Finding strength in budget cuts: why "feeling your pain" might not be so bad - Viewpoint

University Business, March, 2002 by Patrick Clinton

I TALKED TO A FRIEND WHO RUNS THE TEACHING CENTER AT A major research university the other day. She wasn't happy. Word had just come down that she'd have to cut her budget to the bone--the sort of message that educators and administrators at many colleges and universities are hearing. "I'll do it," she said, "But it's so hard, and the university has so much money."

It's true. The university in question has a few billion dollars in its endowment; more than enough to fend off budget cuts for a few years, if the trustees decided that was the best way to use the money.

Would the trustees ever do that? Not likely. As Yale law professor Henry Hansmann pointed out in a provocative article a dozen years ago in The Journal of legal Studies, universities often claim to use their endowments to even out short-term financial problems, but in practice they don't actually do that. A typical approach to spending rules, says Hansmann, "commits an institution to using its operating budget as a buffer to absorb shocks to the market value of its endowment, rather than vice versa." Whether or not one approves of what Hansmann describes, it's pretty clear that most institutions are doing more or less what he says.

THE REAL STORY

The intricacies of spending rules and endowment strategy are fascinating, but in times like today, they're ultimately a red herring. You probably won't spend down your endowment this year to avoid budget cuts. There are a lot of reasons to come to that decision, but to my mind, the most important reason has nothing to do with maintaining the endowment--and everything to do with the culture of higher education.

I'm thinking of three aspects of that culture in particular:

The conserving nature of universities. In addition to many other functions, this characteristic serves as a sort of afterlife for dead languages, lost ideas, and obsolete arts.

Academic optimism. Here, I refer to the faith that an unfettered pursuit of curiosity will ultimately lead to great discoveries. (Or, if you're feeling cynical, the belief that if you fund a thousand hobbyhorses, you'll end up with a Kentucky Derby winner.)

Higher education's relation to money. In a world increasingly dominated by the for-profit model, colleges and universities and other nonprofits are an aberration. They don't strive to accumulate money (though, of course, some of them manage to acquire and hang on to enormous piles of it). Instead, they live to spend money, using it the way a bakery uses flour or a car plant uses steel: as a raw material to produce something else-knowledge, learning, influence, prestige. On some level, university people look at money unspent as work undone. This culture is the root of much that's good about universities, but it's also behind one of their major shortcomings of higher ed: Though universities are brilliant at creating new ideas, projects, and programs, they are terrible at cleaning house. They don't like to close programs, eliminate courses, or shut down projects. Left to their own devices, they might never do away with anything they'd started.

Never shutting anything down might be a good fit with the culture of higher education, but it's a terrible way to run an institution. It wastes money and talent. It sacrifices focus and the synergies that come with it. And it fritters away institutional identity and strategy. As unpalatable as it is, institutions occasionally need to pare away the unsuccessful, the irrelevant, and the obsolete.

And that, of course, is the best reason not to avoid budget cuts. Because, despite what you hear at the faculty senate (and despite what you may tell donors or the state legislature), your institution will probably be better off if it makes the right sorts of cuts. That's a hard idea to sell within an institution of higher education. But because this is an unusually bad year economically, you'll have an unusually persuasive argument. When the coffers are empty, the donors are broke, and the demand for financial aid is through the roof, the need to cut is real, immediate, and transparent. No one likes to make budget cuts, no one likes the wrangling and politics and dissatisfied people. But a truly bad year isn't just a threat to your institution, it's also an opportunity to exercise discipline, vision, and creativity. What disappears from your budget in the difficult months to come will make your institution either weaker or stronger. It's time to see that your institution makes the right choice.

Patrick Clinton is a consultant to leading trade/consumer publications, and author of Guide to Writing for the Business Press. He has also been an assistant professor at Medill School of Journalism, Northwestern University, and editor of this publication.