faculty includes eighteen colleges and universities where the rate of retirement contribution was reduced to zero. (This number does not include institutions that also reported no retirement contributions in the previous year.) These institutions are mostly relatively small, which is why the shift in their retirement contributions did not affect the overall national average rates. But for the faculty members in those colleges and universities, the impact of reduced retirement contributions can be dramatic.
An example illustrates the consequences for an individual faculty member of a college’s decision to reduce its retirement contribution from 10 percent of salary to 5 percent. If my college’s contribution is 10 percent and I also put 10 percent of my salary into my 403(b) plan, then there will be a $2,000 annual contribution into my retirement account for each $10,000 in salary I earn. Assuming my employer and I both maintain our contributions for twenty-five years, and assuming an 8 percent rate of return compounded annually, I will have $157,909 in my retirement fund for each $10,000 I earned annually in those twenty-five years. Suppose, however, my college reduces its contribution to 5 percent. In year one and every year thereafter, there is a $1,500 contribution to my retirement account. At the same rate of return, I will have $118,432 in my retirement account after twenty-five years for every $10,000 in salary. My employer has saved $12,500 in contributions to my retirement account over my twenty-five years at the college, but because of compounding interest, after twenty-five years I have almost $40,000 less in my retirement account for each $10,000 of income I earned in a given year. To provide a somewhat more realistic example, if my professorial salary is $60,000 and never changes in twenty-five years, my college has saved $75,000 in benefits expenditures, but I have nearly a quarter of a million dollars less for my retirement. We may not feel the lost contributions to our retirement accounts while we are working, but we will feel those losses once we retire.
The Survey of Changes in Faculty Retirement Policies conducted by the AAUP and other organizations in 2006 found that 82 percent of responding institutions allowed faculty retirees to continue participating in group healthinsurance programs (beyond what is required by law through the COBRA program). Most of those institutions subsidized at least part of the cost of health-insurance premiums for their retirees, although a much smaller proportion provided those benefits for spouses or family members of retirees. These numbers are very similar to the proportion found in the AAUP’s prior survey on faculty retirement policies, conducted in 2000. Unfortunately, we do not have current data to determine whether the present recession has caused institutions to withdraw from this aspect of their commitment to their faculty retirees. This is an area that bears watching, at both institutional and national levels.
Because many aspects of faculty careers and work are not documented in comprehensive national data sets, it is difficult to measure the full impact on faculty work of reductions in college and university spending. This section provides some examples of spending cuts made during the current academic year and the consequences of those cuts.
No central data source provides comprehensive coverage of the faculty hiring process, but there are indications that new faculty appointments have been dramatically reduced during the 2009–10 academic year. While not all academic positions are listed with respective disciplinary associations, tabulations of their faculty job listings provide one gauge of the academic labor market. The American Historical Association (AHA) reported in January 2010 that the number of jobs listed through its various outlets had fallen by 24 percent to 806 positions, the smallest number in a decade.1 Further, an AHA survey of those departments that did list faculty openings found that 15 percent of those searches were subsequently called off.
The American Economic Association (AEA) reported a decline of 19 percent in academic listings in its Job Openings for Economists in the past year. In departments with PhD programs, listings were down by 8 percent, while in nondoctoral departments new position listings were down 31 percent. The American Mathematical Society reported a decline in faculty job listings of 13 percent for 2009 compared with the previous year.2
The greatest reductions were reported by the Modern Language Association (MLA).3 dvertised faculty openings in English language and literature decreased by 35 percent, and MLA listings in disciplines other than English were down by 39 percent. The two-year total decline in position announcements amounts to 51 percent in English and 55 percent in foreign languages—the largest decrease recorded by the MLA since it created the Job Information List thirty-five years ago.
A fundamental mission of colleges and universities is to expand our range of knowledge through research and scholarship. The traditional tripartite division of faculty work includes teaching, research and scholarship, and service to the profession. Research is a form of continuing education for faculty members, allowing them to teach students the most recent developments in their disciplines. Despite its importance, research-related funding has not been spared the budget ax. Library budgets for acquisition of periodicals and other resources are being slashed. Professional travel budgets are being cut, making attendance at academic conferences prohibitively expensive for many faculty members, graduate students, and academic professionals. This is reflected in decreased attendance at some recent major professional conferences. The AHA reported that attendance at its 2010 conference was 3,700, a 31 percent decline from the 5,400 attendees at the 2009 conference.4 The MLA reported that attendance at its late 2009 conference was down by about 1,000, a drop of about 12 percent, and attendance at the January 2010 conference of the Allied Social Science Associations (composed of the AEA and other economics-related associations) was 9,265, about 14 percent fewer than the 10,829 attending in 2009.5 These declines in conference attendance doubtless reflect a combination of the weakening academic job markets and reductions in budgets for faculty development.
Sabbatical leaves, another form of continuing education for faculty, are also being eliminated in the quest to slash spending. In spring 2009, Kent State University in Ohio announced it was rejecting most sabbatical proposals submitted for the coming academic year, denying sabbaticals to sixty professors. Fitchburg State College in Massachusetts approved only two of eleven requests when normally it would have approved them all. The University of Georgia reduced the number of sabbaticals granted during 2008–09 by two-thirds relative to the previous year.6
Sabbaticals, professional travel budgets, and other areas of research support may be appealing targets for business officers trying to balance their institutional budgets because, like deferred maintenance on a university’s physical plant, the harm done by cuts to these line items is not immediately apparent. However, the faculty is the human capital of an academic institution, and deferred maintenance of human capital resources is even more dangerous to an institution’s long-term health than deferred building maintenance. A building that is not being properly maintained will not pack up and move to another university. Even in the current recession, faculty members are much more mobile than is the college’s physical plant. Institutions that choose to defer maintenance of their faculties will see their best faculty members departing, while those institutions that continue to invest in their faculty members will reap both short- and long-term rewards from their ability to recruit and retain committed individuals.
The Revenue Context
As faculty members, we must make investments as well. One of the most important investments we can make is in the time and effort to understand both the expenditure and revenue sides of our institutional budgets. Only if we understand the unique revenue streams of our individual colleges and universities can we successfully apply our efforts to both increasing the size of the revenue pie and allocating that pie in ways that maintain the primacy of academic functions.
The degree to which institutions rely on different revenue streams varies dramatically. One of the most important distinctions is between public and private institutions. According to recent data from the U.S. Department of Education, tuition and fees account for 17 percent of the revenue of public institutions and 29 percent of the revenue of private institutions. State appropriations were the largest single source of revenue for public institutions, at 23.9 percent, compared with only 1 percent of revenue for private institutions. Federal appropriations, grants, and contracts were an important source of revenue for both types of institutions. But while gifts and investment income made up only 5.9 percent of the revenue of public institutions, they accounted for 35.3 percent of the income of private colleges and universities.
The current economic crisis is serious for higher education because, with the exception of federal funds (particularly those provided through the 2009 stimulus legislation), virtually every revenue source has been negatively affected. This section will explore the impact of the current economic situation on state appropriations, tuition and fees, charitable giving, and endowment investments. Faculty members who intend to exercise their legitimate role in determining their institutions’ spending priorities need to learn as much as possible about the true revenue situation at their own institutions.
State governments, typically the largest source of revenue for public colleges and universities, substantially reduced higher education appropriations in fiscal years 2009 and 2010 as their own revenue collections plummeted. Principal revenue sources for states are personal income and general sales taxes, accounting for approximately two-thirds of total state tax revenue.
As the recession increased unemployment and lowered income, it led to reductions in personal income-tax revenue. Additionally, individuals whose income has fallen—or who are afraid it will fall—are spending less, diminishing sales-tax revenue. Reductions in corporate profits also reduce corporate income-tax receipts.
According to data collected by the National Conference of State Legislatures (NCSL), although states lowered their projected revenue forecasts for fiscal years 2009 and 2010 at the onset of the recession, even those reduced forecasts regularly overpredicted revenue collections, because the economic downturn has been so severe and of such long duration.7 As a consequence, most states have experienced budget deficits of unprecedented size.
In assembling their budgets for fiscal year 2010, the NCSL reported, states were compelled to cut spending, to raise taxes, or to do both sufficiently to close a total forecasted budget gap of $145.9 billion. Because of errors in budget forecasts (that is, overprediction of revenue or underprediction of spending), thirty-six states had to enact additional rounds of spending cuts or tax increases during the year to address an additional $28.2 billion in forecasted budget shortfalls. An NCSL survey conducted in November 2009 found that thirty-five states and Puerto Rico were projecting combined budget shortfalls of $55.5 billion in fiscal year 2011 (which begins July 1, 2010). Twenty-three states and Puerto Rico currently project budget gaps totaling $68.8 billion in fiscal year 2012.
These budget challenges have had great impact on higher education—but that impact is not new to the current recession. According to a 2008 report of the National Association of State Universities and Land Grant Colleges, state appropriations for higher education, when adjusted for inflation and enrollment, had already declined between 1996 and 2006.8 According to the most recent State Higher Education Executive Officers report, total state appropriations for higher education in fiscal year 2010 have fallen by a further $79.4 billion from the prior year.9
The overall reduction in state support totaled 3.5 percent. When federal stimulus money provided through the State Fiscal Stabilization Fund is added, however, the net reduction in state appropriations to higher education was 1.1 percent. (One is led to ask what happens when federal stimulus funding ends—a problem we may be confronting in future editions of this report.) An examination of the data for fiscal years 2009 and 2010 shows enormous variations in state funding and in the use of federal funds. For example, state appropriations for higher education declined 26.1 percent in Alabama (20.1 percent after inclusion of federal funds), 19.2 percent in Nevada (4.3 percent after federal funds), and 16.4 percent in Virginia (9.4 percent after federal funds). At the same time, appropriations in North Dakota increased 18.5 percent, even though no federal stimulus funding went to higher education. Appropriations for Montana higher education increased by 10.8 percent, jumping 30.1 percent with the inclusion of supplemental federal funds.
Although a few signs of economic recovery began to appear in summer 2009, the data are not yet sufficient to conclude that the recession has ended. Even a nascent recovery in late 2009 or sometime in 2010 will not eliminate state budget gaps because tax revenue generally lags behind economic recovery. Thus, state fiscal directors are predicting that state finances will not recover until fiscal year 2012 at the earliest, suggesting that state appropriations for higher education will remain a target for spending cuts for another two years or more.
Tution and Fees
Tuition and fees accounted for 17 percent of public college income. For private colleges, where the figure was 29 percent, they were on average the largest source of revenue, although significant differences exist in the degree of reliance on tuition revenue within each of the sectors. The enrollment and tuition revenue situations of community colleges, four-year public colleges and universities, and private baccalaureate colleges differ dramatically. As cost-conscious students and parents increasingly choose community colleges for some part of their education, growing enrollments and rising tuition rates yield larger revenues. Some four-year public institutions are in a similar situation, while for others higher tuition prices are offset by increased financial aid spending, so that net tuition revenue is not rising at the rate one might expect. Many private colleges are trying to keep tuition rate increases small but are having to raise discount rates to reach targeted enrollments. (Tuition discounting is the use of some portion of overall tuition revenue to fund institutional grants that offset higher tuition prices for some students; as discount rates rise, the net revenue generated from increased enrollment is reduced.)
The recession has weakened the ability of parents and students to pay tuition and fees in three ways that are likely to have a continuing impact on college revenues for years to come: declines in investment returns, lower home values, and unemployment.
Parents watched their college savings funds decline dramatically with the stock market in 2008 and 2009. Although investment values have recovered somewhat, as of this writing they remain below fall 2007 levels—meaning that parents have lost a full two years of investment returns as a source of college funding. Home equity loans, another source of funding for college tuition payments, all but dried up following September 2008, and real estate foreclosures continue to challenge mortgage holders across the country. Parents and students who have lost their jobs or experienced a reduction in their work hours are finding tuition bills increasingly hard to pay. With unemployment expected to remain at high levels well into 2012, students and their parents are increasingly moving from contributing revenue to college and university coffers to besieging financial aid offices with requests for assistance.
In February and March 2009, Maguire Associates, a higher education consulting firm, conducted a survey of college enrollment decisions among high school students (predominantly seniors) and their parents. Sixty-nine percent of the students and 84 percent of parents reported that they were “concerned” or “extremely concerned” about the state of the U.S. economy. More than 60 percent of parents and students indicated that their concerns about the economy had influenced the choice of schools to which the student was applying.10
More than one-quarter of students who had initially planned to enroll at a private college decided to enroll at a public institution instead, citing “total cost” or “close to home” as primary reasons for their decision. The smaller proportion of students who enrolled in private rather than in public colleges gave scholarship or other financial assistance offers as a top reason for their choice.
In this context, college and university admissions officers adjusted their admissions packages to meet enrollment targets—and entice students to bring with them whatever tuition revenue they could. A June–July 2009 Maguire Associates survey of senior enrollment officers found that they accepted more students and increased financial aid offers.11 Fifty-four percent of respondents increased their admissions acceptance rates, and 50 percent enhanced aid packages. Not surprisingly, private colleges were more likely to increase financial aid than were public colleges.
At the same time, public institutions in many states were raising tuition prices, continuing a long-term trend. According to the College Board’s annual Trends in College Pricing report, “published tuition and fees at public four-year colleges and universities rose at an average annual rate of 4.9 percent per year beyond general inflation from 1999–2000 to 2009–10, more rapidly than in either of the previous two decades. However, the rate of growth of published tuition and fees at both private not-for-profit four-year institutions and public two-year colleges was lower from 1999–2000 to 2009–10 than in either of the previous two decades.” Published in-state tuition and fees at public four-year institutions averaged 6.5 percent higher in 2009–10 than in 2008–09, while the increase at public two-year colleges averaged 7.3 percent and private not-for-profit four year colleges and universities raised prices an average of 4.4 percent. However, the report notes that the “average estimated 2009–10 net price for full-time students, after considering grant aid and federal tax benefits, is about $1,100 lower (in 2009 dollars) in the private sector and $400 lower in the public sector than it was five years ago.”12
Enrollment figures for 2008–09 varied dramatically, with some institutions reporting that they exceeded their enrollment goals and others reporting serious shortfalls. Maguire’s data indicate that 20 percent of respondents were below the targets set by their presidents and governing boards, 43 percent were about where they were expected to be, and 37 percent exceeded their enrollment targets. Respondents at private colleges were more likely to report enrollment declines than were their public sector counterparts.
While increasing the enrollment of traditional-age college students may partially or fully solve a particular institution’s budget woes, this strategy will not succeed at all institutions. Without an increasing population of high school graduates, higher enrollments and the tuition and fees they generate are a zero-sum game. At the national level, increases in enrollment will have to come from populations currently underrepresented in higher education, such as Hispanics and older students. Given the wide variation in tuition dependence among institutions, faculty members must be sure to examine closely any claims about the impact of changing enrollments on their institutions’ finances.
According to the most recent Voluntary Support of Education survey, compiled by the Council for Aid to Education (CAE), a total of $27.8 billion was given to higher education institutions in fiscal year 2009.13 That amount represents a decline of 11.9 percent from the preceding year, the largest year-to-year drop in the more than thirty years CAE has been collecting data. Figure 1 documents the recent trend.
When we examine the last ten years of CAE data, we see that, although giving did decline following the 2001 recession, the decline was not nearly as large as the one colleges and universities are currently experiencing. Development officers had foreseen that donations would fall in fiscal year 2009, but the declines far exceeded their expectations.
Declines in giving hit both gifts for current operations (such as annual-fund campaigns) and gifts for capital purposes (endowments, property, buildings, and equipment), although not in equal measure. Gifts for operations fell just 0.7 percent in fiscal year 2009 and accounted for 61 percent of contributions. Gifts for capital purposes made up a smaller share of giving (39 percent), but giving in this category declined a full 25 percent—likely as a result of the substantial declines in the stock market.
Another piece of bad news in the CAE report was that the proportion of alumni donating to their alma maters fell to 10 percent, the lowest level ever recorded. It is important to note the huge variation across different institutional categories in both alumni giving rates and the size of average gifts. Alumni participation was highest at baccalaureate colleges, with private research universities next. However, the average gift size for private research universities was almost double the average gift made to baccalaureate colleges.
Gifts to the twenty largest university recipients represented 26.2 percent of gifts made to colleges and universities last year.14 That eight of these twenty are public universities shows how aggressively some public universities are seeking charitable giving to reduce their reliance on state appropriations. Unlike strategies to increase revenue by increasing enrollment, prospects for increasing giving rates and gift sizes are not necessarily a zero-sum game throughout higher education. Most public institutions and many private colleges can do more to increase their revenue streams from donors.
About one-third of college and university donors end up contributing to endowment funds. Those funds are invested in a variety of assets that, during good years, generate income to fund some portion of the institution’s current-year operating expenses. (In some cases endowment funds are restricted by donors to be used for scholarships, which are an indirect source of revenue for operating expenses.) Institutions typically spend between 4 and 5 percent of the total value of their endowments to support current operations. To smooth out the effects of annual changes in endowment values, they often use a three-year moving average of endowment value in computing the revenue available for the year. In most years, the return on endowment investments is well above the spending rate, so the endowment continues to grow even as income from it funds current budgets. This growth has not occurred during the past two years.
In February 2010, the National Association of College and University Business Officers (NACUBO) and the Commonfund Institute released their joint report on endowment performance during fiscal year 2009.15 The report includes data from 842 institutions with a total of $306 billion in endowment assets. Like giving (to which they are related), endowments vary dramatically across—and within— institutional categories. Typically, private colleges rely more on endowment income to finance their current operations. As we noted in last year’s report, Harvard University, Yale University, Princeton University, Williams College, Grinnell College, and others rely on endowment income to finance as much as one-quarter of their annual operating expenses. Colleges with small endowments do not have this luxury. As more public institutions have focused on fundraising to supplement state appropriations, endowment income has become increasingly important to public universities such as the University of North Carolina at Chapel Hill, the University of Michigan, and the University of Virginia.
Most endowment returns were hit hard by the 2008–09 crash in the stock market, subsequent drops in commodities markets, and the havoc experienced in other financial markets. Although the U.S. stock market started to recover in March 2009, the gains recorded by June 30 were not large enough to offset losses from the first part of the fiscal year. As a whole, endowments in the NACUBO report lost 18.7 percent of their value in fiscal year 2009. Private and public institutions both experienced large losses, with public endowments losing 17.3 percent and private endowments declining 19.1 percent. Figure 2, which indicates year-to-year changes in endowment returns during the past ten years, shows how anomalous last year’s results were.
Many of the institutions that had been leading the way, generating enormous annual returns, were the ones that fell the hardest in 2009. The same high-risk assets that yielded double-digit returns during the mid-2000s were responsible for extraordinary losses this past year. Harvard lost $10.9 billion in value from its $36.6 billion endowment during fiscal year 2009, a drop of almost 30 percent. The losses of the five universities with the largest total endowments (Harvard, Yale, Stanford, Princeton, and the University of Texas) ranged between 23 and 30 percent. Because the level of risk in the investment portfolios at institutions with smaller endowments tended to be smaller, their losses during fiscal year 2009 were correspondingly less dramatic. Institutions with endowments of greater than $1 billion lost 20.5 percent of their value in fiscal year 2009, while those with a total value of less than $25 million lost “only” 16.8 percent.
For years, institutions with large endowment values per student had come to rely on those endowments to finance substantial portions of their annual expenditures. They became complacent, basking in double-digit growth. But as a result of the past year’s enormous declines and the failure of various diversification strategies to cushion endowment losses, more institutions are rightly investigating options for reducing their reliance on endowment income to finance such large proportions of spending. Institutions are also rethinking how they manage their endowments and the level of risk they are willing to tolerate in how that money is invested.
The data on giving and endowments yield two important conclusions. First, most of our institutions—particularly those in the public sector—can and must make additional efforts to promote alumni giving. Most Americans who receive higher education get it thanks to public colleges. Our public universities must teach students about the importance of philanthropy before they leave campus with a degree in hand. Faculty members can and should participate in these efforts.
Second, the 2008–09 financial crisis has taught a hard lesson to both private and public institutions that have come to depend on growth in their endowment assets to finance various types of spending. High returns are accompanied by higher risk, and higher risk sometimes means enormous losses in institutional wealth. Although management of endowment assets is a skill that only a few faculty members possess, those of us who work at institutions that rely substantially on endowments to finance operational spending need to ask hard questions about the diversification of our institutions’ investments. If we are to support our institutions in hard times, we must invest our time and our commitment to the mission of education by taking up the responsibilities of shared governance.
In December 2009, the National Council of State Legislators released a report describing actions states had taken to address budget shortfalls for fiscal year 2010 as of that point. A few of the examples relevant to higher education illustrate the choices being made in the current economic situation. While these examples are drawn from the public sector, similar choices are occurring in the private sector.
The Arizona legislature enacted cuts of $40 million from the state university system’s budget, leading Arizona State University to lay off nine hundred employees and put twelve thousand faculty and staff members on mandatory unpaid furloughs. Georgia implemented budget cuts of 6 percent for technical colleges and 4 to 8 percent for the University of Georgia system. Regents mandated six furlough days for employees at public colleges and universities, affecting approximately forty thousand faculty and staff members. (At press time, University of Georgia system institutions had released contingency plans for further cuts in programs and personnel if future reductions in state funding are ordered.) Across-the-board budget cuts of 12 percent were authorized for Iowa’s three state universities, including a 2 percent reduction in contributions to the retirement funds of university employees. However, the Iowa authorities plan to use federal stimulus funds to offset most of these cuts.
The Louisiana board of regents has ordered cuts in higher education funding of 7 percent. Regents are considering eliminating or merging academic programs statewide. Michigan had scheduled elimination of the Michigan Promise Grant, which provided up to four thousand dollars in financial aid to as many as ninety-seven thousand college students in their first two years of college. In addition, Michigan was implementing cuts of $147 million in the operating budgets of the state’s fifteen universities. Nevada had settled on cuts in higher education funding of 12.5 to 15 percent, including a 4.6 percent pay reduction for nontenured employees. (The governor had at one time proposed cutting state support to higher education by 36 percent.)
These recent dramatic moves come in a context of longterm disinvestment in the core mission of higher education. In its analysis of federal data on institutional finances, the Delta Project on Postsecondary Education Costs, Productivity, and Accountability has documented a trend of declining spending on instruction as a proportion of total expenditures.16 This AAUP annual report has repeatedly pointed out the misguided priorities demonstrated by increased spending on salaries of presidents and football coaches and employment of increasing numbers of administrative personnel, while faculty salaries remain stagnant and the proportion of faculty members employed in precarious contingent positions continues to rise.
Spending cuts applied to faculty and staff have a tremendous adverse impact on students and on the ability of our institutions to fulfill their academic missions. Hiring freezes mean that when staff retire or resign, they are not necessarily replaced. Although involuntary furloughs affect all employees, the fragmentary data we have at this point indicate that hiring freezes and layoffs are more concentrated among full-time nonexempt staff than full-time managerial or exempt staff. The result is less support for students, more administrative work for faculty, and less time for teaching, advising, and scholarship. Faculty hiring freezes have brought about bigger classes, larger course loads, and requirements that faculty members cover courses outside their expertise. Reductions in course offerings that occur as a result of faculty hiring freezes, early retirement offers, or layoffs increase the time it takes students to graduate when required courses are not offered or are oversubscribed.
Return to Normalcy?
In its January–February 2009 survey, the College and University Professional Association for Human Resources asked member institutions, “Do you have a recovery plan for a ‘return to normalcy’ once the economic crisis is past?” Ninety percent of the respondents answered “no.”17 It seems unlikely that recovery plans have materialized in the year that has passed since.
The lack of planning for recovery is bad news. If there is a silver lining in this situation, it is that opportunity exists for faculty members to get involved in developing recovery plans. Faculty members need to identify the budget-planning committees of their institutions and make sure there is sufficient faculty representation on these committees. Where such committees already include faculty representation, we must insist that faculty members are present at all meetings and that budget data are distributed to committee members well in advance, so that priorities and other important issues can be thoroughly discussed. Finally, we should make sure that at least one faculty representative to the institutional budget-planning committee is available throughout the summer to participate in any emergency meetings. The lesson to be learned from the difficult economic challenges facing faculty and all of higher education is that the time to act is now.
The publication of this report is made possible in large part by the meticulous work of the indefatigable John Curtis, the AAUP’s director of research and public policy. Research assistant Michael Kinsella provided invaluable aid in collecting and verifying data. I am also grateful to the many institutional representatives who provide data each year for the Association’s annual survey. Many of them were affected by the economic circumstances described in this report. Special thanks to Barbara Armentrout, Cameron Cary, and Cheryl Hill, who provided valuable research documents. Finally, members of our committee provided insightful comments on the themes of this year’s report and how to weave them together into a coherent narrative. The committee members are Ann Mari May (Economics), University of Nebraska–Lincoln; James W. Monks (Economics), University of Richmond; Ronald L. Oaxaca (Economics), University of Arizona; Richard Romano (Economics), Broome Community College, State University of New York; and Ronald G. Ehrenberg (Labor Economics), Cornell University, consultant and former chair.
Saranna Thornton (Economics), Hampden-Sydney College, and Chair, Committee on the Economic Status of the Profession
1. Robert B. Townsend, “A Grim Year on the Academic Job Market for Historians,” Perspectives on History (American Historical Association), January 2010, http://www.historians.org/Perspectives/issues/2010/1001/1001new1.cfm. Scott Jaschik, “No Entry,” Inside Higher Education, January 4, 2010, http://www.insidehighered.com/news/2010/01/04/nojobs, reports on the figures for both history and economics. Back to text
2. Steven Ferrucci, program coordinator, American Mathematical Society, e-mail communication, January 7, 2010. Back to text
3. Scott Jaschik, “Disappearing Jobs,” Inside Higher Education, December 17, 2009, http://www.insidehighered.com/news/2009/12/17/mla. Back to text
4. Inside Higher Education, “Quick Takes: Smaller History Gathering,” January 7, 2010, http://www.insidehighered.com/news/2010/01/07/qt#216920. Back to text
5. Serena Golden, “Bleak News on the Front Lines,” Inside Higher Education, January 4, 2010, http://www.insidehighered.com/news/2010/01/04/jobs; John Siegfried, secretary-treasurer, American Economic Association, e-mail communication, February 8, 2010. Back to text
6. Jack Stripling, “Sabbaticals on Leave,” Inside Higher Education, March 6, 2009, http://www.insidehighered.com/news/2009/03/06/sabbatical. Back to text
7. NCSL News, “The Fiscal Nightmare Continues for States,” December 9, 2009, http://www.ncsl.org/?tabid=19250. See also “Actions and Proposals to Balance the FY 2010 Budget: Education,” http://www.ncsl.org/?tabid=17242. Back to text
8. Peter McPherson and David Shulenburger, “University Tuition, Consumer Choice and College Affordability: Strategies for Addressing the Higher Education Affordability Challenge—A NASULGC Discussion Paper,” November 2008, https://www.aplu.org/NetCommunity/Document.Doc?id=1296.
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9. State Higher Education Executive Officers, State Higher Education Finance, FY 2009, http://www.sheeo.org/finance/shef-home.htm. Back to text
10. Maguire Associates, “Students’ Application Choices and College Preferences in the 2009 Admissions Cycle,” May 2009, http://www.maguireassoc.com/resource/documents/Students
ApplicationChoicesandCollegePreferences2009.pdf. Back to text
11. “Understanding College Decisions in the 2008–2009 Admissions Cycle” (presentation, American Association of Collegiate Registrars and Admissions Officers Strategic Enrollment Management conference, November 9, 2009), http://www.maguireassoc.com/resource/documents/SEM_presentation-College_.... The survey disproportionately represented private institutions and covered the 2008–09 recruiting season. Back to text
12. College Board, Trends in College Pricing 2009, http://www.trends-collegeboard.com/college_pricing. Back to text
13. Council for Aid to Education, “Contributions to Colleges and Universities Down 11.9 Percent to $27.85 Billion. Greatest Decline Ever Recorded” (press release, February 3, 2010), http://www.cae.org/content/pdf/VSE_2009_Press_Relsease.pdf.
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14. Stanford University; Harvard University; Cornell University; University of Pennsylvania; Johns Hopkins University; ColumbiaUniversity; University of Southern California; Yale University; University of California, Los Angeles; University of Wisconsin–Madison; New York University; University of Washington; Massachusetts Institute of Technology; Duke University; University of California, San Francisco; University of Minnesota–Twin Cities; University of North Carolina at Chapel Hill; University of Michigan; University of California, Berkeley; University of Chicago. Back to text
15. National Association of College and University Business Officers, 2009 NACUBO-Commonfund Study of Endowments. Tables that are available to the public can be found at http://www.nacubo.org/Research/NACUBO_Endowment_Study/Public_|
NCSE_Tables_.html. Back to text
16. Delta Cost Project, Trends in College Spending, January 2009, http://www.deltacostproject.org/resources/pdf/trends_in_spending
-report.pdf. Back to text
17. College and University Professional Association for Human Resources, “Impact of Economic Crisis on Staffing and Compensation Planning: A CUPA-HR Pulse Survey—Update, February 23, 2009,” http://www.cupahr.org/knowledgecenter/files/StaffCompPlngSrvyRslts_
022309Update.pdf. Back to text