A few weeks ago Harvard University announced that it received its largest single gift; a $400 million grant from hedge fund executive John Paulson. Even for a school like Harvard with a $36 billion endowment, (an amount larger than the economies of most developing nations), this was quite a gift.
If the rich just keep on getting richer, it is nowhere truer than in the world of university endowments, where the top 20 universities represent about half of the total endowment value of the next 500 schools.
Of the large university endowments, say the 90 schools with endowments of $1 billion or more, six are in Pennsylvania (Penn, Penn State, Pitt, Carnegie-Mellon, Lehigh, and Swarthmore).
The list in Pennsylvania includes prestigious private schools and the large public research universities, both of which have loyal (and many successful) alumni from which to draw.
What do large endowments do? A lot. They diversify revenue, hedge against economic problems, provide a balance sheet through which institutions can grow and innovate, and provide an investment advantage in the capital markets.
Nonprofit colleges and universities raise money in five ways: the public sector, private donors, tuition, public and private research dollars, and affiliated business development activities, such as commercialization of business and real estate sales.
Institutions like CCP will have to get better at building a private network of civic and philanthropic support. They will have to get more entrepreneurial by profitably selling some of their services. And they may need to seek deeper affiliations with other institutions in order to leverage their strengths.
For many four and two year colleges the options are more limited; they do not have wealthy alumni or major research contracts and they are in a more competitive landscape than ever, particularly given changes in demography and technology. And they are not likely to get a call from John Paulsen anytime soon.
In many instances when these schools attract foundation grants it is to do a project that may be beneficial to the school, but it does not provide the kind of unrestricted revenue that comes from an endowment or a general donation.
Our two-year community colleges are fully reliant on public money and tuition. And in the age of declining public sector budgets, this is increasingly problematic at the very time when we need these institutions to thrive if we want to accelerate the rates of social mobility in the region.
The Pew Charitable Trusts released a report on the Community College of Philadelphia (CCP), a subject I covered in this column a few months back.
It is a smart review that provides an in-depth assessment of CCP’s mixed record as a two-year transfer college, an open enrollment remediation system, and a work force development program.
The Pew report, like my brief column, was inclined to give CCP the benefit of the doubt because it has new leadership more open about past issues and more interested in change. That is an important start.
Over the past decade or more, the percentage of funds that come from student tuition at CCP has generally gone up as public funding has declined.
The rise in tuition for lower income students can be partially offset by federal Pell grants or other sources of student aid, but it also often means that large numbers of students have to borrow more and sometimes take more time to proceed through the system, both of which can disrupt completion.
If President Obama’s promise to make community college free is passed (the proposal is for anyone whose income is below $200,000), it will help a significant number of students, especially those not already eligible for Federal Pell grants. But in many ways the President’s proposal does not change the basics of running a community college.
It does not provide the extra capital that will be needed to develop the institutions. Nor does it incentivize the kind of policy changes that will accelerate significant growth in graduation rates, although there is some language in the proposal that creates some state and college policy issues as prerequisites for aid.
Don’t get me wrong, the President’s proposal is a step in the right direction that will support thousands of students every year. But it also has to be accompanied by local policy shifts like those in Chicago and New York City that are driving more significant change in how community colleges are managed. Relatively speaking, we are still a policy backwater when it comes to community colleges.
Moreover, institutions like CCP need a more diverse funding source that allows them to both innovate and manage bumps in public policy, demography, and market factors (including the new private school and on-line competition). Right now they have very limited ability to do any of that. Increased tuition subsidies will help smooth out registration ups and downs but not dramatically shift financial capacity.
At several points in the Pew report, students and customers of the school talk about the lack of updated equipment in science labs or in support of fields such as advanced manufacturing. Or they complain about the difficulty of finding the right advisory services for incoming students (including so many with English as a second language).
If you have a limited budget you can fix some of these things through re-allocation and efficiency, but there will always be tough trade-offs. There is not much room to maneuver. Strong management can help, but there are limits.
Institutions like CCP will have to get better at building a private network of civic and philanthropic support. They will have to get more entrepreneurial by profitably selling some of their services. And they may need to seek deeper affiliations with other institutions in order to leverage their strengths.
Option one – the civic and philanthropic approach – means that you have to become broader in your outreach and brand. You have to work alumni and civic networks in new ways. This is a new thing for many community colleges around the nation who have limited development staff.
Option two – the entrepreneurial approach – means that you have to be really good at delivering a product that others will pay for, above and beyond your basic tuition and government contract relationships. You can watch private schools and online colleges dig into your existing market, or you can compete for those students.
Option three – the affiliation strategy – has generally been pursued with four-year schools and private sector companies around workforce training. In the future, a much richer variety of relationships will have to be pursued, particularly those that allow the school to increase its on-line instruction presence. If you have watched the Starbucks and Arizona State’s affiliation, this is the tip of the iceberg.
Those on the left say public is public and private is private, and the crossover stokes fears of privatization schemes. This is a little simplistic, as the sources of public resources are taxes and fees on private households and businesses while the private sector benefits from a stable public order and infrastructure, the cost of which we all share.
Long-term sustainability for a public benefit institution such as a community college will increasingly require the ability to both diversify funding and cross-subsidize between those things that can and cannot make a profit. And it will mean deeper and broader social networks and organizational affiliations.
Libraries and parks around the nation have created – to a greater or lesser level of success – affiliated or parallel institutions that are private fundraising arms, able to organize civic interest and capital to support their maintenance and renewal.
In Philadelphia we have the Free Library of Philadelphia Foundation and the Fairmount Park Conservancy, both private development and policy initiatives that work to build the sustainability of the libraries and parks. The School District of Philadelphia is rebuilding its existing foundation affiliate in order to make it easier to market and process grants to district schools. And the Community College of Philadelphia has its own private foundation charged with raising money.
But opening up public institutions that have only been managed by the public sector to private relationships and private capital investment is not without complexities, hazards and controversy.
First there is the issue of governance. Private donors are less likely to give money to institutions they see as run by politicians (and their appointees) than people familiar to their own social networks. They want to see where their private funds are going, versus the general public revenue. Moreover, fundraising is a club-sport. Donors gravitate to work with other donors.
The affiliated foundation is sometimes an answer but it is not always enough, especially if it is not able to recruit the right board and provide enough independence from the public institution. This is an area where too much public control can defeat the purpose of private support.
Secondly there are the privatization controversies. If you wade into the K-12 school controversies in Philadelphia or any other big city in America, you know that philanthropic and private investment into public schools through charters and policy efforts travels along a whirlwind of controversy. For a good number of activists on the left, public is public and private is private and the crossover stokes fears of privatization schemes and corporate oriented agendas.
This bright line is a little simplistic for my taste, as the sources of public resources are taxes and fees on private households and businesses while the private sector reaps significant advantages from a stable public order and infrastructure, the cost of which we all share.
We would all do better to recognize the profound inter-connection that exists between public and private realms and stick to the basic practical questions: what kind of access and quality do we want from a public product and how do we best get it?
Finally there is the matter of positioning the institution as a story and a set of outcomes that donors will care about. If you are an alumni, I get it. But why should others care? And if I do care, what kind of plan or future am I buying into?
Large universities appeal to the self-interest of alumni in seeing their school prosper including a competitive vision of being among the best. They sell pride, affection, nostalgia, and practical self-interest. They do this by making the connection between the social value of the university experience for you, and its learning opportunities for the next generation.
If you run a community college and want to expand your efforts to raise private money, you have to build a case: A value proposition for donors and investors. Community colleges are used to building public policy cases (lobbying) and recruiting students, but they are quite limited in their ability to move outside their natural comfort zone. Building quality and building a case go hand in hand.
As a city and a society we are going to have to figure out how to better integrate public benefit institutions like a community college with sources of private capital that are not ordinarily associated with those institutions. They need a balance sheet that will help them navigate and reinvent their future.
We are entering a different phase of social sector institution building that must by necessity cross some unfamiliar boundaries. Let’s hope that we are able to recruit the leaders, donors, and investors that help us move the dial for those most in need of high value public products. It is in the region’s best interest.
