(NOTE: Due to technical difficulties, corrections that should have been inserted into the YU Budget Crisis story on the front page of Issue #37 in the printed paper edition were not inserted. We regret the error.)
Washington Heights—Yeshiva University stands as one of the finest universities in the United States as well as Israel. Its graduates have excelled in nearly every field of endeavor, and compared to some universities of equal standing, its tuition is significantly less according to U.S. News and World Report’s 2013-2014 ranking of colleges (YU is ranked #47 in top 50 universities). Full-time equivalent (FTE) enrollment is 6,704 students as of Fall 2013, up 16% in first-time undergraduate student enrollment in the past two years, with less than 10% of freshmen leaving after one year for other than academic reasons. It has a low student-to-faculty ratio, an 85% graduation rate and high student rating, and more than 90% of its 2013 graduating class was employed, in graduate school, or both within six months. And 25% of its students, huge numbers of its faculty and alumni, and some service providers call Bergen County home.
Yet there’s another report on YU which has dimmed this rosy picture for the administration, instructors, students and parents. It has to do with money, and a serious lack of it.
According to Moody’s Investors Service, YU is $567 million in direct debt. This includes a $75 million line of credit that expires in March of 2015 and a $60 million variable rate which YU extended to Sept 1. There are also operating deficits of $107.5 million from 2010, $46.7 million from 2011, $105.9 million from 2012, and $63.6 million as of the end of 2013. It would have reached $155 million if not for “an unusually large net assets release of $92 million” from the sale of three office buildings bestowed to Einstein.
Other factors listed by Moody’s were weak financial management and the board’s unwillingness or inability to act, ineffective internal controls, and limited transparency. Specific mention is made of the university’s high-cost educational model with multiple New York City locations and two distinct undergraduate campuses for men and women. Many articles have blamed the downward spiral on the losses YU experienced due to the Madoff Ponzi scandal in which YU was reported to have lost $110M, but school officials and Moody’s deny the extent of the losses and limit it to approximately $17M. YU also spent a considerable—and undisclosed—amount of money defending the class action lawsuit for $680M. Although the case was dismissed based on the statute of limitations, many investors were prompted to liquidate the school’s bonds.
Moody’s also reported that YU depends a great deal on bank loans for its cash flow. Other fingers are pointing at operating costs at the Albert Einstein College of Medicine. YU increased expenses by upgrading their equipment and opening the Price Center/Block Pavilion, and spending to strengthen the academics and research at the Manhattan and Bronx campuses.
But Enrollment has remained strong, with the University experiencing a 16% increase in first-time undergraduate student enrollment over the past two years and overall enrollment holding steady.
In a move that will benefit both institutions greatly, playing to each of their strengths, Yeshiva and Montefiore Health System made recent headlines with their joint announcement of a new expanded partnership for the future of Albert Einstein College of Medicine. A new entity will be jointly formed by Montefiore and Yeshiva, with Montefiore assuming greater responsibility for the day-to-day operations and financial management of Einstein and with Yeshiva remaining the degree-granting institution with a key role in the educational aspects of the entity. In the current healthcare and research environment, both YU and Montefiore should only benefit from a closer association. The new agreement realigns the relationship to where it should be, which is a powerful and important development for Montefiore, YU, and Einstein.
Separately, there have been $250 million in real estate assets approved for sale by the board of YU. The university entered into an agreement “to sell 10 residential properties in close proximity to the Wilf Campus in Washington Heights.” According to university president, Richard Joel, the sale delivers a tremendous return on the university’s original investment and provides an infusion of cash that will be used to strengthen the school’s financial position. The buildings were bought seven years ago to preserve the nature of the community, and are home to thousands of university students in Washington Heights. The buildings were sold last week for $72.5 million to Rubin Schron, the founder of Cammeby’s International Group, a co-owner of the Woolworth Building, who promised not to raise the rents for the students and expressed a commitment to upholding a strong relationship with the student population. Faculty housing also remains intact.
In recapping the stories of the financial predicament YU finds itself in, JLBC learned that YU’s operating margin excluding gifts dropped from minus 9% seven years ago to minus 41% in 2013. Only 14% of the university’s $1.2 billion of cash and investments for 2013 fiscal year is free from donor restriction and could be liquidated within a month to cover operating expenses or other needs.
In 2008 YU’s credit quality with Moody’s was Aa2, which is among the highest. Just six years later, though it maintains an endowment of $1 billion, a steady enrollment and more than $500 million in contributions and grants and gets nearly $250 million in tuitions, YU was given a negative bond rating and has quickly dropped in the past three years to B3, assigned a negative outlook—well into the speculative grade category. Moody’s analysis reports that YU’s deficit looks like it is going to grow. They wrote: “Until there is a clear turnaround plan in place, the university will continue to face challenges to restore fiscal stability and further deplete already minimal liquidity levels.”
However, at the same time, the rating agency Standard & Poor’s has, after review of YU plans, given the university an ‘A’ stable rating, and the University has taken important steps to address its challenges. YU appointed Toby Winer as interim CFO in 2013 and brought on leading advisors to assist leadership in identifying and implementing a strategic plan that will move the university towards long-term sustainability.
By the end of 2013 announcements were made that freezes on senior administrators’ salaries were implemented, and Joel cut his salary. Freezes were also placed on hiring. Some non-academic departments that are currently split between multiple campuses may be united. Also being considered is increasing class sizes, though YU’s student/faculty ratio would still be smaller than most other top universities. Lowering the allocation of merit-based scholarships is also being considered. In 2011, YU paid out $97,160,843 in grants according to its 990 form, but between 2011 and 2012 it was cut by $7 million.
Despite rumors, YU is not cutting the women’s graduate program though there will be changes. The program is being sponsored by a donation directed for women’s leadership and by additional supporters. In addition to the free Master’s degree and paid internships, there are stipends of $15,000 for students that will be decreased, but the amount is still being determined. Stipend changes will take effect with the 2015/16 incoming class. YU is also getting significant help from supporters and government grants. Research grants and contracts represented about 31.9% of the total operating revenue in fiscal year 2013 and the revenue stream continues to be strong.
According to YU’s 990 forms, government grants and funding has been rising steadily from $165,426,724 in 2009 to $189,331,604 in 2010 and $207,969,462 in 2011. Another boost came from Muriel L. Block who bequeathed $150 million to be used for medical research to the Albert Einstein College of Medicine.
A university spokesman said, “Healthy revenue diversity, the undergraduate enrollment increase, and the arrival of a new Provost and a new Vice President for Institutional Advancement, all point to the uniqueness and attractiveness of the institution. Recent developments demonstrate a dedication to overcome challenges and to emerge stronger and more sustainable.”
In a statement to the YU community, President Joel wrote: “There is much more work to do and we will still encounter difficult times along the way. But let us keep our sights on the many strengths and achievements that define our University and inspire us to confront the challenges of the 21st century and emerge better than before.” In the end, he said, there is just one mission: to “enhance our ability to invest in our core objective: delivering an unmatched educational experience for our students.”
By Anne Phyllis Pinzow
