Universities Struggle to Cover Operating Costs

For minority-serving institutions such as Delaware State University, the nation’s financial crisis is starting to hit home. The university is one of more than 900 postsecondary institutions with money in the Commonfund, a short-term investment vehicle whose trustee, Wachovia Bank, surprised clients by severely limiting access to fund accounts this fall.

“It’s not causing undue concern. We expect to get that money back,” says Carlos Holmes, a university spokesman. Unlike some postsecondary institutions, however, Delaware State’s stake in the fund is small — about $100,000 of its $18 million endowment, he says.

“In the grand scheme of things, it’s a small fraction of what we have,” Holmes tells Diverse. But with $9 billion in college funds, the fate of Commonfund is one of the most pressing financial issues suddenly facing many colleges and universities.

Run by Commonfund of Wilton, Conn., with Wachovia as trustee, the fund announced Sept. 29 that investors would be allowed access to no more than 10 percent of their assets. After passage of a $700 billion federal bailout bill and some thawing in the credit markets, officials have since amended that statement by pledging soon to give clients access to up to half of their funds.

Still, Commonfund acknowledges that many U.S. colleges and universities have used the program, formally called the Commonfund for Short-Term Investments, to meet their operational needs.

“There is no doubt that the actions of Sept. 29 have left a number of our clients angry, confused and desperately searching for solutions to meet their operating needs,” said Verne Sedlacek, president and chief executive officer, in an Oct. 8 letter.

Sedlacek said Commonfund is trying to help colleges find other funding sources to meet what he termed their “acute needs” to meet payroll and other operating expenses. At least three banks, he added, have promised to extend credit to Commonfund’s college members.

The travails of Commonfund are part of an increasingly complex financial picture for colleges and universities as they try to manage their budgets, capital plans and endowments in the wake of financial uncertainty. With declines in the stock market and less access to credit, some institutions are looking at their financial bottom lines more closely.

In a letter to employees and students, Boston University President Robert Brown announced that his university has put an immediate freeze on hiring for noncritical positions. It also will put a freeze on new capital projects that lack construction contracts.

“During the past year, the higher education community has monitored, with increasing concern, developments in the nation’s financial and credit markets,” says Molly Corbett Broad, president of the American Council on Education.

In the current environment, she says, ACE has “learned that hundreds of institutions are unable to access critical short-term funds used to finance their day-to-day operations.”

On Capitol Hill, lawmakers had hoped to gain some economic traction through passage of the Emergency Economic Stabilization Act of 2008, which provided $700 billion in government guarantees for bad loans. While the initiative divided lawmakers, including minority members of

Congress, one key Congressional Black Caucus leader, Rep. Jim Clyburn, D-S.C., strongly favored its enactment.

“Minority communities are hemorrhaging jobs, homes, income and, most importantly, credit,” says Clyburn, the House majority whip. “These dynamics are debilitating to minority businesses and communities,” he says, and leading to “the greatest reduction of wealth in the minority community since the Great Depression.”

In addition to buying troubled mortgages, the government could also buy other loans if the U.S. treasury secretary deems them important for market stability. This power presumably could cover some student loans.

But groups such as the United States Student Association and US PIRG, a public interest group on education and other issues, say the measure is a net loss for students and their families because of the high cost of a bailout.

“Where is the golden parachute for students and the families that help them pay for an opportunity to realize the American Dream?” USSA said in a statement.

Congress, the student group added, should “say no more bailouts on the backs of students and working families in the United States.”

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