The Chronicle of Higher Education, December 19, 2008, Friday

Copyright 2008 The Chronicle of Higher Education
All Rights Reserved
The Chronicle of Higher Education

December 19, 2008, Friday

HEADLINE: What Would Warren Do?

BYLINE: GOLDIE BLUMENSTYK

BODY:
Warren Buffett drew gasps of admiration this fall when, in the midst of a market meltdown, he swooped in to ac-quire sizable hunks of General Electric and the investment bank Goldman Sachs for a relative song.

Perhaps the country's well-endowed colleges need a Buffett moment of their own -- not to invest in the financial markets, but to invest in themselves.

That's not quite the way most colleges appear to be responding. With endowment values plummeting, scores of in-stitutions have announced budget cuts and hiring freezes. Most have cited declines in their endowments as one of the reasons.

Given all the economic uncertainty -- How long before the stock markets turn around? How will year-end donation totals stack up? How much extra student aid will colleges need to provide next year, or even next semester? -- those might be prudent moves (or, less charitably, evidence of panic or posturing).

But even well-intentioned prudence has its risks.

"The wealthiest institutions really should be spending a lot more," says Ronald G. Ehrenberg, director of the Higher Education Research Institute at Cornell University.

Many colleges may be poorer than they were a year ago, but they are hardly poor. If ever there was a period to tap those endowments, he says, this is it. And not only to ensure that existing programs aren't put in jeopardy.

A building renovation, if it's really necessary, probably won't be cheaper two or three years from now, and post-poning hires that would build up a key academic program doesn't make sense if the program really is key.

"This is a great time to be hiring faculty if you have the money," says Mr. Ehrenberg.

Or consider this thought: As America debates ways to beat back the recession with jobs programs and high-way-building plans, some education advocates are now arguing that the GI Bill was actually a more powerful tool for social mobility and economic recovery than programs like the WPA. Might that also translate into a case for new en-dowment spending on student aid, the kind of "soft" investment that could turn today's scholarship student into tomor-row's productive citizen (and grateful alum)?

Protecting the endowment at the expense of a new or continuing transformative program could be a mistake.

Don't misconstrue that as an argument for spending more simply to sustain the status quo. Colleges, Mr. Ehrenberg says, are facing a "day of reckoning" on the question of affordability.

But compared with the companies now reinventing themselves against the backdrop of bankruptcy, many colleges have a huge advantage -- the cushion their endowments give them as they re-engineer their futures.

Still, there's no shortage of irony in the way the discussion over endowment spending is evolving.

Just a year ago, politicians and pundits were hammering leaders of wealthy colleges for being too stingy with their endowment spending. In response, many colleges justified their approaches by noting that the conservative spending policies protected their endowments, and ultimately their institutions, from downturns in the investment markets.

But there are downturns, and there are downturns. Most experts say the spending formulas weren't designed for a year like this one.

"This is the 100-year flood," says William F. Massy, a former director of finance at Stanford University and now a consultant to colleges.

In other words, colleges that have endowments shouldn't be afraid to use them -- and to hit them up more deeply than some of them did last year in response to public pressure.

"You may have to raid the endowment for a year or two," says John S. Griswold, director of the Commonfund In-stitute. "Taking the shock to the endowment is better than taking it in the operating budget."

For the couple of hundred colleges that have the luxury of a hearty endowment, that option is a short-term solution to an immediate problem -- and, according to many experts, an appropriate one.

But if they spend more and don't also seize the opportunity to figure out how to spend smarter, will they waste their Warren Buffett moment?

LOAD-DATE: December 17, 2008