Free Education Committee Issues Status Update -- July 1, 2016
POSTED ON: July 1, 2016
This report describes activities undertaken by the Free Education Committee (“FEC”) of the Board of Trustees of The Cooper Union for the Advancement of Science and Art since its first meeting on January 12, 2016, pursuant to the consent decree approved by the New York State Supreme Court the previous month. It summarizes research to date, issues identified for further analysis, and milestones for our ongoing reporting and recommendations.
As prescribed in the consent decree, the Free Education Committee’s responsibility is to:
“…develop and propose a strategic plan aimed at returning Cooper Union to a sustainable, full tuition scholarship model that maintains Cooper Union’s strong reputation for academic quality within its Art, Architecture and Engineering programs at their historical levels of enrollment.”
The original members of the FEC are:
- Robert Tan AR’81, Chair, Alumni Trustee
- Monica Abdallah ChE’17, Student Trustee
- Adrian Jovanovic BSE’89, Alumni Trustee
- Malcolm King EE’97, Trustee
Student Trustee Julian Mayfield A’18 was elected to the Board of Trustees on June 8, 2016 and has joined the FEC. Julian succeeds Monica Abdallah, who rotates off the Board of Trustees on July 1, 2016. In addition, Atina Grossmann, faculty representative from Humanities and Social Sciences, and Amy Westpfahl, staff representative, serve the community as observers to the FEC.
Consistent with the terms of the consent decree, a Financial Monitor will be appointed by the New York State Attorney General. A monitor is currently expected to assume the role on July 1, 2016.
The FEC made its first brief report to the community on January 15, 2016. A proposal containing interim recommendations will be published in January 2017. Final recommendations will follow a year later.
Research to Date
Among its first orders of business, the committee examined the budget summary for the current fiscal year and financial projections through FY 20 developed by Vice President for Finance & Administration and Acting President Bill Mea. These documents were circulated to The Cooper Union community on February 18, 2016. This document provided an analysis of The Cooper Union’s financial condition, both in terms of its liquidity and the gap we must bridge in order to cease reliance on tuition revenue.
As such, it provides a foundation for the work of the FEC. As Mr. Mea noted, these projections take a conservative view of future revenues and expenses in order to assess our liquidity and cash flows while maintaining the existing level of academic operations.
The FEC next reviewed previous work undertaken, after the severity of The Cooper Union’s structural deficits became widely known, by members of the community to identify potential budget cuts and additional sources of revenue. Specifically, we reviewed four reports:
The Way Forward, a report prepared under the auspices of the Friends of Cooper Union and presented to the community on April 26, 2012
The Revenue Task Force summary presented to former President Jamshed Bharucha on May 12, 2012
The Expense Reduction Task Force report presented to Mr. Bharucha on June 6, 2012
The Working Group Report presented to the Board of Trustees on December 11, 2013
Subsequently, the FEC began a study of The Cooper Union’s staffing model, seeking to draw meaningful comparisons using data compiled through the Integrated Postsecondary Education Data System (IPEDS). Ongoing detailed research is utilizing interviews with several peer institutions in order to identify specific reporting or operational practices that differ substantially from The Cooper Union’s own to allow us to identify efficiencies we can implement.
Further information regarding The Cooper Union’s finances was presented by Mr. Tom Driscoll, Co-Chair of the Trustee Finance Committee. Mr. Driscoll provided an overview of The Cooper Union’s endowment, the endowment spending rule, income streams from real estate assets, and the impact of borrowing on The Cooper Union’s budget projections, particularly as debt service increases over time.
For the purposes of this report, we have begun an assessment of enrollments at The Cooper Union, particularly the anticipated impacts of tuition and financial aid policies on admissions and yield data. To fulfill our mandate under the consent decree, we also anticipate initiating studies of historic enrollment data, of the relationships between enrollment size and our pedagogical requirements, and between enrollment levels and possible paths toward the reestablishment of full-tuition scholarships.
We have requested of the administration additional data that can shed light on the questions facing the FEC. Rather than enumerate these requests here, we will indicate the direction of ongoing research in the final section of this report.
Findings to Date
For our findings regarding The Cooper Union’s financial trajectory, we will not repeat Mr. Mea’s detailed analysis, which can be found in his report, but believe we should emphasize key elements that define the dimensions of the challenge facing us as we navigate a path to full-tuition scholarships.
At the request of the Board of Trustees, this spring Mr. Mea and the administration had begun planning toward a sustainable $3 million reduction in operating expenses over the FY 17 and FY 18 budget years. The analysis shows that with these cuts The Cooper Union can become net cash positive for its operating results in FY 19, based primarily on the scheduled step up in revenue from the Chrysler Building on January 1, 2018, and on the continuation of undergraduate tuition with a minimum 50 percent tuition scholarship, which is projected to provide $8.4 million of net revenue in FY 19. However, the projection for FY 20 shows the institution returning to an operating loss, albeit small compared to current levels, due to leveling off of both the Chrysler Building lease income and tuition revenues, while expenses continue to increase. This combination of flat revenues and increasing expenses will likely lead to substantial deficits in future years, even with the tuition income.
Most importantly to the work of this committee, the structural deficit to overcome to ensure future financial sustainability without charging undergraduate tuition will be approximately $15 million per year.
Beyond the financial projections, we researched The Cooper Union’s staffing and expenditure levels using IPEDS data, which is required reporting information for higher education institutions receiving Federal financial aid. We focused on comparing non-instructional expenses in order to target operating inefficiencies that would yield the least amount of impact to the quality of instruction and education. Although some overlap is to be expected, the FEC is targeting non-instructional expenses because we believe The Cooper Union should aim to be at least as efficient and arguably more efficient in non-instructional areas than our peers in higher education institutions.
Both an original study presented to the FEC and a follow up study by the administration agreed that The Cooper Union has more non-instructional staff per student than institutions in a similar geographic area, of similar size, offering similar degrees and even of similar academic reputation. Although The Cooper Union is unlike any other institution and cannot be classified so broadly as to dismiss the uniqueness of the school or trivialize the problem, this information will be useful in helping to isolate specific areas of non-instructional staff and budgets at peer institutions for further investigation and comparison to The Cooper Union’s staff and budgets.
Modeling Budget Cuts
Based on the above and based on the financial reality that The Cooper Union will encounter mounting deficits after 2020, we supported the investigation of more substantial non-instructional budget cuts. This was discussed at the June 2016 Board of Trustees meeting and the Board requested Mr. Mea to model scenarios for additional cuts of $5 million and $7 million.
We agree with Mr. Mea’s planned approach of both looking for opportunities for savings in the existing budget and taking a “zero-based budgeting” ground-up approach to find opportunities for enhanced efficiencies.
The FEC’s information gathering continues. The administration is pursuing qualitative research among The Cooper Union’s peer groups that can help identify efficiencies to be implemented in its staffing model. Taking into account rapid administrative growth in the higher education industry as a whole, we have asked the administration to focus on comparisons to more efficient peer institutions. We have also asked the administration to make comparisons with comparably sized schools to learn from their non-instructional staffing practices. We will study the work undertaken by the Acting President to develop substantially larger budget cuts, including the attendant risk assessment.
We look forward to an exploration of fundraising opportunities. While the existing reports have identified many different potential avenues for new and enhanced revenue, we believe that the most promising will be the development of additional giving from donors.
In addition, to fulfill our mandate under the consent decree, we anticipate studies of historic enrollment data, of the relationships between enrollment size and our pedagogic requirements, and between enrollment levels and possible paths toward the reestablishment of full-tuition scholarships. In particular, we look forward to the advice of the academic Deans on these issues.
We will evaluate in more detail ideas which show promise for significant costs savings and/or revenue generation, including real-estate property utilization.
We will explore a few of the “big ticket” fixes that have been suggested over time—such as the refinancing of the Chrysler Building loan and the bridge loan—and assess their practicality.
Finally, we will examine possible approaches to the reestablishing full-tuition scholarships, considering their comparative advantages and disadvantages, based on their speed and practicality. We will compare the resources that may be needed to achieve each, obstacles that will have to be overcome, potential timetables and milestones, as well as possible benchmarks for success.
We expect to have fuller analysis and interim recommendations for our January 2017 report.
As members of the FEC have discussed the institution’s desired trajectory, particularly in view of the passionate interest held by members of the community, Alumni, Faculty, Parents, Students, Staff and Administrators in our effort to restore the hallmark tradition of the full-tuition scholarship, we have invoked what we call the “arc of return”:
· DECLARE: a deep commitment to reestablishing the full-tuition scholarships,
· DEMONSTRATE: commitment to efficiency by reducing non-essential expenses,
· DEMAND: that all stakeholders step up and commit to do the same,
· DRIVE: by presenting unified, committed and effective leadership at The Cooper Union,
· DEFEND: the essence of the school: the quality, culture, and nature of its core of teaching.
We hope that others may find resonance in these words, as well as the confidence that we share their commitment to The Cooper Union’s highest values and that The Cooper Union community continues to support the school, while the FEC works its way to a final proposal in January 2018.
We look forward to presenting our interim proposals in January 2017.