"The Way Forward" Plan

This is a section of Cooper Union's Financial FAQ. Click here to read the rest of the document.

Does the path described in “The Way Forward” document issued by Friends of Cooper Union solve the financial problems of The Cooper Union?

The Way Forward” document provides moving testimonials to what Cooper means to many of our constituents and offers several helpful insights and ideas.  This is a response to the path described, from a financial perspective.

A number of initiatives are underway that align with suggestions made in the document.  For example, almost every unit at The Cooper Union has made expense reductions, and we have projected approximately $4 million in savings for the current fiscal year 2013. This represents about a 12% reduction of total allocations excluding benefits and debt service financial aid, research grants and other miscellaneous items. In accord with the recommendations of the Expense Reduction Task Force, this was achieved through a 6% reduction of each division plus additional reductions based on their relative increases since FY2006. The Expense Reduction Task Force was decisive in making recommendations that would have the effect of ensuring that resources are devoted primarily to academic rather than administrative operations.  The resulting operating budget for fiscal year 2013 shows a larger investment in academic areas rather than in administrative operations.   A breakdown of the allocation can be in found in Appendix B of the Expense Reduction Task Force Report. In addition, administrators did not receive salary increases from FY12 to FY13. We are examining alternatives to the rental of floors at 30 Cooper Square, where many of our administrative offices are based, including Admissions, Continuing Education, Development and Alumni Relations, Finance and Student Services. We continue to see improved results from our Development Office, which set a record in FY 2012 for Annual Fund results. Accordingly, we have set higher goals for fund-raising, increasing the year-to-year target for growth in Annual Fund giving from 3 percent to 5 percent for the next 10 years.  To address these points, T.C. Westcott, Vice President for Finance and Administration & Treasurer, met with individuals representing the Friends of The Cooper Union and provided detailed facts about the institution’s overarching financial challenges. This information was also shared with members of the community including staff, faculty and alumni in various communiqués and group sign-up meetings.

However, we must continue in our efforts to develop a sound financial plan for the future.  The Revenue Task Force appointed by the President will be meeting again in September 2012. Our efforts are ongoing.  The fact is The Cooper Union has an unsustainable financial model.  The institution’s financial situation is a serious one.  Although many of the financially-oriented ideas presented in “The Way Forward” are valuable, they do not solve the long-term (structural) challenge. Our predicament consists of a short-term challenge and a long-term challenge.

  1. The short-term challenge is bridging from when our unrestricted endowment runs out (estimated to be around FY 15 unless appropriate measures are taken) to 2018-19, when the Chrysler building ground rent steps up by $21 million, to $32.5 million for the full fiscal year of 2019, from the tenant, Tishman Speyer.
  2. The long-term (structural) challenge is that after 2019, the Chrysler rent revenue stream does not grow at all – not even with inflation – for 10 years. After 10 years, it steps up again, but this time only by $9 million (in 2029 dollars). These two step-ups fall far short of compensating for inflation. Even when the short-term problem is solved, a deficit re-emerges and widens exponentially into the future.

It is primarily the long-term problem that makes our financial model unsustainable.

Many factors are critical to understanding the financial challenges and the options now under consideration to address the challenges.  Some of these factors, which were not sufficiently addressed in “The Way Forward,” deserve further explanation.

  • Inflation.  Financial models must anticipate annual inflation of at least three percent on most expenses (with higher rates of inflation for employee health care costs, currently estimated to be rising by 7.5% per year), and the need for increased revenues to cover those expenses.  “The Way Forward” does not consider this factor. The revenues from the Chrysler building, which have been the principal funding source for Cooper Union, have not kept up with inflation and are not forecasted to keep up with inflation in the future. Because of inflation, expenses increase exponentially, while the Chrysler rents increase on a step function with ten-year intervals.
  • Debt service.  Refinancing the $175 million MetLife loan is unlikely given the prepayment penalty now estimated at $81 million. Interest payments are now $10.3 million annually. When principal is due starting in 2019, annual debt-service payments will rise by $5.5 million. The option of postponing principal payments will depend in part on prevailing interest rates. We have no indication that MetLife will grant relief to The Cooper Union; they must answer to their shareholders and are in business to maximize returns.  “The Way Forward” offers an overly optimistic view of what renegotiation can yield, in terms of debt relief.
  • The “true deficit.” The document presents an inaccurate number, $6 million, for a deficit that is at least twice that. Both the current shortfall, as well as the shortfall that The Cooper Union needs to close to be self-sustaining through the decade of the 2020s, is at least $12 million (after deducting the $4 million already saved through expense reductions achieved for fiscal year 2013).
  • Foundation gifts.  The Cooper Union now receives approximately $1 million from foundations.  Although we shall continue to approach foundations and others for philanthropic contributions, we need to be conservative in our estimates of how much that will yield.
  • Real estate assets.  The Cooper Union has few real estate assets left.  Selling more assets represents a strategy that provides only stop-gap relief.  The short-term strategy of asset sales over four decades has left us in our current predicament. In the current financial markets, with low interest rates and an anemic stock market, investing the money received from an asset sale would not produce returns on the scale that is necessary to solve the long-term problem. We do acknowledge that as a short-term solution, more asset sales unfortunately may be necessary, though less than optimal.
  • Founded by inventor, industrialist and philanthropist Peter Cooper in 1859, The Cooper Union for the Advancement of Science and Art offers education in art, architecture and engineering, as well as courses in the humanities and social sciences.

  • “My feelings, my desires, my hopes, embrace humanity throughout the world,” Peter Cooper proclaimed in a speech in 1853. He looked forward to a time when, “knowledge shall cover the earth as waters cover the great deep.”

  • From its beginnings, Cooper Union was a unique institution, dedicated to founder Peter Cooper's proposition that education is the key not only to personal prosperity but to civic virtue and harmony.

  • Peter Cooper wanted his graduates to acquire the technical mastery and entrepreneurial skills, enrich their intellects and spark their creativity, and develop a sense of social justice that would translate into action.