There’s a simple reason why Loyola University Chicago’s endowment plummeted nearly $150 million in the last eight years: The university spent it.
During the 1990s, when the stock market carried most university endowments around the country to record levels, Loyola pursued the unusual course of raiding its unrestricted reserves–spending both interest and principal–to erect buildings and plug a series of annual budget deficits.
Along the way, Loyola’s endowment dropped to $282 million last year from a high of $425 million in 1993.
“It was a university that thought it had about $40 million more every year than it had,” Rev. Michael Garanzini, Loyola’s president, said in a recent interview.
Most schools are loathe to touch the principal–spending only a portion of the interest–of their endowments. Loyola hopes this will be the last year of dipping into its endowment, as officials scramble to shape a balanced budget, tweak faculty and class size and re-examine academic programs that have grown “stale.”
The Jesuit school has weathered tough times in recent years, fighting a series of budget shortfalls, worrisome drops in enrollment and faculty dissatisfaction.
But Garanzini, who took over as president not quite two years ago, has moved aggressively to address the school’s various woes. He has overhauled accounting and investment practices and reinvigorated an admissions process that has yielded successive record freshman classes, including 1,635 new students this year–up from 889 two years ago.
Loyola anticipates a $17 million deficit this year, and Garanzini also hints that there will be another 3-percent to 5-percent tuition increase for next year.
But Garanzini notes with pride that with a balanced budget planned for next year, the university will have erased a $34 million budget deficit in just two years. “It’s like turning around the Queen Mary in the Chicago River,” he said.
Education officials say the endowment is a crucial building block in the financial health of a university that most guard by spending only a portion of the interest earned from principal.
“Anytime that the endowment is lower from one year to the next, the institution needs to prepare building the endowment back up,” said Damon Manetta, an official with the National Association of College and University Business Officers in Washington, D.C.
But other officials say delving into a university’s financial nest egg can ultimately help a school regain its financial footing.
“At critical junctures you need to make strategic decisions that go to the very core of the institution,” said Sheldon Steinbach, vice president and general counsel for the American Council on Education, a Washington-based organization representing university and college executives.
Steinbach said the fact that Loyola is attracting record classes “ratifies” the school’s decision to dip into the endowment.
Loyola officials say the university’s endowment has now been separated into various accounts for clearer tracking. They stress that the restricted portion of the endowment–about $200 million–dedicated to specific purposes like endowed chairs was never touched.
The reversal in fortunes comes just in time. Enrollment dipped in the late 1990s, and the university found itself beset by financial woes after separating in 1995 from Loyola Medical Center, which had provided as much as $40 million a year to the university.
Rev. John Piderit, who was then the university president, came under intense criticism from faculty members angered by attempts to cut the budget, which culminated in a much-publicized attempt to drop the university’s classics program. Piderit subsequently resigned, and Garanzini was named his successor in January 2001.
“I think it’s a markedly different university than it was a year ago,” said Bren Murphy, a communication department associate professor and president of the university’s Faculty Council. “You can really see the impact of Father Garanzini.”
Not all think that impact has been for the better.
Yvonne Lau was chairman of the Asian and Asian-American studies program until her position was eliminated last spring.
Lau said courses serving the needs Asian-American students have been trimmed in the search for cost-savings–a move she said is short-sighted given the needs of those students.
“We are still very much invisible in college,” said Lau, who has since joined DePaul University. “We’re not seen as a group that has special needs or faces any barriers.”
Loyola officials have sought savings by shrinking the faculty. Vice Provost John Frendreis said the number of full-time faculty members in the College of Arts and Sciences is 321 this year–down from 365 in the 1999-2000 school year.
Frendreis and other Loyola officials said that faculty size was based on a time when Loyola had nearly 1,500 more students.
The decrease in the faculty has resulted in an increase in class size–from not quite 21 students per class to nearly 30.
But officials said some key classes–Introductory Composition, for example–will continue to have approximately 20 students. And they argued the number of classes taught by full-time faculty members has increased, providing a better experience for students.
“We believe the quality of teaching and the experience our students have had remains at a very high level,” said Frendreis.
