Catholic Colleges Are Holding Steady in Recession-So Far
Humphrey, Michael, National Catholic Reporter
When universities like Harvard and Johns Hopkins make headlines for staggering financial problems based on the spiraling economy, it is safe to assume most colleges are suffering a similar fate. To some degree that's the case, but most Catholic colleges and universities have kept a steady ship in the tempest. So far.
"[The downturn] is affecting us the way it's affecting everyone else, in the endowment," said Jack Neuhauser, president of St. Michael's College, near Burlington, Vt. "We're probably down about a half-minion dollars in what we can draw from the endowment. And there's the more subtle issue of how liquid those assets are. That's usually used for general operating expenses, but so far that hasn't translated into drastic changes."
An informal survey of Catholic colleges and universities of varying sizes and geography found there's great consistency in that sentiment. Pay and hiring freezes, cutbacks on capital improvement projects and general budget tightening has been the extent of the sacrifice.
There's plenty left to worry about, however. College endowments lost an average of 22.5 percent from July through November 2008, according to the National Association of College and University Business Officers. Catholic schools felt that pinch as much as non-Catholic ones.
"Over the past two weeks, I've been in five finance meetings," said Vincentian Fr. David M. O'Connell, president of The Catholic University of America. "That's compared to one a month in normal times."
Right now, it's all about the endowment for Catholic University, as well.
"Our losses are pretty standard," O'Connell said. "We've lost somewhere in the 30 percent range, about $70 million overall."
But loss in the endowment does not immediately equal crisis. The formula that matters is how each institution uses the proceeds from their endowment. Top-level institutions often rely heavily on those funds. Harvard, for instance, relies on its endowment to cover 35 percent of its operating budget.
Notre Dame, on the other hand, relies on its endowment for approximately 25 percent of its budget, according to John Affleck-Graves, executive vice president for Notre Dame in South Bend, Ind.
"We've been very conservative in what we pay out," said Affleck-Graves. "And what people don't remember is the four years prior, we were seeing returns of 20 percent each year. But another steep decline in the market and we'll absolutely have to reevaluate."
Notre Dame's endowment contribution to the operating budget is high for Catholic schools. According to a recent Moody's Investors Service report, the average Catholic institution relies on tuition and auxiliary revenues for a median of 82 percent of its total operating revenues. Tuition income for this school year has remained steady.
The next wave: ability to pay
So far, not bad. And you learn fairly quickly that college administrators tend to be an optimistic lot. But if plummeting financial markets, which drove down endowments, were the first wave of the storm, then there's a possibility that the mix of consumer confidence and a lending slowdown could be the next major break.
"The real anxiety for us, since we're primarily tuition-dependent," said Neuhauser, "is whether families are going to wish to borrow money."
There's even some fear, though it's subsiding, that families won't be able to get loans if they want them. So far applications at the schools were not down significantly And it appears the federal government is going to help education lenders. In late January, according to Bloomberg News, the U.S. Treasury committed up to $60 billion to shore up the student-loan market.
"Schools and students who rely on these loans were at dire risk of basically seeing these lenders have to leave the market," Charles Gabriel, managing director of Capital Alpha Partners, told Bloomberg News. …