State Universities Brace for Another Brutal Year

(page 3 of 3)

Victor Sanchez, a senior at University of California, Santa Cruz, and head of the University of California Student Assn., says he has experienced the impact of the budget cuts firsthand. His school's library is closed on Saturdays and has limited hours during the week, several academic programs have been eliminated, and some students are being forced to delay graduation because they are unable to get into the classes they need for their majors, he says. He was involved with this fall's campus protests over the tuition hikes and is helping to organize a March for Higher Education on the steps of the state capital on Mar. 1, followed by a statewide campus "day of action" on Mar. 4, events that he hopes will convince state legislators of the need for more higher education funding. He's also trying to mobilize student groups in other states including Arizona, Massachussets, Oregon, Washington, and Wisconsin. "That sense of anger among students here hasn't gone away," Sanchez says. "By working with other states, it gives us a sense of camaraderie because we're organizing around the same issues. It helps us build this into a broader movement."

The higher education world's budget woes are not limited to public universities. Private institutions, even those with hefty endowments, are being more prudent with their money as endowment earnings lag. The nation's college and university endowments had a brutal year in 2008-09, sustaining an average loss of 18.7%, their worst performance since the Great Depression, according to a study of 842 endowments by the National Association of College & University Business Officers and the Commonfund Institute.

This month, Yale University cut more than $50 million from its 2010-11 budget and said it plans to trim its capital program by 60%, to $250 million, next year. Meanwhile, Dartmouth University announced plans this week to cut 38 of its 3,400 nonfaculty workers, part of a move to close a $100 million budget deficit over the next two years, with more job losses expected this spring. Complicating matters, nearly 30% of private colleges are projecting a decline in net tuition and fee revenue in the 2010 fiscal year, according to a report from Moody's Investor Service (MC0). That's a sharp change from recent years, when on average less than 10% of these institutions reported declines.

Schools feeling the economic pinch most acutely are the hundreds of private colleges and universities that are heavily dependent on tuition and fees for their operating budget, says John Nelson, the managing director who oversees university ratings for Moody's. To cope with smaller potential revenues, these schools are accepting more students, offering larger scholarships, and trying to keep their classrooms as full as possible. And with more parents opting to send their children to public universities to save money, some private schools are voicing concerns that they may not be able to stay in business, says Nelson. It's a scenario that is unlikely at the moment, but for many the fear exists, he says. "They're using every tool in their war chest, if you will— discounting tuition, asking faculty to take no salary increases, and hunkering down to have less costly operations," he says. "For them, that's a much better outcome than suffering a decline in their entering class and risking word-of-mouth harm to their reputation."

Damast is a reporter for BusinessWeek.com.

Business Exchange

Track and share business topics across the Web.