Universities Struggle to Cover Operating Costs: With Declines in the Stock Market and Less Access to Credit, Some Institutions Are Looking at Their Financial Bottom Lines More Closely

By Dervarics, Charles | Diverse Issues in Higher Education, October 30, 2008 | Go to article overview

Universities Struggle to Cover Operating Costs: With Declines in the Stock Market and Less Access to Credit, Some Institutions Are Looking at Their Financial Bottom Lines More Closely


Dervarics, Charles, Diverse Issues in Higher Education


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.

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"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 Common fund 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. …

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