Chronicle of Higher Education op-ed: The Era of Artificial Scarcity, by François Furstenberg (Johns Hopkins University):
Administrators have rushed to embrace austerity measures. The faculty should call their bluff.
When does a $5,000 investment pay off with a $100-million return? No, this is not a tale of Wall Street chicanery or Reddit-inspired investing. Rather, it is a story of rank-and-file university employees mobilizing to defend their vision of university governance — and winning big.
Our story begins a year ago, just a month into the pandemic, when the Johns Hopkins University President Ronald Daniels announced a set of “decisive austerity measures” in the face of anticipated revenue declines. These included layoffs, salary freezes, and a suspension of employee retirement contributions.
In a global pandemic that has killed over half a million Americans and confronted untold numbers with economic catastrophe, the travails of one elite university may not seem of great concern. Indeed, given the hardship the pandemic has wreaked on the sector, the suspension of retirement benefits at Johns Hopkins might appear downright trivial.
But it’s precisely the wealth of Johns Hopkins that turns this story into a parable. When an institution with almost $2 billion in reserves slashes employees’ benefits in the face of economic uncertainty, one begins to wonder if a set of ideological assumptions might not be at work. ...
Rather than bowing to alleged economic necessity, employees mobilized, questioning the leadership’s dogma, demanding independent verification, and pushing back against dubious assertions. As it turned out, we had a powerful weapon at our disposal, as do faculty members nationwide: a forensic audit.
The university’s embrace of austerity last April followed a projected revenue shortfall of $475 million through the following fiscal year. It was an eye-popping number. Aggressive cuts — including suspending retirement contributions, for a savings of roughly $100 million — must have seemed to the university’s executive leadership and its board of trustees like pragmatic, prudent stewardship. ...
As frustration grew, a group of faculty members, through a standing governance body, resolved to commission a “forensic audit” of university finances. They reached out to a professor of finance and accounting with extensive experience. The fee, they learned, would amount to $5,000.
Anticipating a lengthy campaign to raise the money, the group was astounded to see funds pour in in just three days through a crowdsourcing effort. The audit was duly launched, and the results came back in early November.
The audit revealed a starkly different financial portrait from that painted back in April. Then, Johns Hopkins had anticipated losses of $51 million for fiscal-year 2020. By October, however, revenues were much stronger than anticipated. In fact, the university had ended fiscal-year 2020 with a $75-million surplus, a stunning $126-million turnaround. Similarly, the auditor’s estimate of losses for the following fiscal year were far lower than the university’s colossal projections. ...
Most tellingly, the audit showed that Hopkins had extraordinary resources at its disposal — including nearly $2 billion in total reserves. (The audit anticipates that the administration would challenge this number, arguing that reserves cannot be spent on recurring expenses, before going on to argue that special circumstances like a pandemic are exactly what such reserves are for.) Given that cushion, it was hard to understand why employee benefits had been sacrificed on the altar of austerity. Clearly, a choice had been made to privilege financial assets over employee benefits. ...
In early February, Daniels announced that the university would resume its employee contributions effective retroactively to January 1, 2021. Then, in early April, as the modest financial impact of the pandemic was at last evident, he went further and announced the full restitution of benefits. One hundred million dollars of employee contributions would be paid back.
All told, not a bad return on the $5,000 invested in the audit.
If the restoration of retirement contributions was a victory of sorts, the knowledge that pension benefits were so precarious in the first place was a moment of sharp clarity: The university’s leadership had been very publicly caught with its hand in the cookie jar. But there was nothing unique about Johns Hopkins. The whole saga merely highlighted how fully a Wall Street mind-set had captured the nation’s university leadership.
One needs to ask: Why would a fabulously wealthy university treat employee benefits not as a bastion of last resort, but a piggy bank to be dipped into at will? It is the sort of move undertaken by private-equity titans after a hostile acquisition. Can they really not tell the difference between a nearly 150-year-old university and, say, J. Crew?
We are talking here about a rich institution — a university, moreover, to which people around the world turned for information about the pandemic. If a university with these kinds of resources turns to reflexive austerity in uncertain times, imagine what other, less wealthy institutions will do. ...
In retrospect, it comes as little surprise that a university president steeped in the values of corporate America thought that eviscerating employee benefits was an appropriate response to a national emergency. Perhaps it should not be surprising, either, that careful analysis of that decision, commissioned by the faculty, helped force a U-turn. ...
[T]he experience at Johns Hopkins can serve as a parable: We will eventually outlive this era of artificial scarcity, too.