By Pranav Joneja (ME ’18)
Since last semester, the administration has been somewhat silent on our school’s financial situation. With Acting President Bill Mea’s release of a document aptly-titled “Budget and Financial Projections” on February 18, that silence has now been broken. The ten-page document is densely packed with numbers that Mea crunched himself in his dual role as VP of Finance and
Administration. As such, he wrote that the document “represents my analysis of The Cooper Union’s financial condition, both in terms of its liquidity and the gap we must bridge in order to cease reliance on tuition revenue.”
The document makes a strong effort to be easily
understandable in plain English wherever possible. However, given its purpose as a baseline for future planning within the administration, it is necessary that the official document assesses our finances in full technical detail. Taken in a more positive way, it’s good news that the administration is being both transparent and highly specific by releasing the numbers they are working with themselves.
What follows here is a brief overview of the analyses without any accounting jargon. It is supplemented with direct quotes excerpted from an interview with Bill Mea for The Pioneer, providing clarification and further analysis.
It must be said, nevertheless, solely depending on this heavily condensed, ‘tl;dr’ version is not recommended for getting a full picture of the situation.
Overview of Analyses (in simple terms):
In the document, Mea asserts that the amount of money spent annually needs to be reduced by $3 million by June 2018. Following his proposal, Mea said “the Board has now made it a requirement to make these expense reductions.” These cuts need to happen in the immediate future. Mea clarified that these cuts could happen in chunks, like the example taken in the document: $1.5 million in the first year, $1.5 million in the second year for simplicity in crunching numbers. But he also said that’s not definitive: “If I can cut all $3 million in this year alone, then [the benefits] just ripple forward.”
“In the document, Mea asserts that the amount of money spent annually needs to be reduced by $3 million by June 2018″
To be clear, the announcement right now is that these cuts need to happen, but there’s not a fully realized plan of how to go about making those cuts. Mea said, “I’ve asked the people who prepare budgets to make a list [of possible areas to make cuts] that adds up to $3 million.” These ‘people’ are the various academic Deans, members of the President’s cabinet, VP of Enrollment (Mitchell Lipton), VP of Communications (Justin Harmon) and other administrators. Moving forward, Bill Mea will be working with these people to take on the very tough job of actually deciding where and how to cut $3 million right away.
There is something to be said about where these cuts will not be happening. “We’re not looking to cut the number of full-time faculty or reduce their salaries. In fact, we’re hiring more full-time faculty.” Instead, Mea said he is pushing for cuts to be made “more within the administration and away from the academic departments.” In simple terms, this is because a lot of the current budgets for academic spending is comprised of full-time faculty salaries. Since those cannot be cut, it shifts the focus to making cuts in the administration.
The document frames these cuts in the broader setting of the total gap we must bridge in order to return to free. Bill Mea: “On an annual basis, what do I think it would take to get back to free? About $15 million. That’s what we call our ‘structural deficit’— though I’m not really a fan of that phrase.” That’s not to say a 15-million-dollar gap is the bottom line to all of Cooper’s problems though. Both in the document and in the interview, Mea made some very significant statements that qualify the question further. For one, calling it a ‘gap’ refers to the fact that it will be filled with a combination of spending cuts and additional revenue. The cuts have to be sustainable though, which means they cannot be “cut now only to be added back later.”
Moreover, additional revenue needs to come from non-tuition sources. The consent decree, approved in December 2015 by the Supreme Court of the State of New York, legally requires that Cooper Union “develop plans to return to a sustainable, full tuition scholarship model.” Simply put, the problem is not just making sure we bridge that 15-million-dollar gap—it’s ensuring that it’s done in a long-term sustainable way without depending on tuition. The immediate cuts of $3 million in the next two years will count towards filling the gap.
“Simply put, the problem is not just making sure we bridge that 15-million-dollar gap—it’s ensuring that it’s done in a long-term sustainable way without depending on tuition.”
On the topic of bridging gaps, Cooper Union is currently operating right on the edge of one. Bill Mea: “We’re losing $20 million this year alone.” That’s an operating loss—money being spent
beyond what we have money for. So how is Cooper Union still open? In August 2014, the school borrowed $50.9 million, commonly referred to as the bridge loan. But that’s not news today, we knew about this loan when it happened and it made big waves at the time. The question since then has been, how effectively is it being used? In short: that’s cash being spent to keep our doors open and keep students enrolled. But that’s the point of the bridge loan: it is what’s keeping the school open despite massive operating losses every year.
Looking forward, Bill Mea projects a $17 million loss next year and another $4 million lost the year after that… it’s easy to see how the bridge loan is going to dry up very fast. And it’s one reason Mea points to in saying “I hate to say that’s the reason why we had to take out that loan.”
If everything goes according to the projections, the loan will also just barely bridge us to 2018/2019 when the lease of the land under the Chrysler building steps up to make us cash positive. Indeed, Cooper Union has been anxiously awaiting that Chrysler rent increase for quite some time now. The 2006 loan of $175 million from MetLife was leveraged against the Chrysler building property—like taking out a mortgage on your home, but the ‘home’ was actually the $630 million Chrysler building property. But again, the two loans—bridge loan and MetLife loan—are old news.
The point to keep in mind looking forward is that paying off those loans—called ‘debt service payments’—will continue to be the single largest expense every year. Worse yet, those payments are set to increase significantly from $13 million a year to $18 million a year by 2020. Put another way, in 2020 we will pay $18.5 million in loan repayments, while the cost of running the three schools combined will be $14.5 million. In simple terms, what kind of college are we if we spend more paying back debt than we do on running our three schools?
“The point to keep in mind looking forward is that paying off those loans—called ‘debt service payments’—will continue to be the single largest expense every year.”
It’s very important to note that our current situation is inherited not by some choice of our own. Both loans were structured in a way that gave immediate financial relief because that’s what the Campbell and Bharucha administrations had said was needed when they signed the loans. The tradeoff, however, is that the bulk of repayments were deferred to the future, which actually ends up costing us more in the long run.
Acting President Bill Mea is taking on this matter head-on while maintaining a positive outlook overall. His analyses show that it may be possible to “ensure future financial sustainability without charging undergraduate tuition.” The assumptions he makes are conservative and the risks he outlines are realistic. Ultimately, the conclusion he comes to in this document is that we may just make it out alright. Certainly, that’s what is needed.