YU as a Financial Role Model?
On an average afternoon between classes, students mill about campus, enjoying the last days of crisp autumn air before the forces of cold weather and the pressures of school necessitate indoor activities. The colors of changing leaves and the sun dipping behind the horizon of Amsterdam Avenue frame a scene of students in casual conversation, combining to form a picture of serene normalcy. An otherwise uninformed student might notice that class sizes are somewhat larger than expected, might notice the absence of certain teachers, but the scene observed at its surface could only be described as peaceful.
However, to characterize Yeshiva as an institution undergoing a peaceful time would be misleading. Years of budgetary deficits and poor financial controls have left YU with significant financial tension. Just last semester, the faculties of the Albert Einstein College of Medicine and Yeshiva College respectively passed a motion of no-confidence in President Joel, and – in response to rumors of sweeping cuts that were thought to affect the academic quality of Yeshiva College -- the men’s undergraduate student councils held well-attended protests, expressing deep reservations in the university’s leadership.
So YU’s road to financial stability has been, and continues to be, a treacherous one. Whether the most recent victims of budgetary constraints – including several faculty members, the wrestling team, and the Core requirement First Year Seminar – will significantly affect the undergraduate experience is an issue that remains to be seen; nonetheless, there is unquestionably a subversive tension ever-present in the minds of students and faculty.
The good news is that YU’s financial standing has improved considerably as of late. Between a recent agreement with Montefiore Health System which the administration insists will eliminate an annual deficit of $100 million, cross-departmental budget cuts to the tune of $30 million, and a generous donation rumored to approach a sum of $15 million, the university should at least come close to balancing the budget for the first time in recent history.
Of equal significance to balancing the budget is the installation of Banner, a financial tracking system that will enable tighter management of the university’s finances. In the absence of these controls, unexpected deficits led to a liquidity crisis in 2012 that necessitated the sale of several building in Washington Heights and taking out a line of credit to survive the short-term. The university has subsequently refinanced that credit, adding to an already-heaping pile of long-term debt that now exceeds a half-billion dollars.
But it would be wrong to classify debt as inherently “bad.” In fact, given the almost ubiquitous reliance on debt in American society – 80% of homeowners owe more than 60% of the value of their home in mortgage payments, the cumulative national student debt amounts to more than one trillion dollars, and the federal government owes more than $18 trillion– one might think that debt is actually a good thing, and the truth is that under the right circumstances, it is.
Organizations can finance large, costly projects such as infrastructural improvements or business expansions with the governing principle that future returns must either match or outpace the cost of interest. Under the correct set of circumstances, debt can accelerate growth and improve long-term financial results.
Absent those future returns, however, debt can harm the long-term goals of individuals and organizations. While it allows for immediate gratification, interest payments to service that debt compound over time, diverting capital from more important ventures. In YU’s case, the $175 million of long-term debt obtained to cover deficits for the last few years will translate to nearly $12 million of additional interest payments per annum for the next 10 years (not to mention having to allocate $17.5 million a year to pay back the principal).
Though such figures highlight the need for major financial reforms at YU, the ubiquity of debt in the US would suggest that YU is one institution that is merely “following the trend” (which, of course, does not exonerate those who made irresponsible decisions). At the forefront of setting the trend of accumulating debt with no clear plan to pay it off is our own federal government.
While many distinctions can be drawn between the debt associated with YU and the federal government, there are two ironclad similarities worth noting. The first is interest payments. While many have pointed to mitigating factors to justify the government’s increasing deficit – such as the ability to borrow from the Federal Reserve, a non-governmental institution that artificially creates money to “lend” to the House of Representatives – the inescapable fact is that the government must pay interest on the borrowed money. Last year alone, the federal government paid a whopping $400 billion in interest payments. That’s money that could have been allocated to infrastructure, social programs, military spending, and tax cuts (take your pick depending on political affiliation), but has not because our elected representatives haven’t had the courage to engage in delayed gratification in fulfilling the wants and needs of their constituents.
The second parallel is the lack of financial controls to effectively track spending. When the House of Representatives voted to conduct their first-ever external audit in 1994, the auditor (Price Waterhouse) concluded that “deficiencies in accounting and reporting, and in information systems… affect the reliability of the financial statements…. [I]n the absence of an effective internal control structure, there can be no assurance that all House transactions were properly recorded….” In 2014, not much has changed: the external audit concluded that the House has “Ineffective control over the financial reporting process” and “Ineffective control over Information Technology.”
So the strong parallels between YU and the House of Representatives include a long, sustained history of budget deficits, ever-increasing mountains of debt, hefty annual interest payments, improper financial controls, and inadequate reporting systems. The difference between the two is that YU is actually doing something about it.
Against the backdrop of the race for the presidential nominations, I can’t help but notice a deep inconsistency. YU has received harsh criticism for its past mishandlings of finances from individuals and media outlets across the full spectrum of political affiliations. The unanimous consensus is that the university must curtail spending and install stronger financial controls. The administration has responded by articulating a plan that, if properly executed, should lift the university out of its current financial woes.
In contrast, the presidential debates on both sides of the aisle have virtually ignored the topic of spending cuts, favoring instead to trade meaningless jabs and propose fantastical policy agendas that completely ignore the question of how they will be paid for. Criticism could just as easily be levelled at elected representatives at all levels of the government, the American people for ignoring such fundamental issues, and many major media outlets for not allocating significant coverage for this issue.
Although there’s a great deal of irony to this statement, it seems that YU would make an excellent financial role model for our federal government.