Disagreeing with a study that asserted that Cornell, along with other top institutions, is on a “financially unsustainable path,” a University administrator said that Cornell is a stronger institution now than it was before the recession four years ago.
The study was conducted in part by Bain & Company — the global consulting firm hired by Cornell during the height of the recession to help eradicate up to $100 million a year from the University’s operating costs. Bain and the study’s co-author, Sterling Partners, say that approximately one-third of colleges are spending more money than they can afford.
Schools taking “drastic measures” such as “hiking tuition to the top end of the range” or “[cutting] back on financial aid,” the study said, are at risk of becoming financially unsustainable.
The study also suggested that Cornell’s spending is growing past its revenue, drawing data from 2006 to 2010 to show that the University’s equity ratio — how much of its spending is financed by its own investments or earnings — decreased by 12 percent.
Although Cornell has also raised tuition at a rate outpacing inflation and, most recently, announced it would no longer guarantee loan-free aid packages to families making more than $60,000 but less than $75,000, administrators criticized the study, saying it depicted an incomplete picture of the University’s financial health. Describing the study as presenting “data without [including] analysis of the data,” Joanne DeStefano, vice president for finance and chief financial officer of the University, said that Cornell, contrary to the study’s assertions, is in “good shape” today.
“Cornell has done everything that it needed to do to be financially sustainable,” she said.
DeStefano said that the study neglected to account for the aggressive cost-saving measures that Cornell implemented during the recession. The measures, which were carried out over the span of five years, included closing several departments, slashing more than $59 million a year from the University’s annual operating budget and reducing its workforce by nine percent.
Due to the initiatives, DeStefano said, Cornell was able to close a projected deficit of $122 million by June 30 — a year earlier than administrators had expected. Because Bain’s study drew its data from 2006 to 2010, however, it failed to include the closure of the deficit in its analysis of the University’s financial health, DeStefano said.
Bain’s study also warned that institutions that are continually raising tuition costs or relying on tuition for revenue might be becoming financially unsustainable. Such schools may be at risk of having to compromise their need-blind admissions policies, the study said.
Although Cornell has continued to hike up tuition –– sending the cost of tuition, room and board for students in endowed colleges up to $57,000 for the 2012-13 academic year –– DeStefano said that the University is by no means dependent on tuition for its revenue. Cornell has, in fact, drawn less and less revenue from tuition, she said.
“Cornell purposely saw a decline in our net tuition revenue when we increased our financial aid program [in 2009]. At a time when we were in a financially difficult, challenging time, President Skorton felt so strongly about access to education that we enhanced our financial program,” DeStefano said, referring to the boost in aid Cornell announced in 2009.
Even with the repeal of some of the 2009 financial aid measures effective next fall, tuition represents “a smaller and smaller piece” of Cornell’s budget, DeStefano said.
In fact, she said, the largest growth in revenue for the University has been the Physician Organization, or income from Weill Cornell Medical College faculty who work in Cornell’s clinical practices. These faculty generate approximately $679 million annually for Weill Cornell Medical College. She compared that figure to net tuition, or the money earned from student tuition after subtracting financial aid, which accounts for “just over $500 million” a year of the University’s revenue.
“I think what [Bain] was really focusing on — and I do think this is a challenge in higher education — was tuition-dependant schools, where their main source of revenue is tuition,” DeStefano said.
DeStefano also took issue with the study’s claim that the University’s financial statements have weakened as a result of its downgraded bond rating, a measure of how strong an ability an institution has to meet its financial commitments.
Although Moody’s Investors Service, a major credit rating agency, downgraded its outlook on the University’s financial stability during the recession, DeStefano noted that the agency upgraded its outlook from “negative” to “stable” in April.
However, Moody’s also issued several warnings that foreshadow several financial challenges the University could face in the coming years: paying off debt, financing NYCTech and compensating for a decline in government funding for research and public outreach programs.
For instance, although Cornell was noted to have significant success in fundraising and containing operating costs, Moody’s said that the University also faces a “high amount of debt and thinner operating cash flow than similarly rated peers.”
Further, Moody’s warned that it could downgrade the University’s credit rating should its $2 billion tech campus — which has “uncertain” funding sources — be hit with cost overruns, or expenses not anticipated in its initial budget plan.
Additionally, as the Bain study pointed out, Cornell, like many other universities, has seen a sharp decline in state and federal funding critical to several of its research programs. In the 2010-11 fiscal year, Cornell saw its government funding decline by 7.1 percent, or $12.6 million, according to a University financial report.
“We anticipate a continuation of this decline because government budgets are severely constrained,” the report said.
Given the University’s push to advance major initiatives such as NYCTech and faculty renewal in the Ithaca campus over the coming years, DeStefano conceded that the University still faces — and will continue to face — testing economic realities.
“I think we’re going to continue to have challenging times … The events that will happen in the future won’t be the same as those that happened in the past, so we have to be able to be ready for whatever may happen,” she said.
The University, for instance, is currently monitoring Capitol Hill for signs that the federal government will not be able to balance its budget — a situation that would result in Cornell, which receives federal funding for several programs, being “impacted immediately,” according to DeStefano.
But even with the financial hurdles the University will face over the coming years, DeStefano said the lessons Cornell learned during the recession have prepared it to face crises in the future. Emerging from the recession, the University today is stronger than the institution it was four years ago, she said.
“I am so proud of the University for how we’ve worked our ways through a very difficult past four years,” she said. “We have a much better awareness of the economic indicators [of crisis] and we are being much more proactive about preparing [for it].”