In a lot of ways we covered the implications of the ongoing credit crisis for higher education last spring, and again over the summer here and here, but given the dramatic turn in recent events it behooves us to return to the topic. At the time we wrote: And as I write this, the U.S. Senate has just passed a sweeping plan designed to socialize the risk associated with all of the private reward that occurred in the upper echelons of Wall Street over the last decade. So President Skorton went ahead an issued a prudent statement on Cornell's position amidst the country's financial crisis, and thankfully the University appears to be on top of the situation: In my mind, there are three important things to watch out for as this Great Devastation (if I may coin such a phrase?) unfolds: The University's Revenue Stream While Cornell enjoys a multifaceted funding model, supported by student tuition and loans, government funding, endowment returns, and private gifts/grants, all four will come under significant pressure in the years ahead. On the tuition front, not only will household budgets be hit, leading less students to consider an expensive education, but the private loan industry is drying up. At Cornell over 1,000 undergraduates have taken out private-label loans, to say nothing of professional students. Next, government funding -- from both federal and state sources -- is also going to dry up significantly, and we know how important state appropriations are to Cornell's mission. And, finally, it doesn't take somebody with a college degree to understand that both private giving and positive endowment returns will be a challenge in the current market going forward. The capital campaign will be lucky to reach $3 billion by 2010, and let's just hope that the endowment didn't invest in any private-label mortgage backed securities. Operating Priorities and Initiatives All said, from my perspective it will be a blessing if Cornell can survive the next couple of years with only a ten to fifteen percent drop in it's operating revenue. If my concerns are warranted, that would constitute a significant chunk of change for a not for profit like Cornell -- $200 to $300 million dollars -- and push may have to come to shove for some of the University's priorities, such as the Milstein Hall or even the much hyped financial aid initiative. What should we expect? Well, the first thing to occur would be a non-academic hiring freeze, as occurred during the last recession, which we might expect pretty soon. Then it would be interesting to see if the University would go without non-essential programs (e.g. some student and faculty services) before turning to any sort of general budget freeze, or worse yet, an academic-hiring freeze. The later is particularly worrisome, as the faculty Cornell is recruiting now will help to build our Cornell for decades to come. Luckily, the University just received some funding to help in this regard. Long-Term Structure of the University With the possibility of such looming budget challenges ahead, one can't help but wonder if the current downturn will be an opportunity for Cornell to do some soul-searching and consolidate some inefficiencies and over-lapping conflicts of interest across the campus's different budget units. This is especially true in the contract colleges, and with a little bit of imagination one could possibly see parts of AEM moving to fall under the guise of the Johnson School or DEA and Textile Design moving into an expanded AAP, or even a school that consolidates all of the applied social sciences into one place. And while the institutional inertia may be resistant to such change, the University's budget may ultimately provide the biggest incentive.The final twist is that the public -- taxpayers like you and me -- may end up paying for our fair share of higher education after all. As the major financial institutions see the writing on the wall -- that the second mortgages and student loans that they underwrote to finance the goal of higher education may not be as sound as an investment as they thought it was -- there will be increasing political pressure for the U.S. government to assume these liabilities. Privatize the reward but socialize the risk.
Now, however, we must carefully assess our ability to sustain these gains and set the stage to respond to future opportunities. For these reasons, I established earlier in September an ad hoc working group of vice presidents, deans and a vice provost to suggest how we should deal with these budget issues.
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