At least half of the eight Ivy League schools ran budget deficits in the past fiscal year, reflecting cuts to federal research funding and difficulty in controlling operating costs.
Of the seven schools that have released audited annual reports, Harvard University, Yale University, Cornell University and Dartmouth College posted gaps in the year that ended in June. Brown University, which had a small surplus, said it faced a deficit and used reserves to make up the difference internally. Yale said it may cut personnel as it seeks savings.
While elite universities are better positioned than most colleges because of their vast wealth and student selectivity, they are striving to contain costs such as employee benefits while maintaining their current levels of student financial aid. Automatic federal budget cuts that began this year, known as sequestration, are compounding the imbalance as the schools count on government grants to fund much of their research.
“What the Ivies learned during the credit crisis is that they are not immune to the broad general trends that are affecting the industry,” said Karen Kedem, a vice president at Moody’s Investors Service in New York. “What you’re seeing is it is forcing them to look for efficiencies.”
The deficits are re-emerging even after the schools made deep cuts in the wake of double-digit endowment losses in 2009 from the credit crisis. They use endowment funds to help subsidize operations. Many of the institutions have been trimming debt and setting higher fundraising targets as they seek to control escalating expenses.
“They’re wise enough to realize that if they start down the path to perpetual deficits it will hurt them,” said David Strauss, a principal at Art & Science Group LLC, a Baltimore-based firm that advises schools on enrollment management, marketing and tuition.
Harvard, the world’s richest school with a $32.7 billion endowment, said last month it posted a $33.7 million deficit in the year ended in June, up from a $7.9 million shortfall a year earlier. The university based in Cambridge, Massachusetts, said it is trying to curb growth of employee benefits such as retiree medical plans to save money, as well as centralize the purchase of services while reorganizing libraries and technology services.
Peter Salovey, president of the New Haven, Connecticut-based university, said in a memo last month that department heads need to “cut costs from personnel and non-personnel administrative budgets,” to avoid exhausting $160 million in reserves in the next few years.
Cornell University, based in Ithaca, New York, posted a $31 million deficit, according to its annual report. It said more than $20 million of the shortfall came from paying for interest-rate swaps that it used in an attempt to lock in the borrowing cost for bonds that it later decided not to sell.
While Dartmouth posted the smallest gap of $1.8 million, the college in Hanover, New Hampshire, is “committed to a cultural shift toward rigorous financial discipline” based on expectations that “federal funding for education will diminish, endowment growth will slow, and the cost of tuition must stabilize,” Justin Anderson, a spokesman, said in an e-mail.
The Ivy League deficits were found in annual audited financial reports released in the past month, and reflect decreases in net assets from operating activities. Brown University, in Providence, Rhode Island, said while its financial statement shows a surplus, it used $5.5 million from reserves to balance the fiscal 2013 budget.
“It’s a temporary structural deficit,” Elizabeth Huidekoper, Brown’s chief financial officer, said in an interview. “We will draw on reserves for a few years and if the federal research budget doesn’t come back we’ll have to make some real adjustments.”
Princeton University in New Jersey and Columbia University in New York posted increases in net assets from operating activities. The University of Pennsylvania in Philadelphia hasn’t released its fiscal 2013 results yet.
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