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The State of Cooper Union, slide presentation to alumni, parents and friends

Houston and NYC TriState, Spring 2015

Deficits in 1990s
2011 deficit
Fiscal Cliff 2011
After 2018
After 2011
Expense reduction
The State of Cooper Union (slides)

Slide 1 of 36: Presentation to alumni, parents and friends in Houston and the NYC Tri-State area, Spring 2015.


Slide 2 of 36.

Recent results

Slide 3 of 36. The Princeton #1 ranking was based on the new tuition scale: 50% tuition-scholarships for all undergraduates, plus need-based financial aid to offset tuition and living expenses. Applications for Fall 2015 are up 5% in Art, down 6% in Architecture, and up 67% in Engineering (33% higher than in the Engineering School's history). The federal government requires institutions to report the full cost of attendance, which includes tuition and fees, books and supplies, room and board.

Four core goals

Slide 4 of 36. Our accrediting body, the Middle States Commission on Higher Education, requires that goals be stated and assessed.

Retrospective financial analysis

Slide 5 of 36. Why was tuition necessary? Why was there urgency?

History of deficit financing.

Slide 6 of 36. Deficits are shown whenever the red line is higher than the blue line.

Deficits in the 1970s

Slide 7 of 36. Deficits in the 1970s led to the closure of the physics and math degree programs, as well as the Ph.D. programs and the Department of Athletics. In response to these cuts, the full-time faculty unionized (CUFCT).

Strong markets in the 1980s

Slide 8 of 36. Strong financial and real estate markets in the 1980s enabled balanced budgets. This was by definition not sustainable.

Deficits in the 1990s

Slide 9 of 36. In the early 1990s, a massive deficit opened up, triggered by a leveling off of the Chrysler revenue. These deficits ranged from 20% to 45% of the annual budget. (The apparently balanced budget in 2002 is an artifact of payment schedules).

Accumulated deficits

Slide 10 of 36. The area shown in red represents total accumulated deficits since 1990, which amounted to more than $300 million in current dollars.

Declining assets

Slide 11 of 36. How were deficits paid for? By spending down Cooper's assets. This graph shows net assets (excluding the Chrysler building) declining.

The dot com bubble

Slide 12 of 36. The bubble enabled the assets to hold on, in spite of deficits, until the bubble burst in 2000.

Decline of net assets

Slide 13 of 36. Net assets declined steadily from 2000 onwards, approaching zero a decade later.

Deficits shown in 2014 dollars

Slide 14 of 36. The deficit was fairly constant ($10-15 million annually) in inflation-adjusted terms from the mid-1990s until FY 2008.

Ballooning deficits post 2008

Slide 15 of 36. After 2008, deficits ballooned, as shown by the downward sloping line circled in purple. The largest deficit ever occurred in FY2011, the fiscal year just prior to my arrival. The years 2009 through 2011 represented the most rapid decline in the entire period of deficit-financing, and consumed the most assets over a three-year period in order to operate the institution.

Reversing the deficit

Slide 16 of 36. The vertical green line represents the start of the Bharucha administration. Immediately following that, the deficit trajectory was reversed, even before any tuition was charged.

The Sustainability Problem

Slide 17 of 36. The model in effect when I arrived (the "Base Case", which was in effect from 2006-2011) projected large deficits until 2018.

First and last balanced budget

Slide 18 of 36. The Base Case projected a balanced budget in 2018 because of a planned step-up in the Chrysler rent. That would be the first genuinely balanced budget since 1990, but also the last.

Rising deficits after 2018

Slide 19 of 36. A new deficit was projected to open up immediately after 2018, growing steadily into the future. Why? Because after 2018, the Chrysler rent revenue will not keep up with inflation - not even with the CPI. 2018 is a fleeting moment in terms of financial stability. In 1970 President White diagnosed the problem which is still at the root: the Chrysler revenues have not kept up, and will not keep up, with inflation in the long run.

The Financial Sustainability Plan

Slide 20 of 36. The Financial Sustainability Plan (the tuition plan) voted by the Board in April 2013, based on the President's recommendation, sustains balanced budgets for the entire life of the Chrysler rent agreement - decades beyond 2018. Two classes have been admitted under this Plan. In these classes, historic levels of academic excellence have been maintained, and socio-economic access has increased.

The Liquidity Problem

Slide 21 of 36. The grey shaded area represents the portion of the endowment (the corpus) that is donor-restricted, and cannot be invaded by law.

Plummeting from 2000 to 2003

Slide 22 of 36. From 2000 to 2003, cash and investments plummeted because of draws each year to cover the deficit. By 2003, Cooper was in danger of invading the corpus, and had roughly 2 to 3 years of liquidity left.

Selling property: 2003-2007

Slide 23 of 36. Between 2003 and 2007, cash and investments were held just barely above the corpus by selling property: the Bowery Bar, 35-37-39 Cooper Square, and the ground lease at 51 Astor Place.

MetLife loan and 51 Astor Place

Slide 24 of 36. $175 million borrowed from MetLife in 2007, and $93 million (net) received from the sale of the ground lease of 51 Astor Place (the former engineering building), replenished cash and investments temporarily.

After 2008

Slide 25 of 36. After 2008, cash and investments plummeted.

Approaching the fiscal cliff

Slide 26 of 36. When I arrived in 2011, unrestricted cash and investments were down to around $50 million (circled in purple). Cash and investments within the gap indicated by the arrow are not unrestricted, because include life annuities and other constrained funds.

The fiscal cliff

Slide 27 of 36. In Sept 2011, Cooper's investment advisor predicted that the unrestricted endowment would decline to zero within three years. This is the graph that led me, as a new President, to sound the alarm. The freshmen who had entered that fall would not have been able to graduate without a highly disruptive intervention, because the operating deficit was roughly 1/3 of the annual budget.

Averting the Fiscal Cliff

Slide 28 of 36. Averting the fiscal cliff required a loan to bridge until 2018 and use the 5-year period to invest in, ramp up and fine tune the tuition/financial aid balance - and to launch new academic programs. Without a sound Financial Sustainability Plan there would be no bridge loan. And without the bridge loan, there would be no runway to build up to a Financial Sustainability Plan.

Deficit reduction

Slide 29 of 36. Operating deficits (unrestricted operating excess) are taken from publicly posted audited financial statements. As of this presentation, FY2013 is the most recent to be posted.

The highest deficit in FY2011

Slide 30 of 36. The deficit in FY2011 was $23.6 million, the highest ever. The deficit trajectory from FY2008 to FY2011 was the steepest ever.

Deficit reduction in FY2012 and 2013

Slide 31 of 36. The green shaded area represents the Bharucha administration. The trajectory of deficits was immediately reversed, even before charging tuition, with an accumulated deficit reduction of $14.8 million over the first two fiscal years.

Expense reduction

Slide 32 of 36. Expenses (column B, unrestricted operating excess) are taken from publicly posted audited financial statements. As of this presentation, FY2013 is the most recent to be posted.

Rising expenses leading to FY2011

Slide 33 of 36. Expenses ballooned between FY2008 and FY2011. The green shaded area represents the new administration, which arrested the trend.

Inflation adjusted expense savings

Slide 34 of 36. Relative to the 4.5% annual growth projected in the prior plan, we achieved accumulated expense savings over the first two years of $12,439,408. Relative to the 2.5% growth rate in the union contracts, we achieved accumulated expense savings of $8,122,928, even before any tuition was charged.

New programs

Slide 35 of 36. The Financial Sustainability Plan (the tuition plan) called for launching new, innovative academic programs that build on Cooper's distinctive strengths, that help realize the interdisciplinary dream of bring the three schools together, and that generate net positive revenues. 2/3 of the structural deficit is to be covered by the 50%-tuition, and the remaining 1/3 from tuition from new programs. New programs enable the 50% tuition scholarship, which otherwise could only be 25%.

Enduring distinctive characterists

Slide 36 of 36. Some of Cooper's distinctive characteristics, distilled from discussions with students. Cooper's future lies in attracting the top high school students who are a good fit - not in trying to return to the past. Students enrolled under the new plan - and their parents - are drawn to Cooper's many distinctive characteristics other than free tuition, and have voted with their feet. Cooper is as dynamic now as ever.

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