Cuts, Consultants, and Academic Innovation: A Glimpse into the Future of Yeshiva University
Searching for a more nuanced understanding of Yeshiva’s current situation, The Commentator has conducted a months-long investigation into the University’s finances and its plans for the future. Representatives from this publication have corresponded with President Richard Joel; Provost Selma Botman; Dr. Karen Bacon, Dean of Stern College; Robert Hershan of Alvarez & Marsal (A&M); Senior Vice President Josh Joseph; Seth Moskowitz, Vice President of Institutional Advancement; as well as Matt Yaniv, Director of Public Relations and Dr. Paul Oestreicher, Executive Director of Communications. We hope that the contents of the following article will provide context for and shed light on the administration’s plans for the future.
The University’s plans for the future invariably center around fixing its currently unsustainable business model, in which annual expenses have consistently exceeded revenues by $150 million, with two-thirds of that deficit attributed to the Albert Einstein College of Medicine. A deal with Montefiore Health System, expected to close in June, would have the immediate benefit of Montefiore assuming the operating costs of the medical school. In the long-term, Montefiore, or the joint entity of Einstein-Montefiore that will be created, will compensate YU for its assets on the Resnick Campus. However, even if all goes as planned, the University would be left with a $50 million deficit across the Manhattan campuses.
Josh Joseph, Senior Vice President of YU, cited rising costs of more robust student services including academic, emotional, and religious support, employee benefits, and the faculty’s requests for well-deserved raises, as contributing to the University’s deficits. On other occasions, President Joel has pointed to faulty financial reporting software as the cause for the deficit. An outside investigation by Steven I. Weiss of The Jewish Channel, in conjunction with Takepart, placed further blame on Yeshiva’s risky investment portfolio; according to his estimate, YU has accrued over a half-billion dollars in debt and has additionally experienced a half-billion dollars in losses from its investments. In 2013, the University’s investments saw double-digit gains which accounted for 18% of its total revenue, highlighting the impact that performance of the University’s investment portfolio can have on its finances.
In light of these financial challenges, the YU Board of Trustees retained the services of Alvarez & Marsal (A&M), a firm that specializes in turnaround management for struggling institutions. Robert Hershan, a managing director for A&M, has taken the lead on YU’s account on a “go-forward” basis, meaning that he is working to stabilize the university in the future, rather than investigate the past. Based on information from A&M’s website, Mr. Hershan has worked with a number of notable clients, including United Airlines, General Electric, and Lehman Brothers, in a variety of capacities. Absent from his résumé, however, is any experience with nonprofit or educational institutions.
Distinguishing nonprofits from for-profit entities is their mission-driven nature. In an interview with The Commentator, Mr. Hershan described that he has become familiar with YU’s mission statement. “I think the board of trustees and the website have made [YU’s mission] very clear. For me, it’s Torah u’Madda. I think Yeshiva is a great and unique institution of higher learning.” Hershan continued to describe that, for his line of work, nonprofits and for-profit entities are governed by “the same set of principles,” save for the obvious difference that “[i]nstead of a company trying to generate profits, it’s about trying to break even.”
To break even, a non-profit typically has two avenues available: reducing expenses and increasing revenues. The University’s revenues can be grouped into a few main categories: government grants, private gifts, and tuition.
The first and largest, according to the Department of Education’s National Center for Educational Statistics (NCES), is government grants and contracts, accounting for 36% of the University’s total revenue. Much of that likely goes to Einstein, and thus will be transferred to the new entity after the completion of the pending deal. Offsetting this decline in revenue is the likely decline of the University’s spending on research, about 44% of the total budget, much of which is generated by Einstein.
A second source of revenue comes in the form of private gifts and donations. In a recent interview, Seth Moskowitz, VP of Institutional Advancement, told The Commentator that his department was responsible for providing $39 million of “current-use cash” for the annual budget, along with an additional approximate $30 million earmarked either for specific projects or the endowment. Having raised about $1 billion since 2006, Moskowitz noted that while YU’s fundraising arm has improved in recent years, they strive to improve their operations further. “Compared to universities of our size, we’re doing remarkably well. We just need to do better.”
He indicated that despite YU’s financial struggles, he hasn’t seen a decrease in donors’ willingness to give to the University. While potential benefactors may ask tough questions regarding the University’s plans for the future, Mr. Moskowitz noted that all donors raise objections at some point over contributing. “The art of fundraising is working through those objections.” According to the NCES, revenue from private gifts and grants accounted for 17 percent of the institution’s revenue in the fiscal year of 2013.
A third, and somewhat more significant source of revenue comes from tuition dollars. Of course, raising tuition revenue comes from higher levels of student enrollment. An outside firm, Noel-Levitz has advised the University on issues related to enrollment. According to Mr. Joseph, the University, together with Noel-Levitz prepared a five-year plan for targeted revenues for undergraduate enrollment. Thus far, YU has met its target each year. Significantly, YU’s acceptance rate has risen in the last several years; as a counterbalance though, the average SAT score has risen as well.
Although A&M is focused almost exclusively on cutting costs rather than boosting revenue, Mr. Hershan is apprised of YU’s enrollment figures. “There is competition out there… But the enrollment at YU has remained steady, give or take around 10% a year.” According to President Joel’s comments at the recent student meeting, the University hopes that in addition to increasing enrollment in the undergraduate schools, new master’s degree programs, more robust summer offerings, and online certificates through YU Global will generate as much as $25 million in additional annual revenue, covering half of the deficit.
On the other end of the spectrum, YU has been working with Mr. Hershan and his supporting staff of a half-dozen A&M associates to reduce costs in the University. Hershan noted that each school on its own either “makes money or breaks even,” but after allocating “typical corporate overhead,” such as administration, security, and maintenance, each school loses money. Thus, the first step for A&M was to identify ways of reducing that corporate overhead to the utmost extent possible, avoiding any changes that would affect “the business of the University, the academics.” To that end, YU has slashed the budgets across all non-academic departments to the tune of $20-30 million annually. President Joel claims that this will not necessarily result in a decrease of services provided to students; it simply means that the heads of each department will have to find ways of providing the existing services with more efficiency.
But, as Hershan noted, YU is dealing with a large deficit, and inevitably, “academics will have to play some small part in the solution.” Within the academic budget, many of the cuts will be reflected in a reduction of contract faculty, resulting in increased teaching loads for tenured professors. President Joel told students that only $5-6 million is being cut from the academic side of the undergraduate programs. While many students have wondered how dramatic the academic cuts will be, Mr. Hershan expressed his assurances that the changes would present a relatively minimal interference with the way academics are conducted now. “There is opportunity to have a more efficient academic enterprise without sacrificing academic quality… The intent is that the students will feel none of it- unless they have a particular professor that they think is the greatest professor and if that’s the case, I think that contract faculty member should be renewed, and [the department heads] should find other savings....”
In general, Hershan noted that A&M does not mandate any academic changes. In his words, “We’re not making the decisions. We put all the review and analysis on the table for the deans, the provost, and the department chairs, and ask them to make the final decisions. They know academics. A&M is not making or pushing for any specific academic decision.”
With regards to next year, Provost Botman provided the number of full-time contracted faculty reductions from each of the undergraduate schools: six from Yeshiva College, four from Sy Syms School of Business, and three from Stern College for Women. The larger number of reductions in YC is, she says, a reflection of a larger tenured faculty in YC as compared to the other undergraduate schools and historically disproportionate spending in YC which will have to be “rightsized” over the next year or two.
While students of Syms and Stern will not see any significant changes apart from the planned faculty reductions, students in YC will see two changes to their curriculum: Academic Jewish studies requirements will likely be reduced from 20 credits to 15, with students gaining more flexibility between the different categories of classes offered, and the required second semester writing class, First Year Seminar, will be folded in to the already existing Core requirements.
One initiative that YU has begun implementing to alleviate the burden on the remaining faculty is the offering of “blended learning,” or courses that combine online sessions with classroom learning. Independent of the debate surrounding the efficacy of online learning vs. the more traditional model of lecture and discussion based classes, the financial benefits are that teachers would spend less time in the classroom and effectively manage a larger course load.
Dean Bacon told The Commentator in a January interview that blended learning had been launched at Stern, but she held several concerns about the venture. In light of those concerns, the University’s Office of Institutional Research has recently hired Rachel Ebner as Director of Student Learning Assessment to evaluate its blended learning program using a variety of metrics, informing the Univeristy of how it can improve. Bacon stressed that blended learning needs to be introduced one step at a time to address issues as soon as possible.
Other budget-trimming proposals involve the reduction and/or combination of small courses, defined as having less than 10 students. Hershan noted that he and his associates have conducted an intensive study of class offerings throughout the undergraduate schools. While he acknowledged that small class sizes are a major marketing point for the University, he emphasized that classes of that size simply are not sustainable. However, he mentioned that many of the small classes will still remain. In a recent meeting with students, Provost Botman provided the physics department as a prime example. She remarked that many of the higher-level physics classes simply won’t attract that many students, but will continue to be offered. In Botman’s estimate, the average class size will rise from 12 students a class to about 15 students.
President Joel recently announced a further initiative to consolidate the YC and Stern faculty for the arts and sciences: “During the next three years, we will work together to fashion collaborations, synergies, unified departments and processes to function as a single entity.” Dean Bacon will function as the “superdean” between the two colleges, while both colleges “will retain their unique identities and function as separate schools.” Financially, the University will reduce administrative expenses by pooling resources between the colleges.
Aside from raising revenues and decreasing expenses, the University can, if necessary, resort to quick cash infusions from the sale of assets - namely real estate. In 2013, the University sold several residential buildings in Washington Heights to finance its growing deficit. Many have wondered if the University plans to sell any of its real estate on the Beren Campus.
Reflecting on the Stern real estate, Dean Bacon focused on the opportunities that being in Murray Hill offers the student body. She noted that having access to museums, transportation, internships, and cultural events was a big draw and provides a “true New York experience.” The centrality of the Beren campus also allows the college to attract adjunct faculty in fields such as advertising and marketing where practical industry experience is relevant. Bacon pointed out that over the years, the board of trustees has considered moving Stern many times, particularly because of space constraints. Specifically, Westchester and New Jersey have been considered as possible locations, but moving Stern has been rejected for practical considerations.
Mr. Hershan echoed Dean Bacon’s words in his interview with The Commentator. “There are no plans to sell any other real estate except for non-core residential real estate that we sold a year ago. There are no plans to sell any of the Stern real estate.” He added that “certain buildings are collateralized, so they cannot be sold without consideration of those aspects.” Hershan estimated the total value of the University’s Manhattan real estate holdings at about half a billion dollars, a figure the University’s financial statements support.
Citing the substantial value of YU’s real estate, Hershan says that “bankruptcy is not an option.” The legal ramifications of bankruptcy include forfeiting the institution’s eligibility to receive federal grants. As those grants comprise the University’s largest source of revenues, the University would be forced to liquidate its assets and close its doors. Hershan noted that “the Yeshiva community is strong” and would support YU to prevent such an eventuality.
While A&M is providing the University with valuable advice, one can only wonder what their counsel is costing the University. While both President Joel and Mr. Hershan have declined to disclose what the University is paying A&M, we have been able to identify enough information to provide a rough estimate. As A&M does substantial work for public companies, we were able to locate their retainer agreement in a bankruptcy court filing for Hooters Las Vegas. According to the filing, managing directors, Hershan’s position, bill between $450 and $850 an hour, while associates bill $225-450.
Hershan told The Commentator that he personally works over 60 hours a week, but only bills 40 of those hours to the University. As A&M has been working for YU for about 14 months now, we assume that they have worked about 56 weeks (fourteen months less four weeks vacation) and that Hershan and each of his six associates bill 40 hours a week. Including a conjectured cost of expenses as 2% of the total, the low-end figure comes to about $4.1 million, while the high-end figure rises to about $8.1 million. Limitations to this estimation include the assumption that all 6 associates have been working for YU continuously -- Hershan noted that over time the plan was to roll back the number of associates working on YU’s account -- and that A&M did not bill the University for its out-of-state travel time at 50 percent of its hourly rate as it did in the case of Hooters Las Vegas. To be clear, these cost estimates are that of The Commentator using available data and not based on actual figures provided by the University.
Overall, Hershan expressed optimism about YU’s future. After working for the University for 14 months, he says that he “knows quite a lot about this place.” In his words, “there are some challenges behind us that we’ve overcome and there are some challenges ahead that we will get through. So I think that there is a long-term sustainable future for YU, and the goal is for the next 100 years to be YU’s best 100 years.”
