An Update to YU’s Finances

It seems like it was just yesterday that Yeshiva University went from prospering and affluent to struggling to get a grasp of its budget deficit and mountain of debt. YU students have watched as their University got downgrade after downgrade from Moody’s Investors Service, culminating with a fall to a B3 junk bond rating in March of 2014. Earlier this month, Moody’s released a statement affirming this bleak rating, with a negative outlook. Hitting right at home, students have seen the inevitable budget cuts lead to, among other things, reduced course offerings, less club funding, and even the loss of their wrestling team. Some students are still in a state of shock, and some are angry, but most just want to know what is being done to fix it.

In an attempt to address this third group, The Commentator recently conducted interviews with several top University executives, along with independent research to shed light on the situation. Specifically, we combed through YU’s 2015 financial statements, consulted reputable third party sources, and interviewed Provost Dr. Selma Botman, Vice President for University and Community Life Rabbi Kenneth Brander, Senior Vice President Rabbi Josh Joseph, and Executive Director of Communications Dr. Paul Oestreicher. Our goal being simple: give students the update they deserve regarding the administration’s ongoing efforts, as well as address some of the most important factors relating to the state of YU’s finances.

YU’s most conspicuous efforts to overhaul its finances is their previously reported contracting of the services of Alvarez & Marsal (A&M) about one year ago, a leading restructuring consultancy for struggling institutions. At the beginning, a team of five dedicated consultants worked with YU full-time, with the team continuously being whittled down until the engagement officially ended as of December 31, 2015. A&M gave YU a target amount of money to save and specific recommendations to reach that goal. Vice President Joseph said that each recommendation in the plan had a vice president assigned to oversee it. There are weekly meetings to discuss the list and focus on moving items forward, with the plan divided into four tiers: projects in progress, projects just starting, projects in the pipeline that are nearing approval, and projects being considered or that have been dropped from consideration. Joseph said that the primary reasons a proposal would be nixed are due to a contractual conflict, it required further research, or it did not actually save money.

One such example of a nixed proposal which A&M suggested “early on” was that YU merge the undergraduate campuses. Joseph placed that proposal in the category of “not under consideration.” Mainly, “It’s not in the planning stage or on the bottom of the list or anywhere on the list right now.” On a similar note, one area where Joseph reported that YU attempted to make cuts and changes was to the security department. However, after complaints from students and others, they restored the cuts. Joseph reasoned that in the current environment, it was unwise to reduce the body count of security guards. YU is instead looking for an outside donor to finance a full survey and overhaul of the security program. As far as a recommendation which has been implemented, Joseph reported that as of December 15th, facilities and maintenance have been outsourced to the cleaning services company Aramark. This is a classic example of contracting out an operation which a company specializing in that area can do cheaper and more efficiently, resulting in savings to the University’s bottom line. “There are going to be things out there that people could do better than we can,” Joseph said. While he did not offer other specific examples of recommendations nixed or implemented, he stressed that savings from a particular change are not always realized as soon as the change is completed.

Provost Botman did address academics, which is perhaps the most concerning area of the budget cuts to students. Botman told The Commentator that her office’s work with A&M was predominantly focused on the undergraduate programs’ budget. In all, the total cuts to academic programming were $6-8 million (in line with President Joel’s comments at last spring’s town hall meeting). Botman suggested that this was achieved more through strategic management than cutting course offerings. Specifically, Botman reported that YU is hiring fewer contract and adjunct faculty, while shifting increased teaching loads to tenured faculty. While some students may view this change negatively, she framed this as a net gain for the students. “We want those people who are most experienced...in the classroom teaching you,” Botman said. Seeking to soothe any concerns of students, Botman posited that the “rumors of draconian things that would happen were not (ultimately) true. You could talk about student success and it seems very glib and syrupy, but I think it's true that at Yeshiva University, it's a principle and a priority. What we are focusing on is your education, and that’s what we care about.”

Moving on from what YU has generally been doing about addressing the financial situation to the hard numbers, many students have questions about YU’s fundraising and endowment, which combine to represent a significant portion YU’s annual revenue. Some students saw the recent Forward report that YU ceded nearly half of their approximate $1 billion dollar endowment to Einstein as part of the joint venture with Montefiore Health System. YU’s latest financial statements do, in fact, confirm that Einstein’s share of the endowment was about $465 million. The financial statements also indicate that about $146 million of the endowment are RIETS and high school interests, while about $528 million of the endowment is attributable to the University. Some of the endowment’s substantial investments include about $210 million in hedge funds, $25 million in venture capital, $65 million in private equity, and $7 million in Israel Bonds. Joseph said that endowment revenues typically represent about 10% of the annual income and that YU does not spend more than 5.5% a year. With regards to fundraising, as of June 30, 2015, YU has about $65 million in contributions receivable (donations expected to be received within the year) after discounting to present value and deducting Einstein interests. Interestingly, about 59% of the gross contributions receivable come from just five donors.

In addition to fundraising and the endowment, one of the fundamental aspects of YU’s financial health is the state of its admissions, which typically accounts for about a fifth of revenue (net of scholarships). As this newspaper has previously reported, YU retained the consulting firm Noel-Levitz to help strategize net tuition revenue. The engagement with the firm is scheduled to last one more year. Forbes magazine praises this firm as “the most influential force in higher education pricing that you’ve never heard of.” The Director of Admissions and the Director of Student Finance meet weekly to strategize about matters related to Noel-Levitz consulting.  

Speaking to the progress Noel-Levitz has helped YU achieve, Vice President Brander reported that net tuition revenue has increased by over $5.5 million in the past two years to over $40 million. Brander also noted that the rate by which tuition is discounted (due to scholarships, financial aid, etc.) decreased from 58% to 52.7%, which was primarily achieved by more effectively distributing merit-based aid. Brander said that YU still spends about $44 million on scholarship aid annually and that even with the new emphasis on effectively distributing financial aid, “no student who has financial needs...was turned away due to a lack of funds.” Brander stressed that YU “prides itself on ensuring that students aren’t compromised by coming here.” It is also worth noting that the already very low default rate of student loans has seen a substantial drop from just over 5% to about 2%, per a report from the Department of Education.

In terms of student enrollment, this spring there are 129 new students on the undergraduate campuses, up from 98 last year. Specifically, Brander said that “on this campus [Wilf], the number of students has grown, while the Beren campus has gone down a little bit.” Brander attributed the decline on the Beren campus to a reduction of the number of female high school graduates and students in Israel programs.

Lastly, getting back to the previously addressed news of Moody’s affirmation of YU’s B3 junk bond rating, this is unquestionably troubling. Many students had excitedly anticipated an improvement to YU’s all-important Moody’s rating. The affirmation and negative outlook calls into question YU’s ability to further borrow money. Dr. Paul Oestreicher, YU’s Executive Director of Communications, issued the following statement to The Commentator regarding the Moody’s report: “The recent Moody’s report affirms their earlier rating and acknowledges our progress, in addition to some ongoing challenges. It’s important to note, however, that the report covers only a snapshot of our activity; while it describes the transfer of financial responsibility for the Albert Einstein College of Medicine to the Montefiore Health System, this is part of a larger, ongoing effort. We expect to reach additional milestones in the periods ahead, which will further strengthen our financial position. Also, our enrollment numbers remain strong and our net tuition revenue has increased.”

All things considered, it will be left up to the students, alumni, and the larger YU community to debate whether or not the University is indeed on a trajectory to “reach additional milestones in the periods ahead.” One thing that is certain, though, is that much work remains to be done in rebuilding YU’s financial health. The next five to ten years will be critical in shaping the identity of Yeshiva University. Only time will tell what that identity will look like.