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As the pandemic rages on, Columbia braces for widespread financial fallout: undefined

As the pandemic rages on, Columbia braces for widespread financial fallout

April 16, 2020

As the COVID-19 pandemic creates disruptions and challenges to normal campus functions, an international economic crisis continues to unfold. Some economists predict the virus will push half a billion people into poverty, and the stock market drop at the beginning of March—the steepest in the Dow Jones Industrial Average’s history—is a sign of more troubles to come. Within the past month, universities have evacuated their students from campus, canceled in-person summer programs, and promised room and board refunds—changes that have left the higher education industry among those sectors reeling in the chaos.

In an email to faculty and administration at the end of March, interim Provost Ira Katznelson noted that Columbia’s revenue results from five principal streams: returns on the endowment, fundraising, tuition, federal and private research grants and contracts, and clinical income. Each is uniquely subject to challenges posed by the virus’s spread. In the email, Katznelson added that the University would be placing a temporary hiring freeze on all academic and administrative positions, with rare exceptions.

“We now have to come to grips with fiscal pressures. These are unmatched in my experience in higher education, which includes moments of deep stress, including the early 1970s and the crisis of 2008,” Katznelson wrote.

In contrast to Harvard University and its nearly 30 percent drop in endowment value from 2008 to 2009, Columbia fared the best among its Ivy League peers in terms of weathering endowment crashes and a loss in fundraising during the Great Recession, due to the relative stability of federal grants, tuition, and clinical income that kept it afloat. But as the global economy braces for a difficult few years ahead, Columbia will have to face the prospect of suffering significant simultaneous losses in all of these revenue streams.

Ivy League endowment values

Fiscal year (ending June 30)

’05

’09

’11

’13

’15

’17

’19

’07

Great

Recession

Harvard

$40B

Yale

$30B

Princeton

$20B

UPenn

Columbia

$10B

Cornell

Dartmouth

Brown

Sources: University Financial Reports 2007-2019

National Center for Education Statistics

Ivy League endowment values

Fiscal year (ending June 30)

2005

2007

2009

2011

2013

2015

2017

2019

Harvard

Great Recession

$40 billion

Yale

$30 billion

Princeton

$20 billion

UPenn

Columbia

$10 billion

Cornell

Dartmouth

Brown

Sources: University Financial Reports 2007-2019; National Center for Education Statistics

The Endowment

As Ivy League universities brace for a potential recession, national scrutiny has turned toward their endowments, which total over $135 billion. At the end of 2019, Moody’s downgraded the outlook for the U.S. higher education sector from “stable” to “negative,” indicating an expected lag in net tuition revenue.

Managed and invested by the Columbia Investment Company, Columbia’s endowment is a combination of liquid holdings and long term investments and is currently valued at almost $11 billion. The University spends the returns on its investments, an amount that constitutes around 5 percent of the total endowment value. In times of crisis, the University Trustees may alter their endowment spending policy.

Columbia’s endowment return performance has already consistently ranked among the lowest in the Ivy League in the last few years. Last year’s returns came in at a meager 3.8 percent in comparison to Harvard’s 6.5 percent and Yale University’s 5.7 percent, creating an expectation for the University this year to increase fundraising, cut programs and staff, bring in more students, or raise tuition. However, all of these options are now impeded by COVID-19.

In a recession, when endowment dips can lose universities billions, these institutions may find themselves in grave financial situations.

Columbia University endowment values

Fiscal year (ending June 30)

2017

2007

2019

2005

2009

2011

2013

2015

Great Recession

$9 billion

35%

Hedge fund

allocation

Percentage allocated to hedge funds and real assets has increased, while percentages for all other avenues have decreased

20%

$6 billion

30%

Private equity

22%

24%

Global equity

$3 billion

23%

18%

Real assets

15%

Fixed income

4%

3%

4%

2%

0

Cash

Source: Columbia University Financial Reports 2007-2019

Columbia University Bond Sheets 2009, 2019

Columbia endowment values

Fiscal year (ending June 30)

$3

billion

$6

billion

$9

billion

$0

’05

’07

Great

Recession

4%

23%

24%

30%

15%

4%

’09

Hedge

funds

’11

Private

equity

Global

equity

’13

Real

assets

’15

Fixed

income

Cash

’17

’19

3%

18%

22%

20%

35%

2%

Sources: Columbia University Financial Reports,

2007-19; Columbia University Bond Sheets

2009, 2019

Columbia University endowment values

Fiscal year (ending June 30)

2017

2007

2019

2005

2009

2011

2013

2015

Great Recession

$9 billion

35%

Hedge fund

allocation

$6 billion

20%

30%

Private equity

22%

24%

Global equity

$3 billion

23%

18%

Real assets

15%

Fixed income

3%

4%

$0

Cash

4%

2%

Source: Columbia University Financial Reports 2007-2019

Columbia University Bond Sheets 2009, 2019

But Columbia, unlike peer institutions, is less at risk of facing the impacts of a volatile endowment. This can be seen in the aftermath of the 2008 crisis when the University’s endowment dropped 22 percent, a rate comparable to dips at peer institutions. Yet Columbia fared better than institutions with larger endowments because the University only relies on endowment funds for around 15 percent of its operating budget. The remainder primarily comes from government grants, patient revenue, tuition, private gifts, and contracts. Meanwhile, at Harvard and Yale, endowment funds constitute about 35 and 34 percent of the universities’ net revenues, respectively.

Citing Columbia’s relatively diverse portfolio, University President Lee Bollinger told Spectator in an interview in late March that he does not yet see cause for panic.

“When there’s a downturn, Columbia tends to suffer less because other places are more dependent on their endowments,” he said. “No single year should be a test of how your strategy is doing. … I feel very confident on the future performance endowment.”

Kenneth E. Redd, senior director of research and policy analysis for the National Association of College and University Business Officers, noted that institutions should also examine the diversity of their investments and rebalance endowment portfolios during an economic downturn.

“Right now, every indication that I’ve seen thus far is that most financial managers and investment firms are pretty much saying that institutions should sit tight and not make radical changes in their asset allocation strategy,” he said. “Certainly lots of larger endowments will look at these [economic] crises as opportunities to rebalance their portfolios and might actually buy riskier investments while their prices are cheaper and hope for a recovery.”

The University’s endowment assets are divided into hedge funds, global equities, real assets, absolute return strategy funds, fixed income, and cash. Asset allocation is often impacted by economic conditions.

The 2019 NACUBO-TIAA Study of Endowments found that large endowments valued over $1 billion, such as Columbia’s, have a smaller share of their assets allocated to American stocks than their peers. Consequently, the large share of Ivy League endowment funds invested in hedge funds and private equity serves universities well, Redd noted.

“The counterintuitive part of endowment investing is that for those types of investments, their performance tends to not be correlated with the public stock markets, so the larger endowments might arguably do a little bit better than the smaller endowments during this crisis,” he said. “Hedge funds are designed to preserve capital, so they actually might go up during a crisis.”

Columbia revenue streams

Columbia’s total revenue comes from five main streams, none of which will be immune to the effects of the COVID-19 outbreak and the accompanying recession.

Private gifts, grants, contracts

30%

of total

revenue

2011 spike countered

decreases in all other

revenue streams

Significance of philanthropy

A spike in private giving in 2011

countered decreases in all other

revenue streams, resulting in both

an increase in total revenue and

the recovery of the endowment

from the Great Recession.

20%

10%

0%

2007

’09

’11

’13

’15

’17

’19

Net tuition income

Clinical income

Government grants and contracts

Investment income and gains

30%

of total

revenue

30%

of total

revenue

30%

of total

revenue

30%

of total

revenue

Invesment income

includes endowment

and real estate

appreciation.

20%

20%

20%

20%

Revenue was cushioned by

a significant increase in

clinical income during the

recession. However, now

CUMC will lose money to

the COVID-19 outbreak.

Government grants

and contracts make

up a significant

portion of the revenue

and tend to decrease

during recessions.

10%

10%

10%

10%

0%

0%

0%

0%

2007

’09

’11

’13

’15

’17

’19

2007

’09

’11

’13

’15

’17

’19

2007

’09

’11

’13

’15

’17

’19

2007

’09

’11

’13

’15

’17

’19

Note: Axis represents fiscal years ending on June 30th. Source: Columbia University Financial Reports 2007-2019

Columbia revenue streams

Columbia’s total revenue comes from five main streams, none of which will be immune to the effects of the COVID-19 outbreak and the accompanying recession.

Private gifts, grants, contracts

30%

of total

revenue

2011 spike countered

decreases in all other

revenue streams

20%

10%

0%

2007

’09

’11

’13

’15

’17

’19

Significance of philanthropy

A spike in private giving in 2011

countered decreases in all other

revenue streams, resulting in both

an increase in total revenue and

the recovery of the endowment

from the Great Recession.

Net tuition income

30%

of total

revenue

20%

10%

0%

2007

’09

’11

’13

’15

’17

’19

Clinical income

30%

of total

revenue

20%

Revenue was cushioned by

a significant increase in

clinical income during the

recession. However, now

CUMC will lose money to

the COVID-19 outbreak.

10%

0%

2007

’09

’11

’13

’15

’17

’19

Government grants and contracts

30%

of total

revenue

20%

Government grants

and contracts make

up a significant

portion of the revenue

and tend to decrease

during recessions.

10%

0%

’19

’17

’15

’09

’11

2007

’13

Investment income and gains

30%

of total

revenue

Invesment income

includes endowment

and real estate

appreciation.

20%

10%

0%

2007

’09

’11

’13

’15

’17

’19

Note: Axis represents fiscal years ending on June 30th.

Source: Columbia University Financial Reports 2007-19

Columbia revenue streams

Columbia’s total revenue comes from five main streams, none of which will be immune to the effects of the COVID-19 outbreak and the accompanying recession.

Private gifts, grants, contracts

30%

of total

revenue

2011 spike countered

decreases in all other

revenue streams

Significance of philanthropy

A spike in private giving in 2011

countered decreases in all other

revenue streams, resulting in both

an increase in total revenue and

the recovery of the endowment

from the Great Recession.

20%

10%

0%

2007

’09

’11

’13

’15

’17

’19

Clinical income

Net tuition income

30%

of total

revenue

30%

of total

revenue

20%

20%

Revenue was cushioned by

a significant increase in

clinical income during the

recession. However, now

CUMC will lose money to

the COVID-19 outbreak.

10%

10%

0%

0%

2007

’09

’11

’13

’15

’17

’19

2007

’09

’11

’13

’15

’17

’19

Government grants and contracts

Investment income and gains

30%

of total

revenue

30%

of total

revenue

Invesment income

includes endowment

and real estate

appreciation.

20%

20%

Government grants

and contracts make

up a significant

portion of the revenue

and tend to decrease

during recessions.

10%

10%

0%

0%

2007

’09

’11

’13

’15

’17

’19

2007

’09

’11

’13

’15

’17

’19

Source: Columbia University Financial Reports 2007-2019

Philanthropy and fundraising

Philanthropy is another key aspect of the University’s funding, generating 10 percent of Columbia’s total revenue and accounting for a significant portion of the $1.19 billion dollars spent on research expenditures during the 2019 fiscal year. Philanthropic funding has become especially necessary moving forward because of upcoming and ongoing capital University projects such as the $6 billion construction of the Manhattanville campus and the new climate school.

Professor David Helfand, the former chair of the department of astronomy, is more concerned about the pandemic’s future impact on philanthropy than most other sources of funding, in part due to recessions’ negative impacts on philanthropy in the past. Following the Great Recession in 2008, even as Americans donated roughly the same proportion of their income, total individual giving fell between 6 and 7 percent. Philanthropy numbers stayed below pre-recession levels for years afterward.

“The large majority of the money comes from a very small fraction of large gifts,” Helfand said. “The people who give $100 or $1,000 a year are important to keep connected to the University, but they don’t give a substantial fraction of the total philanthropic giving.”

Given the large concentration of philanthropic money in a very small percentage of donations, the success of many programs and research groups rides on just a few donors’ continued support.

“Depending on what the markets do, [these donors] feel roughly 35 percent poorer than they did a month ago,” Helfand said.

Among the groups most vulnerable to a potential dip in philanthropy are several Columbia centers and institutes, the majority of which are almost entirely funded through grants and philanthropy. For affiliated groups like the Weatherhead East Asian Institute, the decline of revenue may mean that adjuncts cannot continue teaching courses in the next academic year, according to Lien-Hang Nguyen, the acting director for the institute.

The Center for Climate and Life, a research group that investigates the societal impacts of climate change, does not have a sufficient funding recourse if philanthropy falls through. According to the center’s director, Peter deMenocal, the research group faces added financial strain as a result of the pandemic.

“Our model of fast-tracking climate research using philanthropic support is unique and, so far, successful,” de Menocal said. “But the combination of reduced federal funding and potential reductions in donor support could really spell trouble for us if market losses are sustained." Still, deMenocal expressed confidence in the center's continued ability to attract its most generous investors.

The Center for Gender & Sexuality Law faces similarly dire straits. While a lot of the work done is voluntary, such as that contributed by the center’s director, Katherine Franke, and will continue regardless of funding, other staff members working for the center face a different reality.

“If grants run out and are not renewed, we might have to lay off staff,” Franke said.

Not every center, however, faces an immediate funding problem. The Center for Computer Music, for example, is better equipped than most to withstand the pandemic’s financial burden thanks to its low operating costs and staff salaries that are funded internally by the University itself.

“Because of the service we provide for both the music department and the School of the Arts, we can continue [operations] with no external funding,” director Brad Garton said. “I recognize we’re luckier than most.”

For the Center for Resilient Cities and Landscape, the pandemic will influence financial decision making but will not pose an existential threat, as the center will remain fully funded for at least one more year according to director Kate Orff.

Bollinger echoed these more confident sentiments, pointing out that although fundraising is more challenging in times of recession, it by no means becomes impossible.

“I’ve found that in times of financial stress, people often feel a greater sense of philanthropic interest in helping institutions ... like Columbia in particular,” Bollinger said. “The need for our great universities and the need for a Columbia is in many ways more apparent when things are bad in the world than when things are good.”

Tuition

Making up almost a quarter of the central operating budget at over $1.2 billion, tuition from across Columbia’s 18 schools is the highest-grossing revenue stream for the University.

As COVID-19 continues to spread and international travel restrictions trigger economic uncertainty across the globe, the enrollment of international students at universities like Columbia may see significant declines in the near future. Columbia heavily depends on international student tuition as a main driver of revenue, as 31 percent of its student population comes from foreign countries.

The Faculty of Arts and Sciences—an organizational unit composed of faculty from Columbia College, the School of General Studies, the School of the Arts, the School of Professional Studies, and the Graduate School of the Arts and Sciences—is particularly vulnerable. Both undergraduate tuition and tuition paid by masters’ students in SPS, which is largely composed of international students, drive the revenue that covers increasing expenses such as faculty salaries and financial aid. To cover other losses during the last recession, the Columbia College undergraduate class was expanded by 50 students to generate around $1 million in additional tuition revenue.

But this may not be feasible in the wake of the pandemic, as the potential losses in tuition income do not solely come from international students. Universities across the country must also grapple with whether or not to open campus in the fall. On Monday, Boston University became the first American institution to announce that it may not have an in-person fall 2020 semester. Experts still remain divided as to whether social distancing measures will have lifted enough to allow universities to return to on-campus learning this fall.

At Columbia, which made the transition to online learning in early March and canceled all in-person summer programs shortly after, administrators have yet to confirm whether students will return to campus in the fall. New York state currently contains a higher number of confirmed coronavirus cases than any country outside of the United States, as it topped 118,000 in the past week.

National grants and funding

Daniel Savin, chair of the University Senate research officers committee, represents roughly 1,200 postdoctoral research scientists, scholars, and fellows; 400 staff research officers; and 800 professional research officers. Almost all of the people he represents are tied to grants from external agencies.

“We have to keep in mind that the entire research enterprise of the United States and the world at large is going to be delayed by this pandemic,” Savin said. “I expect that the agencies that are funding the research will understand this and attempt to take that into account when it comes time to write new proposals or when it comes time to submit annual reports asking for the next year’s funding to be released.”

Across the nation, as non-COVID-19-related research comes to a pause, universities have organized to lobby Congress for direct aid so researchers and labs can continue operating in the coming academic year.

Earlier in March, four organizations representing the major research institutions and medical schools—including the Association of American Universities, of which Columbia is a member—urged congressional representatives to increase federal science agencies’ spending by $13 billion to continue funding for research, restart closed labs, and cover unanticipated costs. The White House Office of Management and Budget issued a new directive that granted some requests, though universities have continued to push for more funding and flexibility with how that funding may be used.

The National Institute of Health, a major source of funding, has provided researchers with guidance on how to extend the renewal dates for grants and has allowed faculty working from home to continue getting paid. According to Dr. Michael Shelanski, senior vice dean for research, backlogs of data are keeping researchers occupied for at least the next few months.

“They are insisting they work, and that becomes a somewhat odd definition,” Shelanski said. “People are writing papers. They’re doing literature research. T; they’re analyzing data sets. So they’re keeping as busy as they can.”

Shelanski added that active grants will continue to be a reliable source of income for the term they were originally awarded. Beyond this period of expected stability, he said, “no one can predict” what will come. The stimulus bill has allocated almost $1 billion for COVID-19 research, but it is unclear how the NIH will distribute this money. According to Shelanski, the NIH spends both extramurally, with grants to universities and research institutes, and intramurally, on large research programs.

Under President Donald Trump, the NIH’s budget has already taken several hits. In February, Trump submitted his 2021 budget request, proposing a 7 percent cut to the organization’s funding from $41 billion this year to $38.7 billion. Decreased funding has affected the number of grants that the NIH is able to supply, and research is set to lose even more as the nation enters a recession.

“If the government, as we come out of this crisis, says, ‘Oh, we have too much national debt,’ and they cut NIH funding, down the road that could be very detrimental,” said Shelanski. “I would expect when we come out of this, it is going to become economically difficult to conduct research.”

Clinical income

[Related: CUIMC staff moves to the frontlines to fight the pandemic amid the loss of hundreds of millions in revenue]

In the 2019 fiscal year, medical faculty practice plans generated over $1.3 billion in revenue for the University—over a quarter of the year’s income.

To redirect resources towards fighting the COVID-19 outbreak, the medical campus has postponed nonessential medical procedures and ceased non-critical medical practice. Shelanski estimated that the medical campus is “losing as much as $100 million a month in revenue because of loss of practice.”

Dr. Lawrence Lustig, chair of the department of otolaryngology-head and neck surgery, estimates that within his own service revenues are down over 90 percent. He believes the two keys to facilitating the Columbia University Irving Medical Center’s financial recovery are government subsidies that will offset revenue losses and a backlog of patients waiting for surgeries and postponed procedures.

“Us and some of the more surgical specialties are more heavily hit,” he said. “Again, it’s not dictating anything we do right now. There’s a number of potential ways we’re going to rectify this after the fact.”

Staff writer Drew Letellier can be contacted at andrew.letellier@columbiaspectator.com.

Staff writer Abby Melbourne can be contacted at abby.melbourne@columbiaspectator.com.

Staff writer Dia Gill can be contacted at dia.gill@columbiaspectator.com.

Graphics reporter Jessica Li can be contacted at jessica.li@columbiaspectator.com. Follow Spectator on Twitter at @ColumbiaSpec.

endowment funding philanthropy Center for Climate and Life Helfand deMenocal
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