As colleges begin to recover from the pandemic, it’s starting to seem like — for the wealthiest of them — austerity measures weren’t worth it.
Jesse Hernandez, a senior cook at the University of California Riverside, started hearing rumors that layoffs were coming for the residence hall and dining staff just weeks after the onset of the Covid-19 pandemic last March.
For a while, it seemed all talk.
But sure enough, he and much of the university’s dining staff found themselves out of work for the summer, joining the 650,000 higher education workers nationwide who were laid off due to collegiate austerity programs in the wake of pandemic-induced financial strife.
“We got blindsided, honestly,” Hernandez said.
Now — with the help of his labor union, the American Federation of State, County and Municipal Employees 3299 — Hernandez is trying to make sure mass layoffs never happen again. In his role as a member action team leader, he is organizing workers and meeting with administrators about issues that go beyond what happens on the job site. But while AFSCME 3299 has responded to the pandemic by taking a more expansive view of how to approach collective action, colleges as a whole appear to still be beholden to a financial paradigm that put Hernandez’s job, and thousands of jobs like his, in jeopardy.
In part, that may be because the endowment system many schools use to remain solvent brought colleges and universities significant financial rewards amid a rapid rise in stock prices. Those gains followed a major dip in the stock market immediately after the first US Covid-19 outbreaks — and quickly falling prices, in part, led to stark austerity measures.
Now, only a year after laying off hundreds of thousands of people, the higher education industry appears to be bouncing back.
The education and health services industry saw 87,000 people hired in the month of May, according to the US Bureau of Labor Statistics, and 129,000 people hired in the two months prior. And there are signs of more hiring to come. For example, the University of Michigan just announced it would be ending a year-long hiring freeze at the beginning of the 2022 fiscal year in July.
But despite those strong numbers, the number of those hired hasn’t yet equaled the number who lost their jobs. And as thousands of collegiate workers wait to see whether their jobs will return, some have begun to question why austerity measures were put in place at all — particularly given the strong returns many schools saw on endowments and how much of schools’ emergency funds have now been shown to have gone unspent.
Endowments meant the richest public and private schools didn’t need austerity as much as they thought
It’s important to remember all the uncertainty around the coronavirus when the first outbreaks hit. Social distancing was a new concept to millions of people, the debate about whether to sanitize your groceries raged, and many experts scoffed at the idea that a vaccine would be available before 2022. No one knew when, or if, the pandemic would be over. And the stock market responded by going into freefall.
“The stock market was down,” said Seton Hall University professor and higher ed expert Robert Kelchen, and colleges “were unsure about their future.”
Unsure how long the pandemic would affect their finances and fearing a prolonged pandemic might mean years — if not decades — of falling enrollment, tuition collection, and damage to endowments, austerity budgeting very quickly became the norm for many schools, both public and private. Many laid off and furloughed faculty and staff, froze hiring for temporary workers, and put off capital projects that weren’t already underway, according to Andrew Comrie, professor at the University of Arizona. Many also turned off the air conditioning in unused buildings and stopped paying for food deliveries and classroom maintenance because so few students were still on campus.
State school revenues are at the mercy of state budgets, and by April 2020, states were anticipating budget shortfalls of a combined $500 billion, as budgets were slashed amid concerns about tax collection and lost tourism revenue. For instance, a steep drop in tourism in Hawaii forced Gov. David Ige to request a 15 percent reduction in the general account that funds the campuses in the state’s university system. The university systems of Alaska and Nevada also lost millions.
Elite private universities, on the other hand, often have larger budgets, due to the size of their endowments, but those budgets are usually funded by investment income, meaning they grow when the markets are doing well and shrink when they’re in a downturn. At schools like Johns Hopkins, the initial market shock reduced the university’s investment income and concurrent budget by millions of dollars. Such losses, along with an expected decrease in tuition revenues and dorm fees, caused some schools to push the panic button.
Broadly speaking, an endowment is a kind of nest-egg investment fund, meant to provide stability, as a “bastion of the institution’s perpetuity,” as Francois Furstenberg, a professor at Johns Hopkins University, told me.
At the nation’s largest private schools, these funds can range in value from $7.94 billion at Atlanta’s Emory University to $41.89 billion at Harvard and are used to pay for everything from building projects to endowed scholarships. They have come to be seen as so central to a school’s continued existence that at many of the country’s largest private universities, boards of trustees spend millions of dollars on consulting fees to maximize their returns. Some institutions, like Yale, Stanford, and Princeton, spend more on consulting fees than on financial aid for an entire student body.
All this exposure to risk paid dividends for private schools last year, literally, as the stock market began an unexpected rapid rebound, gaining almost 32 percent in just three months.
For example, by October 2020, Johns Hopkins reported a budget surplus of $75 million, a $126 million swing from the stark projections that led to austerity measures just months prior. Northwestern University announced an $83.4 million surplus for the fiscal year in January. Yale University reported an even more astounding $203 million surplus in November 2020.
“They obviously prepared for the worst back in the middle of last year,” Comrie said. “But once the market rebounded in the fall, it’s a whole lot tougher to defend that level of austerity when literally two months before, it wasn’t there.”
Elite private schools did fine, and so did the public schools with large endowments. As Lee Gardner, a senior writer at the Chronicle of Higher Education, told me, “Any school where you’ve got [billions] in the endowment qualifies.” Across the United States and Canada, that means more than 100 institutions managed the coronavirus-induced economic crisis in part by way of their endowments, from the University of Chicago to Virginia Commonwealth University.
But much of these gains was of little immediate help to schools navigating the other effects of the pandemic, or to those faculty and staff wondering about the fates of their jobs.
“In many cases, the endowment is restricted for particular purposes,” Kelchen said. “Seventy-five percent of the endowment may be restricted for using on student financial aid or paying for buildings or endowed faculty positions. The amount that’s unrestricted can be fairly small.”
Increased investment income could mean more spending on those restricted areas — scholarships, salaries, dining, and so on — in the years to come, but could not be moved to protect jobs. That’s because while colleges do turn the endowment into revenue every year — by taking tiny percentages of the interest, never the principal, to put into operating funds. They don’t like going over allotted percentage caps.
“It is generally considered a bad idea to do anything more than that,” Gardner, the Chronicle of Higher Education writer, said. “Because what you are doing is you are eating into the college’s future. I understand that you don’t want to hear that when people are losing jobs. But that is the charge you are given as a university administrator: Protect the institution, protect the next few years.”
Austerity measures weren’t worth it
But some labor unions, educators, and college experts are now arguing that — at least for the largest public and private collegiate institutions — emergency budget cuts weren’t worth it, given that many had prepared emergency funds for crises like a pandemic.
These massive funding pools, sometimes called “rainy day funds” by collegiate officials and activists, often come from endowments, and can be found in the UC system that employed Hernandez and at many other institutions. The University of Massachusetts network boasts an emergency stabilization fund of around $125 million. Board of Trustees member Michael V. O’Brien once joked that the money would only ever be spent in the event of “a completely unforeseen cataclysm,” an “asteroid strike,” for example.
Rutgers University, where media studies professor Todd Wolfson teaches, has a similar fund. Wolfson said he learned about the rainy day fund from the University’s chief financial officer.
“I was like, well, this is the largest health crisis in the history of this country,” Wolfson said. “Do you not consider this a moment to use your frickin’ rainy day fund? And they said, ‘We’re thinking about it.’ But they ultimately never ever did.”
Wolfson said schools shied away from pulling excess dollars from rainy day funds and endowments because of broad concerns that had little to do with their missions as educational institutions — including how such a move would look to creditors.
“To them, their rating from Moody’s” factored into schools’ reticence, Wolfson said. “And their ability to take out a loan in the future and not have slightly worse terms, and the desire to grow and grow and grow [the total value of their endowment] and get bigger and bigger, it feeds a logic in it of itself. Growing an endowment for the sake of growing an endowment.”
In general, schools offered little rationale for refusing to use their emergency funds, and their statements around layoffs tended to be vague. For example, in a precursor to announcing their own spate of layoffs, Northwestern’s president said reducing jobs was necessary because the pandemic had placed “extreme pressure on all our major functions and on associated revenue streams.” When asked about their financial strategies during the pandemic, many of the country’s wealthy private schools — including Northwestern, Johns Hopkins, and Yale — did not provide comment.
Liz Perlman — the executive director of AFSCME 3299, the University of California labor union representing 28,000 service workers — told me that austerity in the face of such funds is “lazy policymaking.”
Perlman said AFSCME 3299 identified several alternatives to austerity that could have kept UC’s employees at their jobs, including drawing on some of the $14.8 billion the system possesses that is categorized as short-term or long-term investment funding, meaning it can be spent as the system sees fit. Instead, the university system, California’s third-largest employer, almost laid off 3,000 AFSCME 3299 workers in 2020; the number laid off was actually closer to 200, a reduction the union believes was due to its activism.
It wasn’t just the existence of rainy day funds or the rapid market turnaround that makes austerity questionable, however. There is also the fact that, particularly at the largest schools, advocates like workers unions began to develop new, more equitable alternatives to traditional austerity measures.
The pandemic revealed alternatives to traditional austerity. Schools aren’t sure they’ll need them.
Todd Wolfson, the Rutgers media studies professor and president of the university’s largest educators’ union, believes that there are alternatives to austerity that can still yield savings in a crisis, and that can be useful in situations with rapidly changing conditions, like the pandemic.
His union, for instance, presented Rutgers with a plan in which every unionized worker agreed to voluntary furloughs in exchange for no layoffs; Wolfson said it would have saved the university upward of $150 million.
“There’s a way to do this that’s collaborative, that really lifts up the university as a moral beacon for how to handle a crisis,” Wolfson said. “As opposed to a neoliberal-driven institution that punishes whomever it has to punish in thinking about its bottom line. To this day, it’s a mystery to me why they said no.”
The university ultimately went with its own plan, laying off 1,000 workers, disproportionately women and people of color; 400 adjunct professors were told they wouldn’t be returning the following year, saving Rutgers $4.5 million, which is roughly the yearly salary of head football coach Greg Schiano.
But the school’s strategy shifted with the arrival of a new president, Jonathan Holloway, in July. At a virtual summit in October, Holloway said that Rutgers would need to continue to find savings, given that, despite its endowment, Rutgers was not among the schools that profited during the pandemic — though its losses were revised down from an estimated $200 million to a much more manageable $54 million.
“We have a very large workforce, but when we don’t have jobs for them because our students aren’t here, like, ‘What do we do?’” Holloway said at the virtual summit. “We’ve worked very hard to find as many other kinds of jobs that they’ll be trained into, but at some point all that stops. And this has been the real frustration of the pandemic. You can try and try and try and all of a sudden, the math doesn’t work anymore and you have to make these really difficult decisions.”
In February 2021, Holloway and Wolfson’s union came together on a smaller work-sharing agreement that will keep the university from enacting further layoffs through the end of the Covid-19 crisis.
“I reached out to President Holloway, I said, ‘Hey, this is a moment. Let’s try to figure out if we can bargain a deal … we’re not gonna be able to get everything back but at least get on a better footing and try to figure out what’s next,’” Wolfson said.
The union at Rutgers wasn’t alone in finding creative solutions to keep workers employed; the University of California system agreed to a deal with AFSCME Local 2399 whereby workers at several universities could voluntarily transfer to UC hospitals so they could keep jobs within the university system.
Some workers made the move, guaranteeing a job for themselves. AFSCME said it fought hard to give them that option, and that the deal kept thousands more workers from being laid off.
Perlman, the AFSCME executive director, helped negotiate the agreement. But she said that while it helped, it wasn’t good enough, that a university system with $40 billion in funding shouldn’t be laying off the poorest members of its community.
“If you live in a bubble and you actually count beans and nuts, then that makes sense,” Perlman said. “But if you actually look at the real world, those humans are actual Black and brown low-wage service workers who were also the same humans and their family members who were showing up at UC hospitals with Covid and then dying from it.”
And Perlman noted that the first person who died of Covid-19 in California was an AFSCME union member, a truck driver at UC Santa Cruz.
While the pandemic has led to some changes — including more union activity — overall, little has changed with respect to schools’ financial underpinnings. For instance, Inside Higher Ed’s 2021 survey of university presidents found only 17 percent saying they would make larger than planned draws from the endowment to increase revenue in future economic crises.
That response may come from the fact that so many schools are entering this phase of the pandemic in strong shape. The same poll found 80 percent of presidents are confident their institution will be financially stable over the next 10 years, an increase from the 57 percent that agreed before the pandemic hit in 2020.
“The sky did not fall,” Gardner said. “I hope that does not imbue false confidence for the people who run these institutions that they shouldn’t be as prepared as they possibly can be or be as cautious as they can be in the event that something like this comes up again.”
Hernandez feels the same way. Just weeks ago, he and the staff at Riverside got word that they’d be laid off again this summer. He’d never experienced that insecurity before last summer. Now, it’s a running theme.
“We’re cooks, we’re storekeepers, people who feed the students in our department,” Hernandez said. “And we’re trying to figure out, why is it that we suffer?”
Gregory Svirnovskiy is a student at Northwestern University and a politics and policy intern at Vox through the university’s journalism residency program.
Author: Gregory Svirnovskiy
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