Paul L. Caron

Sunday, November 24, 2019

As Recession Looms, Even Harvard Is Uncertain About What That Means For Higher Ed

Chronicle of Higher Education, A Recession Is Looming. Even Harvard Is Uncertain About What That Means for Higher Ed.:

Harvard 1Harvard is an outlier when it comes to most issues in higher education, with its $40-billion endowment, buffer from state budget politics, and end-of-year operating surplus nearing $300 million. But in preparing for a brewing economic recession, the university is no exception: It faces a lot of uncertainty.

That’s partly because so much has changed since the Great Recession. The university has new revenue streams. Officials are in the process of restructuring the endowment-management company. And an American culture of greater skepticism toward higher education means that universities may bear the brunt of any downturn on many fronts.

“Some economists have suggested that student debt could be a precipitating factor in the next recession, which would place higher education in the awkward position of being vulnerable to and potentially blamed for the financial crisis,” reads one document of several posted to Harvard’s website on the university’s financial planning. The university’s office of financial strategy and planning wrote that higher education may face greater regulatory control and additional tax obligations because of the changed sentiment. ...

“We’re 123 months into the longest expansion maybe in U.S. history, and we see indications that we’re toward the end of the cycle,” said Thomas J. Hollister, chief financial officer, in a Harvard publication. “All of our schools and units are doing scenario planning, thinking through what they can or should be doing now to prepare for a variety of economic pressures.” ...

Moody’s in February cited Harvard’s “effective” risk-management strategies as allowing the university to adjust to bad market conditions, and Jeffrey Kaufmann, lead Harvard analyst at Moody’s, said that the university has “reputational power” that positions it well in an uncertain environment. Still, Harvard has urged departments to pay down debt and build their cash reserves. In donor management, employees are encouraged to “review restricted gift terms for opportunities for more expansive use of funds.”

Schools and units regularly submit rolling five-year financial plans, and this year they must include additional “downside” plans and identify activities “where there may be opportunities to limit or reduce scale or scope,” according to the university’s financial report for the 2019 fiscal year.

And administrators warn expansionists that nothing is guaranteed to last forever. One document on financial resilience says future capital plans should be designed “with a phased or modular approach so they can be stopped if necessary.”

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