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Donation drop puts Brandeis in a bind

Fund-raising reliance leaves school vulnerable

By Tracy Jan and Peter Schworm
Globe Staff / February 5, 2009
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WALTHAM - Each winter, Brandeis University president Jehuda Reinharz flies down to Palm Beach to court wealthy donors, trips that in the past yielded millions for the university. But last month, Reinharz returned nearly empty-handed, lamenting to faculty during a recent meeting that he has never received so little.

"He was embarrassed to say how much," said Eric Chasalow, a music professor who attended the meeting. "He said it was like a traveling funeral, going from place to place and hearing people talk about their losses and having to sell their homes."

Reinharz's disappointing Florida trip offers a window into why the private Waltham university was forced to take a dramatic step last week, saying it planned to close its art museum and auction off portions of its $350 million collection.

Brandeis already walks a fiscal tightrope each year because of its heavy reliance on donations, which fund not only its endowment and capital projects, but also a significant portion of its operating costs. Its outsize ambitions coupled with its youth - and an endowment that hasn't had the time to mature - put the university in a more precarious position than other colleges also reeling from the economic downturn.

"We've always been extremely ambitious," Reinharz said yesterday during an interview in his office. "We've always lived on the edge. We've taken chances."

Reinharz said he had been trying to wean the university off donor support of day-to-day operations, but each year about $14 million of the $330 million annual operating budget comes directly from fund-raising.

As criticism mounts over how Brandeis handles its budget and of the plans for the Rose Art Museum, the severity of its financial challenge has become clearer.

The university faces a projected $80 million operating deficit over the next five years, Peter French, executive vice president and chief operating officer, said yesterday. A reserve fund of $85 million is expected to run out within two years, he said.

As Brandeis officials scramble to secure the university's future, the two sources they would normally turn to for a bailout - donors and the school's endowment - are tapped dry. Many Brandeis benefactors lost fortunes in the Bernard Madoff Ponzi scheme, while the global economic crisis has reduced the value of the university's once $712 million endowment to $549 million as of December.

Massachusetts law restricts nonprofits from drawing on the principal of their endowments, a provision that disproportionately affects young institutions like Brandeis. Founded in 1948, the Jewish-sponsored college accumulated its riches relatively recently, over Reinharz's 15-year tenure, and had already depleted the market gains it is legally allowed to draw from.

"Some schools have had one to two centuries to build endowment gains," French said. "Almost all of our gains are gone."

To help quell public outcry and internal dissent over the decision to shutter the museum, Reinharz and French said yesterday that they would reduce their annual salaries by 10 percent - two days after retaining the services of Rasky Baerlein Strategic Communications, a public relations firm known for strong crisis management. Reinharz will give up $50,000, French $40,000.

Reinharz also appeared to backpedal from last week's announcement about the museum's closing, emphasizing that Brandeis intends to sell only "a minute number" of its 7,180 works "if and when it is necessary."

"It's not like we faced some sort of a problem and the first thing we did is run to the Rose and take off the paintings and sold them," Reinharz said. "We're going to take our time. We're not unaware of the fact that the art market is depressed. It's not like we were born yesterday. Everything is depressed. Housing is depressed. The arts is depressed. Everybody is depressed."

In recent years, though, Brandeis appeared to be coasting financially. It was raising more money than trustees had ever imagined, already $820 million into a $1.2 billion capital campaign, and had embarked on a building boom. Up sprang a student center, new dormitories, and an addition to the art museum on the 235-acre campus. It is also building a new science center, admissions office, and humanities center.

"Anybody looking at all of this building was sure that, gee, Brandeis was doing great," said Jonathan Sarna, a professor of Jewish American history.

While university officials have largely blamed the current financial crisis for their predicament, Mark T. Williams, a Boston University economist who specializes in financial risk management and who is familiar with Brandeis finances, said the school's financial woes have been brewing for years.

"Brandeis has not been managed well for quite some time," Williams said. "It's fiscal irresponsibility that started well before the current downturn. They'd love to blame it on the market and on Madoff, but it's more deep-seated than that."

A heavy reliance on investment proceeds and rising debt burdens brought on by increased financial aid and costly new campus projects overextended the college, Williams said.

In its most recent tax filing, in 2007, the university reported that its total liabilities rose 36 percent from the previous year - from $209 million to $285 million. Its tax-exempt bond liabilities rose from $130 million to $190 million, and its mortgages climbed $3.8 million to $10.8 million.

Since the collapse of the credit markets, those loans have probably become far costlier than expected.

"Unfortunately, Brandeis grew faster than its cash flow could support," Williams said.

Brandeis officials said they understand their financial shortcomings and acknowledge that donations do not fully cover ongoing maintenance costs for new buildings.

"If there's one thing we do know," French said, "we do know what the problems are."

The trustees, he said, knew that the financial model was unsustainable for a university of its size and that the 3,200-student college would have to resort to drastic measures to regain firm financial footing. The university has tried in recent years to streamline its operations, asking faculty to consider cutting the classics and ancient Greek programs, among others.

Earlier this year, Brandeis also closed a long-deteriorating swimming pool because it became too expensive to fix. The university is also considering cutting some athletic teams and turning them into club sports, French said yesterday.

This is not the first time Brandeis has stood so close to the brink. The university was hit hard in 1973, when Jewish donors sent their money to support Israel in the Yom Kippur War, Sarna said.

"It's like the story of Egypt in the Bible: Your years of plenty end overnight," Sarna said. "People predict Brandeis isn't going to make it, but the economic situation of the university is infinitely better today than in the early years. I've seen Brandeis emerge time and again."

AUDIO
The future of the Rose

The future of the Rose

Brandeis President Jehuda Reinharz talks about the Rose Art Museum's future.
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