A Financial History of Cooper Union
Chrysler Building Rises Amidst Great Depression
If ever there was a return on investment, it was the construction of the tallest building in the world on this plot, a quarter-century after Cooper Union took ownership, and almost a half-century after the Cooper family made the initial investment. “In this twentieth century Cooper Union has been able to continue its policy of free education for one reason and one reason only”, said Cooper Union President Richard Humphreys in 1964, reflecting on the Lexington Avenue property’s contribution to the school both before and following the construction of the Chrysler Building.[i]
On July 31, 1928, the property was leased to Reylex Corporation, which planned to build the tallest building in the world. In the roaring 1920s America was extravagantly and audaciously confident. Construction began on September 19, 1928, and they assigned the lease to the W.P. Chrysler Building Corporation on October 1, 1928.
The terms of the first Chrysler lease framed a revenue model for Cooper Union that continues into the current lease with Tishman-Speyer. It was a financial model unlike no other in American higher education. The rental income was of staggering proportions for the size of the institution, outstripping the return on the transformational gifts of the turn of the century. The tax exemption was one of a kind. Most private non-profit institutions receive a tax exemption on properties that are used directly for their educational purposes, but are required to pay taxes on properties that are rented out.
However, the model was also unique in its complexity and opacity, making Cooper Union’s financial condition difficult to evaluate. According to court documents from 1931:
“The term of the lease is for approximately twenty-five years with the privilege of renewal for two further terms of twenty-one years each. The rent reserved consists of two divisions: First, a basic rate of a fixed sum per annum varying from $26,000 to April 30, 1930, to $330,000 from May 1, 1942 to maturity; and second, a so-called ‘tax equivalent’ which was described as ‘additional rent’, and which was an amount equivalent to what the taxes would have been if the property were not exempt. The lease contains detailed provisions with regard to determining the amount of this tax equivalent.”[ii]
The structure of the lease meant that Cooper Union’s principal source of revenue would remain flat for a period of years, then would step up and remain flat again for another period of years, and so on. So while expenses increase annually with cost inflation, budgets are reconciled annually and audits are conducted annually, revenues increase as a step function in intervals of several years - sometimes as long as a decade. The final step of the original lease went from 1942 until 1952. Even though $330,000 per year in 1942 was a windfall compared to just a year earlier, it did not increase with inflation until the next lease was due to begin in around 1953. The first few years of a decade step would naturally generate budget surpluses, but the final years of a decade step would generate budget deficits.
Construction of the Chrysler Building began on September 19, 1928. On October 29, 1929, a date enshrined in history as Black Tuesday, the stock market crashed. In May 1930, the Chrysler Building opened, and Cooper Union started receiving an unprecedented stream of revenue, just as the Great Depression engulfed nation. This investment had “appreciated beyond all the hopes and dreams the donors and the trustees might have had in 1900”,[iii] wrote Humphreys, and couldn’t have been timed more fortuitously.
[i] Richard F. Humphreys, “To Correct a Prevailing Impression…”, At Cooper Union, 1964 (Fall).
[ii] People ex rel. Cooper Union v. James J. Sexton, et al (1936)
[iii] op. cit., Humphreys