The President's Take on the University's Financial Crisis
Over the past several years, Yeshiva University has suffered significant financial consequences of making bad decisions - consequences that have resulted in a lower credit rating by both Moody’s and Standard and Poor’s. This all happened after YU was forced to liquidate $72.5 million worth of assets after monetizing $128 million in real estate during winter of 2013. (For more information on these initial consequences, please see Alex Behar’s article, All Hands On Deck).
Many people are wondering how such mistakes could have possibly happened. Though several publications have blamed President Richard Joel and the financial administration for the university's woes, in an exclusive interview with staff from The Commentator, President Joel offered his own take as to why the university got into such a mess.
The most egregious mistake that the university made was the lack of effective and adequate reporting and controls in terms of the expenditures of the university. The most obvious reason for this was their subpar financial management, as indicated in an official credit report. Many of the financial reports were simply laid out on “antiquated and opaque systems.” There was one ledger that was on one mainframe computer and everything else was displayed on excel spreadsheets. YU is currently in the process of installing a software system used by many universities known as Banner, a program that has been on the market for several years, to produce its financial reports going forward. Millions of dollars are being invested into this project.
Another reason for their lack of effective and adequate reporting, one which would prove much more complicated and costly to rectify, was the “many silos of people doing their job and not pulling it together,” as President Joel explained. For years, the university had a $600 million budget which included the payroll and a treasury fund. There was insufficient reporting as to what was being done with the excess cash and other incomes like donations. The president and deans were not receiving monthly statements on any of these matters. They were forced to rely on word-of-mouth instead of relying on concrete data. According to Joel, “We relied on an oral tradition instead of a written tradition.” When different department heads were questioned by the president on how they were managing their budget and cash reserves, they all claimed that they were doing fine. In reality though, many of these departments were not doing fine. They were in poor financial shape. However, the departments were not overspending the budget; the problem was that the budgets that were given to these departments were too big relative to the liquidity of the university’s balance sheet. A large part of this blame falls on the shoulders of the previous Chief Financial Officer, Michael Gower. Joel claims that Gower did not give him a complete picture of everything going on, and as a result, the financial situation of the university was seriously distorted.
These distorted budgets resulted in an increase in a disproportionate size of tenured faculty, lowering of teacher-student ratios, student life development, and improvements in the university's counseling centers, writing centers, academic advising, and registrar. YU’s CJF (Center for the Jewish Future) has experienced such tremendous growth in that it now consumes $7-8 million dollars per year of the budget. Additionally, the Azrieli Graduate School has tripled their full-time faculty. YU Torah and Kollel Yom Rishon, two recent additions made in order for YU to reach out to the global Jewish community, both proved to be very costly. The focus was all on “how to have an institution that produces a unique product for the advancement of the Jewish people.” The hiring of presidential fellows, which - in Joel’s opinion - added tremendous value to many departments, cost the university $350,000 a year.
After the financial crisis and YU’s problems were finally exposed, the administration sought advice on how to regain financial solvency, finally hiring Alvarez & Marsal (A&M). A&M is an international professional services firm notable for its work in turnaround management and performance improvement for high profile businesses such as Lehman Brothers and Tribune Company.
A&M’s first priority was to stabilize the finances of the university by correctly auditing the finances of the institution. An important goal was to ensure that YU had liquidity along with constant monitoring to stabilize the university’s business affairs. This involved working with accountants to help push audits, advising sales on properties, converting short term loans into long term debt, and developing a monitoring function for liquidity. A&M both analyzed the way YU hires faculty as well as examined departmental budgets to see if each department was spending only what came from endowed chairs or if spending exceeded such levels.
The next step YU took towards making itself financially solvent was by retooling its finance department. The administration appointed a Director of Budgeting and Analysis, Nathaniel Kane, and hired a new Chief Financial Officer. For the first time, there was a budget officer tasked with overseeing the budget and partnering with the CFO - first Toby Winer and now Jake Harman, a former senior audit partner at KPMG.
Under the leadership of A&M, the financial department began to analyze the undergraduate as well as the graduate level to see where the expenses are going and comparative data such as the student-faculty ratio and the overhead costs of running a department. The problem was that there was very little to cut in the corporate department since cuts were enacted there already. It was time to cut from the academic side of the university.
In order to come up with an effective academic budget, A&M worked with with Josh Joseph, Senior Vice President of YU, and Selma Botman, the new Vice President for Academic Affairs and Provost, to look at every department and determine how much needs to be cut from them. This academic year for example, the budget of the Manhattan campuses reflects a reduction of about $20 million, about 8% of the total budget and its about 20% of the total gap that needs to be bridged. In the words of Selma Botman, however, “we cannot cut our way to a balanced budget.”
To increase revenue, the university has a number of programs in the works that it hopes to implement very soon. These programs include graduate programs, from launching master degree programs in speech pathology, occupational therapy, and physical therapy to expanding the masters in accounting to an online program. President Joel emphasized that the programs he wants to implement are “things that could be done by us with quality but be revenue producing.” Other ideas that President Joel has brainstormed is raising the charges for the annual Shavuot retreat for couples, allowing for sizable donations, and charging 99 cents for a shiur from YU Torah - leaving the option to proceed without paying, of course.
One major initiative that is being undertaken is YU Global, an online academic software system which introduces blended learning options to the YU community. Many of the faculty in the academic department raise troubles with blended learning, since they fear it will dilute the academic quality of the institution. President Joel cautions that it will be utilized as long as the initiative is effective, adds value, and unifies the faculty. Also, blending learning will allow more students at both campuses to take great classes taught by tenured faculty.
Finally, YU is looking to cut back costs by distinguishing between contract faculty, adjunct faculty, and tenured faculty. Tenured faculty are faculty who have achieved tenure through superior teaching, scholarship/research, and university citizenship. Tenure-track faculty are hired for a certain period, but can extended their time at the university by displaying exemplary workmanship, ultimately with the expectation they will receive tenure with a good peer review. Contract teachers are hired to teach a faculty load to the degree that they are needed, while adjuncts are hired to teach one or two classes. President Joel indicated that YU plans to honor the tenure track as much as possible, aiming to reduce expenses in both the contract and adjunct faculty fields.
With the worst of the financial straits behind them, President Joel and the rest of the YU administration do have an uphill battle ahead of them. However, with plans in place, the financial future of the university is a little less shaky.