Early 2000's Financial Troubles at Polytechnic
Looking at the graph, called A Downward Spiral, the prominent money issues of the university are clear. From June 30th, 1999 to December 31st, 2002, the endowment of the university dropped by $62 million. From FY ‘98 to FY ‘03, the budget was in a deficit in all but 1999, where there was only a surplus of $600 thousand. Enrollment between 1993 and 2002 was also on a decline, dropping steadily over the years and losing almost 600 students (Chestnut, 2002). With 81% of Polytechnic University’s budget coming from tuition, this was a recipe for disaster (Van Der Werf, 2002).
The downfall of what was then considered Polytechnic University started long before its partnership and eventual merger (for the 2nd time) with New York University (NYU). An article written by Martin Van Der Werf in the Money and Management section of The Chronicle of Education titled “From Rags to Rags” puts some perspective on the situation. Even the title in itself paints a grim picture of not only the past, but the present and the future Polytechnic was headed towards. It simply starts out stating, “When the people at Polytechnic University learned five years ago that the gritty institution, crammed into a former razorblade factory, was about to get a gift of $177 million, most thought their days of grubbing for nickels were over” (Van Der Werf, 2003). While quite a forthright sentence, there is a basis for it all.
From the outside, things looked promising. The university had 2 new buildings on its main campus in Downtown Brooklyn (at the time there were also campuses in Westchester, NY and a recently closed one on Long Island, NY), one with brand new laboratories and the college’s first dorm, as well as $100 million in the bank. Yet somehow, the financial state of the university behind the scenes was quite dire. That February of 2002, the university laid off 32 staff members and by that April, they announced a buyout plan for their senior professors. Its growing deficit led a lender to ask for immediate repayment of a $4.2 million loan, the university was in danger of not meeting the covenants of a $90 million bond issue, and its operating debt in 2003 was expected to be at an upwards of $10.3 million (Van Der Werf, 2003).
Taking a deeper dive into its money issues, some of the core problems the university was facing were due to where they got their money and how it was spent. Polytechnic received a whopping 81% of its revenue from tuition. In comparison, NYU receives a lot of its money from donors, with other illiquid assets, especially real estate the university owns, providing a safety net. That combined with the fact that application numbers were on a downward trend - 6% behind 2002 numbers - had big implications. The university was also known for offering a higher level of tuition aid as compared to its competitors (Van Der Werf, 2003). Mixing dwindling application numbers with a school that receives a majority of its money from tuition, leading to the loss of its ability to keep giving students competitive tuition aid packages was a recipe for disaster.
One of the first decisions Polytechnic University made was to start a frenzy of new building construction. While spending $126 million on new buildings and building renovations, the administration was hard at work as well, coming up with a new strategic plan, whittling down academic departments and revamping the curriculum. But at the same time, it raised questions as to whether the effect of the gift was possibly too overwhelming for the university to handle all at once. At similarly sized universities, such as DePauw University, when they received a large gift of $128 million in 1997, they invited the entire campus to submit ideas on how the money should be spent. In comparison, the Polytechnic Board of Trustees made all the decisions for the school, with heavy restrictions as to what they were allowed to spend the money on based on the wishes of the donors (Van Der Werf, 2003).
On top of all of these issues, sources of revenue that the school believed would help the situation did not materialize. Only 270 of the new 400 bed dormitory were being used despite hopes that the new dorm would attract students from outside the metropolitan area, as Polytechnic had historically been a commuter school. Among students interviewed on campus, a majority said Polytechnic wasn’t even their first choice, and that they enrolled due to generous aid packages (Van Der Werf, 2003).
At the top of the pyramid, Dr. David Chang, president of Polytechnic, was known for his temper and top-down management. In February of 2003, the board of trustees was just days away from calling on him to resign, but decided to form a committee to hear the faculty’s complaints at the last second. Needless to say, Polytechnic University was in disarray and barely hanging on financially. This all sets the stage for a rescue mission by none other than NYU, with a great divide brewing between administrators of the 2 institutions, as well as the students of the 2.