Magazine article University Business

Higher Education Adjusts to Financial Realities

Magazine article University Business

Higher Education Adjusts to Financial Realities

Article excerpt

THE FAILURE OF SEVERAL MAJOR banking institutions, and a credit flow freeze that threatens the global economy, have forced higher ed leaders to rethink long-term plans, while trying to shore up current commitments against calls for budget cuts.

President Bush's Emergency Economic Stabilization Act of 2008--"the bailout"--was designed to free up frozen credit markets. But it had little if any immediate impact on financial markets, leading administrators to prepare for worst-case scenarios.

Then, as if on cue, the credit freeze hit higher education. In early October, Wachovia Bank limited nearly 1,000 colleges access to $9.3 billion held for them in a short-term investment fund. This raised concerns at some higher ed institutions about not being able to meet payrolls and operational expenses, while some smaller IHEs had to consider that the long-term effects might mean closing their doors for good. Wells Fargo Bank has since moved to acquire Wachovia, with the promise of loosening restrictions, but in the face of such economic uncertainty, leaders at many institutions are making tough decisions. A few examples:

* Boston University announced a hiring freeze and a hold on new construction projects, trying to avoid deepening debt.

* The University of Memphis (Tenn.), already operating lean from prior budget cuts, must find $4 million more to trim.

* Rhode Island's three public colleges are considering tuition and fee increases to make up for a budget gap. If approved, tuition and fees will increase nearly 7 percent for the spring semester.

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Perhaps a bigger problem is that as tax revenues fall across the nation, states are cutting budgets to public institutions, resulting in a dangerous cycle. In Massachusetts, where higher education institutions contribute about $27 billion to the state's economy, cuts may mean decreased services and fewer enrollments, which will ultimately contribute to the growing budget deficit. …

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