Opinion

Felix Salmon

The shame of Cooper Union

Felix Salmon
Jan 11, 2014 06:12 UTC

The Cooper Union Board of Trustees today managed to snatch defeat from the jaws of victory. It was a depressing and yet entirely predictable vote, which resulted in a depressing and yet entirely predictable statement.

You might remember the tragedy of Cooper Union — the way in which a unique and irreplaceable institution was destroyed by the inflated egos of overpaid technocrats. Well, after many months of outcry and outrage, a glimpse of hope appeared in December: a detailed and hopeful 54-page Working Group Report was submitted to the board, explaining how the institution could still, amazingly continue without charging tuition. Today, the board voted on whether to adopt the report.

As Kevin Slavin explains, the stakes could hardly be higher:

If the vote goes one way, a new, lean, careful Cooper Union will tiptoe forward, tuition-free. It will require equal parts deep sacrifice, wild ambition, and straightforward pragmatism. And it will uphold a 150+ year tradition of free undergraduate education.

If it goes the other way, all of that will disappear. Not just the free tuition, but everything that was built on it. In its place we’ll find a tragic fraud. A joke. A zombie.

There’s nothing particularly pleasant about the Working Group Report, except for the way in which it shows just how imaginative and resourceful the Cooper Union community can be. A huge amount of work went into this thing, from a group of people who had one big thing in common: they love Cooper Union, and they know that when it starts to charge tuition, it will die. The student protests which raged all summer were never about a bunch of kids wanting something for nothing. Instead, they were a desperate attempt to protect something much more important and much more ineffable — something Slavin does a great job of putting into words in his post.

For any of us who experienced the free Cooper Union, we know what made it high quality, when it was already lean and poor.

It wasn’t the compensation for the professors, who work for far less than they could make doing most anything else. It wasn’t the studio space for the artists; in 1990, my sculpture studio was half of a 6-foot desk in a hallway. It wasn’t the dorms (we never had them when I was there, and we never wanted Cooper’s money to get spent for them.) It wasn’t state of the art labs for the engineers…

And it wasn’t the idea that we, individually, didn’t have to pay. I wouldn’t have had to pay if I’d gone elsewhere (and I had that choice.) Had I gone elsewhere, I wouldn’t have had to work as hard to help support myself.

But Cooper Union chose me, and I chose Cooper Union. I didn’t go because it was free for me. I chose Cooper Union because it was free for everyone. And anyone who actually experienced that knows that the only way to jeopardize the quality of the education there is to charge for it…

For many of us, Cooper wasn’t even the cheapest way to go to school. And it certainly didn’t offer the best facilities, campus, labs, studios, athletics, or dorm life. It was always about immense sacrifices.

So the question is: why did we go? We went not because of the financial value of free — that is, zero tuition — but rather, because of the academic value of free…

At Cooper Union I was paid poorly, and I was proud of it. I would have worked all day just to be able to teach at Cooper Union at night. I would never have done that in an institution that charged their students.

Because “free” affects far more than than a fiscal bottom line. It affects the intentions, behavior, ambition, and performance of everyone in the system. In other words, it determines the academic quality.

The minute that Cooper starts charging tuition, it loses its soul. It becomes a second-choice college in the most expensive part of the most expensive city in the world, which will never regain the kind of love and loyalty among its students and teachers that produced the summer’s sit-ins and the fall’s Working Group Report.

Now on some kind of objective basis, looked at by passionless bureaucrats, it might actually be a better university. The students will have more space and light, the teachers will be better paid, the engineering labs will be more spiffily outfitted. Slavin’s post is addressed to a fellow trustee who was making exactly this argument — that adopting the plan would cause Cooper to become a “low quality institution”. But as I wrote back in April, high-quality universities are actually much more commonplace than the institution which has proudly stood in Astor Place for the past 150 years. And when Cooper Union starts charging tuition in an attempt to match its “competitors”, it will in the process lose something much more important.

After all, the quality of tertiary education has never born any relationship to its cost. Americans have never paid more to go to college, but few would argue that today’s undergrads are therefore better educated than their counterparts of yesteryear. When the Cooper trustees talk about “ensuring the quality of the academic program”, they’re talking about something which means pretty much whatever you want it to mean. And they’re also adopting the language of every other public and private university in America. Rather than proudly holding themselves out to be different, unique, special, in exactly the way that Cooper has done for well over a century.

As Slavin says, Cooper Union will always have shortcomings. But only if it’s free will those shortcomings be “a source of pride, of worthy sacrifice, a reason to fight, and strive, and someday, to give back”.

Instead, Cooper Union has dissolved into utter banality: “The board will constitute a group of trustees to work with faculty, students, administration, staff, alumni and friends,” we are told, “to clarify the mission for the 21st century and to develop a strategic plan for implementing the mission.”

Worse, for all the pro forma expressions of goodwill in the statement, the Trustees’ decision was foreordained, by dint of the bar they set:

The board has reluctantly concluded that the Working Group recommendations cannot — by themselves — be prudently adopted as a means to assure the institution’s financial sustainability into the future.

What this ignores is that exactly the same thing can be said of the alternative course of action — charging tuition. No one really has a clue what Cooper’s finances will look like once tuition starts being charged, how much they will be improved or even whether they will be improved. It seems obvious that if you charge tuition, then you’ll at least be financially better off than if you don’t charge tuition — but in the real world, especially if you have a genuinely needs-blind admissions policy, that’s not necessarily the case. Charging tuition requires a whole new cohort of highly-paid administrators, and could well end up making very little difference to the bottom line.

The result is that we have a very real chance, now, that Cooper Union will end up with the worst of both worlds. Here’s Slavin again (his post really is extremely good, you should read it):

There are deep sacrifices to be made in the Working Group’s plan. But those of us who went to a tuition-free Cooper Union know from sacrifices. And we know the difference between sacrifices made on principle, and sacrifices made on discount. We back the painful financial plan that addresses principles.

Attending a free school of sacrifices taught me something about what free meant. Building a half-price school of sacrifices is to succumb to the culture of Cubic Zirconium and Corinthian Leather.

The point here could not be clearer. The Working Group’s proposals make sense if, and only if, Cooper Union remains free. And yet no sooner does the board meet to double down on its decision to charge tuition, than it takes those proposals as ideas to be imposed even on students paying $20,000 per year:

The Working Group plan puts forward a number of recommendations that are worth pursuing under any financial model…

While we cannot now restore the full tuition scholarship, the board will commit itself to exploring Working Group recommendations.

This is not going to work. What’s more, the trustees have to know, in their heart of hearts, that it is not going to work. Something which is romantic and beautiful when it’s free becomes simply shabby if you start trying to charge tens of thousands of dollars a year for it. The current students know it, the current faculty know it, and prospective students certainly know it: already applications to Cooper have plunged. The trustees know it too; but they will ultimately always vote in accordance with the preferences of their overpaid president, and his dreams of “building a global brand”.

The stated reason why the Trustees didn’t adopt the Working Group plan is that it’s fiscally risky — but this is a group of trustees, remember, which seriously considered closing the entire school down, for a few years, as a solution to its financial problems. There are risks with any plan — but only one plan keeps Cooper free, at least for the time being: only one plan preserves the founding vision of Peter Cooper. It was incumbent on the Trustees to at least give that plan a shot. And they failed to do so. For shame.

COMMENT

unique and irreplaceable institution was destroyed”

The vast majority of people have never heard of it, so I what is unique and irreplaceable about it? Every college is “irreplaceable”? What do you even mean by that?

Is the University of Minnesota Duluth Campus “irreplaceable”? What about its Crookston campus? Morris? Tuition at the university of Minnesota has risen from $6,400 in 2013 dollars in 1962 to $56,000 today. More or less 9 times as much. Is that not notable?

Campuses around the nation have these exact same problems with keeping up with the Joneses and state of the art expensive buildings. Why should Cooper Union be different?

Posted by QCIC | Report as abusive

The non-scandal of Scott Irwin and Craig Pirrong

Felix Salmon
Dec 29, 2013 22:01 UTC

Ostensibly Respectable Academic Is In Fact A Hack: it’s a hardy perennial, and an enjoyable one at that. The best example is Inside Job, where big names like Ric Mishkin and Glenn Hubbard got their well-deserved comeuppance. And it’s a genre I’ve indulged in myself: last year, for instance, I spent 4,500 words on a paper by Bob Litan, showing how he lies with numbers to arrive at his paymasters’ predetermined conclusion.

But here’s the thing: for this kind of article to carry any weight, it has to demonstrate the mendacity or venality of the academics in question — and, ideally, those academics should have a high-profile reputation which deserves to be tarnished.

Which is why David Kocieniewski’s article about Craig Pirrong and Scott Irwin this weekend is such a disappointment. It’s currently doing very well on the NYT’s most-emailed list, but it’s easy to guess who’s doing the emailing: people who love to hate Wall Street, and who will use just about any possible excuse for doing so. Because in this case Kocieniewski has missed the mark. Neither Pirrong or Irwin is mendacious or venal, and indeed it’s the NYT which seems to be stretching the facts well past their natural breaking point.

Let’s start, for instance, with the one part of the article almost everybody will read: the big picture at the top of the article, showing the gleaming and extremely expensive University of Illinois business school. “The Chicago Mercantile Exchange has given more than $1.4 million to the University of Illinois since 2008,” says the caption, “with most of the money going to the business school.”

That number — a very big sum, which is more than enough to buy research from for-sale economists — gets repeated further down the article:

One of the most widely quoted defenders of speculation in agricultural markets, Mr. Irwin of the University of Illinois, Champaign-Urbana, consults for a business that serves hedge funds, investment banks and other commodities speculators, according to information received by The Times under the Freedom of Information Act. The business school at the University of Illinois has received more than a million dollars in donations from the Chicago Mercantile Exchange and several major commodities traders, to pay for scholarships and classes and to build a laboratory that resembles a trading floor at the commodities market.

Mr. Irwin, the University of Illinois and the Chicago exchange all say that his research is not related to the financial support.

This is carefully written to be as damning as possible. Yes, it makes perfect sense that the CME would fund a major business school right in its own backyard — and that it would fund activities related to its own business of commodities trading. But surely Kocieniewski is about to show us how the grants are linked in some way to Irwin’s research: no NYT reporter would write such a thing unless he had reason to believe that there was some kind of quid pro quo, or that the grants to the business school were written in gratitude to Irwin.

Except, if you keep on reading to the point at which you’re 2,500 words into the piece — and pretty much nobody reads that far — you’ll find this:

While the C.M.E. has given more than $1.4 million to the University of Illinois since 2008, most has gone to the business school and none to the School of Agriculture and Consumer Economics, where Mr. Irwin teaches. And when Mr. Irwin asked the exchange’s foundation for $25,000 several years ago to sponsor a website he runs to inform farmers about agricultural conditions and regulations, his request was denied.

This is real jaw-on-the-floor stuff. The NYT has published an article about how academics who write nice things about Wall Street “reap rewards”, in the words of the headline — and its main illustration is donations to a business school where the academic in question doesn’t even work! Anybody trying to hold academics to standards of intellectual honesty has to be intellectually honest themselves. And the fact is that there’s zero reason to believe that there’s any connection between the business-school donations and Irwin’s research.

Or maybe Kocieniewski thinks that consulting contract is enough to demonstrate that all money in the general vicinity of Irwin is tainted by venality. Except, if you get to the very end of the article, you’ll find out a bit more about what this consulting contract comprises:

Mr. Irwin also works for a business called Yieldcast that caters to agricultural producers, investments banks and other speculators, selling them predictions of corn and soybean yields. Mr. Irwin has said he does not consider it a conflict because he works only with the mathematical forecasting models and never consults with clients.

This is pretty blameless stuff. If you’re a professor who puts together models of commodities prices, it’s fine to consult for a company which puts together models of commodities prices. Shouldn’t we be encouraging professors to work on real-world applications of their research, rather than implying that any such work is a dastardly conflict of interest?

Once you realize how much of an axe Kocieniewski is grinding, then the rest of his article rapidly starts to crumble. For starters, as Evan Soltas says, both of these men are “super-freshwater” academic economists, working at freshwater schools. (In econojargon, “freshwater” economics happens far from the coasts, and is generally laissez-faire and pretty right-wing; “saltwater” economics takes place in coastal universities and tends to be more Keynesian, interventionist, and leftist.) Neither is inclined to write anything which deviates from freshwater orthodoxy. Kocieniewski takes issue with these professors’ defense of financial speculation — but that’s a central tenet of freshwater economics, and “orthodox economist is orthodox” is never going to be much of a story.

What’s more, there’s clear evidence that Pirrong, in particular, does not simply churn out whatever his paymasters want him to write:

Commodity trading houses are not “too big to fail”, says a report commissioned by the banking industry’s top lobby group, which had hoped it would conclude the opposite.

That report was written by Pirrong, who is on the record as saying that the report was never officially published precisely because he refused to change its conclusions. (Kocieniewski quotes from Pirrong’s post, but doesn’t link to it.)

Indeed, you don’t need to spend very much time reading Pirrong’s excellent blog before you realize that he’s one of those economists who will always speak his mind. Pirrong is not a grandee who can be counted on to deliver a certain conclusion if you pay him enough money: there are many economists out there who I consider to be in the “bought and paid for” camp, but Pirrong is absolutely not one of them.

So, what’s going on here? Three things.

First, Kocieniewski has a bee in his bonnet about the effect of commodities speculation on commodities prices. He has not only convinced himself that speculative flows caused substantial increases in commodity prices; he has also seemingly convinced himself that anybody who disagrees with that position must be lying. So he’s taken aim at Pirrong and Irwin, not because they have made a lot of money from the financial-services industry, and not because they’re particularly conflicted, but just because they hold a position Kocieniewski doesn’t like. As Peter Klein acerbically puts it, “if you oppose the Times’s editorial position on regulation (or any other issue), you are compromised by financial or other ties. If you support the Times’s position, you are a scholar or public figure of great integrity.”

Secondly, Kocieniewski has picked on these two professors in particular because they both work at public universities, which can be FOIA’ed. Kocieniewski put in freedom-of-information requests for the two professors — requests that private universities like Harvard or Yale could happily ignore — and used the results as the basis for his story. Thanks, David — you’ve just made it even more difficult for public universities to attract top economic talent.

And finally, Kocieniewski seems to have bought into a much bigger conspiracy theory which he’s looking to illustrate — a theory summed up in the NYT’s “Professors as Pitchmen” subhed. It’s a theme which runs through Kocieniewski’s piece:

Underwriting researchers and academic institutions is one part of Wall Street’s efforts to fend off regulation…

Major financial companies have also funded magazines and websites to promote academics with friendly points of view…

Financial firms have been able to use the resources and credibility of academia to shape the political debate.

The Chicago Mercantile Exchange and the University of Illinois at Champaign-Urbana, for example, at times blur the line between research and public relations.

The exchange’s public relations staff has helped Mr. Irwin shop his pro-speculation essays to newspaper op-ed pages, according to emails reviewed by The Times. His studies, writings, videotaped speeches and interviews have been displayed on the exchange’s website and its online magazine.

Kocieniewski’s most explosive allegation, here — that major financial companies have paid magazines and websites to promote certain academics — is in desperate need of backing up: he needs to name the companies and the magazines in question, and explain exactly what he’s talking about. Is he just referring to advertorial content, or sites like the Financialist which are clearly sponsored by financial institutions? Or is he saying that financial-services companies have found a way to pay for certain content to find its way into the editorial pages of certain magazines? That’s certainly what he’s implying.

Then again, when Kocieniewski starts babbling about “the line between research and public relations”, the simplest explanation starts becoming clear: that he’s just gone a little bit off the reservation. There is no “line between research and public relations”; rather, as every financial journalist knows, there is research, and then there is a small army of PR people who try to get journalists to write about that research. Those PR people might work for sell-side banks, or for the Federal Reserve system, or for private universities, or for public universities, or for non-profit think-tanks, or for-profit corporations — but in any event, their job is just to get certain pieces of research noticed. If the CME finds a piece of research that it likes, it makes perfect sense that it will feature that research on its website and tell journalists about it. No line is being crossed there.

There’s no doubt that PR people can be infuriating at times, but Kocieniewski is taking this idea one step further: he’s saying that if an academic agrees with a certain corporate point of view, and allows the company in question to promulgate that view, then the academic has thereby basically become that company’s PR person.

Once you understand that deep assumption, then the rest of the article starts to make more sense. Kocieniewski sees Pirrong and Irwin as PR people for financial speculators, and feels that no PR people should ever receive the kind of respect that these two economists get, especially in Washington. If Kocieniewski presented that view in a blog post, maybe at Daily Kos or Zero Hedge, few people would bat an eyelid. It’s a little on the overheated side, but I know a lot of people who would basically agree with it.

The problem is that Kocieniewski isn’t presenting this view as opinion: instead, he’s presenting it as a fact, unearthed by his diligent use of freedom-of-information requests. Even though those requests revealed nothing surprising whatsoever. What Kocieniewski calls Pirrong’s “financial dealings with speculators”, for instance, Pirrong himself has another term for: “litigation consulting”. It makes sense that Pirrong would frequently be used as an expert witness: he explains things clearly, he’s well respected, and he’s entirely consistent in where he comes down on certain well-known questions. The causality here is abundantly clear: Pirrong’s views caused the commodities firms to hire him as a witness, not the other way around.

In presenting Pirrong and Irwin as doing something deeply unethical, Kocieniewski is actually making sensible ethics reform much more difficult. The AEA code of ethics is an important document, which goes a long way towards addressing the conflicts in the financial-economics industry. But Irwin, for one, was clearly entirely in line with the code all along. (Pirrong, I think, should have been more forthcoming about the identity of the companies paying him substantial expert-witness fees.) If Kocieniewski can take a blameless professor and turn him into a poster child for graft, then it’s easy to see how the rest of the academy might come to the conclusion that they were better off when everything was secret.

Update: Craig Pirrong has responded to the NYT’s story with a detailed and excellent post.

COMMENT

The non-scandal of Scott Irwin and Craig Pirrong
By Felix Salmon ~ DECEMBER 29, 2013 ~ Posted by Christofurio 

Ostensibly Respectable Academic Is In Fact A Hack: it’s a hardy perennial, and an enjoyable one at that. The best example is Inside Job, where big names like Ric Mishkin and Glenn Hubbard got their well-deserved comeuppance. And it’s a genre I’ve indulged in myself: last year, for instance, Ispent 4,500 words on a paper by Bob Litan, showing how he lies with numbers to arrive at his paymasters’ predetermined conclusion. RC: Pure Krugmanite of NYT/Princeton.
But here’s the thing: for this kind of article to carry any weight, it has to demonstrate the mendacity or venality of the academics in question, ideally, those academics should have a high-profile reputation which deserves to be tarnished.
Which is why David Kocieniewski’s article about Craig Pirrong and Scott Irwin this weekend is such a disappointment. It’s currently doing very well on the NYT’s most-emailed list, but it’s easy to guess who’s doing the emailing: people who love to hate Wall Street, and who will use just about any possible excuse for doing so. Because in this case Kocieniewski has missed the mark. Neither Pirrong or Irwin is mendacious or venal, and indeed it’s the NYT which seems to be stretching the facts well past their natural breaking point. RC: Pure Krugmanite of NYT/Princeton again.
Let’s start, for instance, with the one part of the article almost everybody will read: the big picture at the top of the article, showing the gleaming and extremely expensive University of Illinois business school. “The Chicago Mercantile Exchange has given more than $1.4 million to the University of Illinois since 2008,” says the caption, “with most of the money going to the business school.” RC: MMmmm…:POTUS former law practice area. Let’s also remember CME is in 20 Wacker drive, a common habit of 20′s aged students. In fact I see the entire case one for wacker’s.
That number — a very big sum, which is more than enough to buy research from for-sale economists — gets repeated further down the article: RC: Didn’t they know they can buy Krugman cheaper as NYT prove, but he isn’t crom the mob trained city, Albany NY is more the business end of the $.
One of the most widely quoted defenders of speculation in agricultural markets, Mr. Irwin of the University of Illinois, Champaign-Urbana, consults for a business that serves hedge funds, investment banks and other commodities speculators, according to information received by The Times under the Freedom of Information Act. The business school at the University of Illinois has received more than a million dollars in donations from the Chicago Mercantile Exchange and several major commodities traders, to pay for scholarships and classes and to build a laboratory that resembles a trading floor at the commodities market. RC: MMmm…POTUS taught UC rather than UI, but taught all the same Illinois & Chicago pretty much one? UC being private research based with great accolades & Lauriat’s than the State Research UI same city anyhow, so same thinking UICU follows, rather than leads. Mr. Irwin, the University of Illinois & Chicago exchange all say his research is not related to the financial support.
This is carefully written to be as damning as possible. Yes, it makes perfect sense that the CME would fund a major business school right in its own backyard — RC: MMmm… win POTUS support too perhaps??? & that it would fund activities related to its own business of commodities trading. But surely Kocieniewski is about to show us how the grants are linked in some way to Irwin’s research: no NYT reporter would write such a thing unless he had reason to believe that there was some kind of quid pro quo, or that the grants to the business school were written in gratitude to Irwin. RC: Can’t hurt to be at 20 Wacker drive either. Chicago has plenty of them. Always has since roaring 20′s. Anyhow now with POTUS former links entrenched, and On August 18, 2008, shareholders approved a merger with the New York Mercantile Exchange (NYMEX) and COMEX. The Merc, CBOT, NYMEX and COMEX are now markets owned by the CME Group, back in Krugman vested NYT’s area. That’s where NYT reporter might find a reasonable fear of being undermined by invading CME dudes into NYMEX. Or perhaps its just that Monsanto have vested interests in the subject research and a long hekld strong attachment to Illinois Viz., see Wikipedia “In1926 the company founded and incorporated a town called Monsanto in Illinois (now known as Sauget). It was formed to provide a liberal regulatory environment and low taxes for the Monsanto chemical plants at a time when local jurisdictions had most of the responsibility for environmental rules. It was renamed in honor of Leo Sauget, its first village president”.
Except, if you keep on reading to the point at which you’re 2,500 words into the piece — and pretty much nobody reads that far — you’ll find this:
While the C.M.E. has given more than $1.4 million to the University of Illinois since 2008, most has gone to the business school and none to the School of Agriculture and Consumer Economics, where Mr. Irwin teaches. And when Mr. Irwin asked the exchange’s foundation for $25,000 several years ago to sponsor a website he runs to inform farmers about agricultural conditions and regulations, his request was denied.
RC: Now lets see vested research & Monsanto interests perhaps CME’s main Ag-field :~ “Commodity futures and options ~ Agricultural Commodity Contracts include: Live Cattle, Lean Hogs,Feeder Cattle, Class IV Milk, Class III Milk, Frozen Pork Bellies, International Skimmed Milk Powder (ISM), Nonfat Dry Milk, Deliverable Nonfat Dry Milk, Dry Whey, Cash-Settled Butter, Butter, Random Length Lumber, Softwood Pulp, Hardwood Pulp.

This is real jaw-on-the-floor stuff. The NYT has published an article about how academics who write nice things about Wall Street “reap rewards”, in the words of the headline — and its main illustration is donations to a business school where the academic in question doesn’t even work! Anybody trying to hold academics to standards of intellectual honesty has to be intellectually honest themselves. And the fact is that there’s zero reason to believe that there’s any connection between the business-school donations and Irwin’s research.
Or maybe Kocieniewski thinks that consulting contract is enough to demonstrate that all money in the general vicinity of Irwin is tainted by venality. Except, if you get to the very end of the article, you’ll find out a bit more about what this consulting contract comprises:
Mr. Irwin also works for a business called Yieldcast that caters to agricultural producers, investments banks and other speculators, selling them predictions of corn and soybean yields. RC: Oh! Goody Monsanto prime subject at this time “Corn & Soybean GMO Yield accelerators” Mr. Irwin has said he does not consider it a conflict because he works only with the mathematical forecasting models and never consults with clients.
This is pretty blameless stuff. If you’re a professor who puts together models of commodities prices, it’s fine to consult for a company which puts together models of commodities prices. Shouldn’t we be encouraging professors to work on real-world applications of their research, rather than implying that any such work is a dastardly conflict of interest? RC: Never fear Monsanto will practice those risks, and CME/NYMEX/NYT can also look & smell like roses.
Once you realize how much of an axe Kocieniewski is grinding, then the rest of his article rapidly starts to crumble. For starters, as Evan Soltas says, both of these men are “super-freshwater” academic economists, working at freshwater schools. (In econojargon, “freshwater” economics happens far from the coasts, and is generally laissez-faire and pretty right-wing; “saltwater” economics takes place in coastal universities and tends to be more Keynesian, interventionist, and leftist.) Neither is inclined to write anything which deviates from freshwater orthodoxy. Kocieniewski takes issue with these professors’ defense of financial speculation — but that’s a central tenet of freshwater economics, and “orthodox economist is orthodox” is never going to be much of a story.
What’s more, there’s clear evidence that Pirrong, in particular, does not simply churn out whatever his paymasters want him to write:
Commodity trading houses are not “too big to fail”, says a report commissioned by the banking industry’s top lobby group, which had hoped it would conclude the opposite.
That report was written by Pirrong, who is on the record as saying that the report was never officially published precisely because he refused to change its conclusions. (Kocieniewski quotes from Pirrong’s post, but doesn’t link to it.)
Indeed, you don’t need to spend very much time reading Pirrong’s excellent blog before you realize that he’s one of those economists who will always speak his mind. Pirrong is not a grandee who can be counted on to deliver a certain conclusion if you pay him enough money: there aremany economists out there who I consider to be in the “bought and paid for” camp, but Pirrong is absolutely not one of them.
So, what’s going on here? Three things.
First, Kocieniewski has a bee in his bonnet about the effect of commodities speculation on commodities prices. He has not only convinced himself that speculative flows caused substantial increases in commodity prices; he has also seemingly convinced himself that anybody who disagrees with that position must be lying. So he’s taken aim at Pirrong and Irwin, not because they have made a lot of money from the financial-services industry, and not because they’re particularly conflicted, but just because they hold a position Kocieniewski doesn’t like. As Peter Klein acerbically puts it, “if you oppose the Times’s editorial position on regulation (or any other issue), you are compromised by financial or other ties. If you support the Times’s position, you are a scholar or public figure of great integrity.”
Secondly, Kocieniewski has picked on these two professors in particular because they both work at public universities, which can be FOIA’ed. Kocieniewski put in freedom-of-information requests for the two professors — requests that private universities like Harvard or Yale could happily ignore — and used the results as the basis for his story. Thanks, David — you’ve just made it even more difficult for public universities to attract top economic talent.
And finally, Kocieniewski seems to have bought into a much bigger conspiracy theory which he’s looking to illustrate — a theory summed up in the NYT’s “Professors as Pitchmen” subhed. It’s a theme which runs through Kocieniewski’s piece:
Underwriting researchers and academic institutions is one part of Wall Street’s efforts to fend off regulation…
Major financial companies have also funded magazines and websites to promote academics with friendly points of view…
Financial firms have been able to use the resources and credibility of academia to shape the political debate.
The Chicago Mercantile Exchange and the University of Illinois at Champaign-Urbana, for example, at times blur the line between research and public relations.
The exchange’s public relations staff has helped Mr. Irwin shop his pro-speculation essays to newspaper op-ed pages, according to emails reviewed by The Times. His studies, writings, videotaped speeches and interviews have been displayed on the exchange’s website and its online magazine.
Kocieniewski’s most explosive allegation, here — that major financial companies have paid magazines and websites to promote certain academics — is in desperate need of backing up: he needs to name the companies and the magazines in question, and explain exactly what he’s talking about. Is he just referring to advertorial content, or sites like the Financialist which are clearly sponsored by financial institutions? Or is he saying that financial-services companies have found a way to pay for certain content to find its way into the editorial pages of certain magazines? That’s certainly what he’s implying. RC: I think if you read my yellow research comments you may agree with this conspiracy theory viz., POTUS Chicago U ties, CME now NYMEX tec. NYT always open to Krugmanlike flexible $$$ Professors, CME Group Ltd., commodity futures & Option trading in ag., Monsanto 1926 links, their main emphasis today both players “Corn & Soybean GMO’s”~ Is this a starting place?
Then again, when Kocieniewski starts babbling about “the line between research and public relations”, the simplest explanation starts becoming clear: that he’s just gone a little bit off the reservation. There is no “line between research and public relations”; rather, as every financial journalist knows, there is research, and then there is a small army of PR people who try to get journalists to write about that research. Those PR people might work for sell-side banks, or for the Federal Reserve system, or for private universities, or for public universities, or for non-profit think-tanks, or for-profit corporations — but in any event, their job is just to get certain pieces of research noticed. If the CME finds a piece of research that it likes, it makes perfect sense that it will feature that research on its website and tell journalists about it. No line is being crossed there. RC: Yep Monsanto lackies do that well.
There’s no doubt that PR people can be infuriating at times, but Kocieniewski is taking this idea one step further: he’s saying that if an academic agrees with a certain corporate point of view, and allows the company in question to promulgate that view, then the academic has thereby basically become that company’s PR person. RC: Probably as “Money speaks louder than words” always.
Once you understand that deep assumption, then the rest of the article starts to make more sense. Kocieniewski sees Pirrong and Irwin as PR people for financial speculators, and feels that no PR people should ever receive the kind of respect that these two economists get, especially in Washington. If Kocieniewski presented that view in a blog post, maybe at Daily Kos or Zero Hedge, few people would bat an eyelid. It’s a little on the overheated side, but I know a lot of people who would basically agree with it.
The problem is that Kocieniewski isn’t presenting this view as opinion: instead, he’s presenting it as a fact, unearthed by his diligent use of freedom-of-information requests. Even though those requests revealed nothing surprising whatsoever. What Kocieniewski calls Pirrong’s “financial dealings with speculators”, for instance, Pirrong himself has another term for: “litigation consulting”. It makes sense that Pirrong would frequently be used as an expert witness: he explains things clearly, he’s well respected, and he’s entirely consistent in where he comes down on certain well-known questions. The causality here is abundantly clear: Pirrong’s views caused the commodities firms to hire him as a witness, not the other way around.
In presenting Pirrong and Irwin as doing something deeply unethical, Kocieniewski is actually making sensible ethics reform much more difficult. The AEA code of ethics is an important document, which goes a long way towards addressing the conflicts in the financial-economics industry. But Irwin, for one, was clearly entirely in line with the code all along. (Pirrong, I think, should have been more forthcoming about the identity of the companies paying him substantial expert-witness fees.) If Kocieniewski can take a blameless professor and turn him into a poster child for graft, then it’s easy to see how the rest of the academy might come to the conclusion that they were better off when everything was secret.

Posted by Robcarter | Report as abusive

Universities shouldn’t be tax exempt

Felix Salmon
Jul 8, 2013 23:47 UTC

I have a piece up at Architect Magazine on Cooper Union, and the real (if slim) possibility that it will lose the tax break from which most of its current income flows. Cooper Union will get $18 million this year in “tax equivalency payments” stemming from its ownership of the land under the Chrysler Building — money which would normally flow to New York City in the form of property taxes, but instead gets diverted to Cooper Union for its own uses. Do the math, and that works out to about $18,200 per enrolled student — a much greater subsidy than New York City provides to any of the students being educated at its own colleges.

Doug Turetsky, of New York City’s State’s Independent Budget Office, says that if Cooper is going to start charging tuition, then “the public purpose of the unusual tax breaks now mostly a thing of the past,” and New York should start collecting property tax on the Chrysler Building rather than letting Cooper Union use all that money for itself. So far, there’s no indication that the attorney general agrees with him; as I say in my piece, the time for the AG to crack down on Cooper was in 2006, rather than now, when the removal of the tax break would mean certain death for the college.

Still, in an ideal world, Cooper Union wouldn’t get this tax break — and neither would NYU be exempt from paying property tax on its buildings, and neither would Harvard be able to invest its endowment tax-free. The tax exemptions that universities receive cause them to behave in a manner which would otherwise be quite irrational: NYU’s expansionism, for instance, is driven in part by the fact that it can extract more economic value out of property than other actors, thanks to all property it buys automatically becoming tax-exempt. And if you look at Harvard’s balance sheet, it has for decades now been a hedge fund with an educational institution attached, the educational institution more than paying for itself in the tax exemption it confers upon the entire endowment.

The dollar value of universities’ tax exemptions is enormous — and it almost goes without saying that if we simply abolished those exemptions, and used the proceeds to spend on higher education, we would get vastly more bang for our buck. The overwhelming majority of the tax expenditures go to the richest universities — the ones who need the money the least. Meanwhile, great institutions like the University of California are slowly starved to death: direct fiscal expenditures, it seems, are much, much easier to cut than more-hidden tax expenditures.

If state and federal governments are going to spend billions of dollars subsidizing tertiary education — and they should — then they should spend those billions wisely, with a focus on education. Instead, they spend those billions through the tax code, with no kind of oversight at all, pushing their thumb on the scales so as to encourage, at the margin, the purchase of buildings and the building-up of large endowments.

A revenue-neutral abolition of universities’ tax exemptions would be a massive gain for pretty much everybody, even if it did have the effect of slightly reducing alumni giving. In fact, it would be a very interesting real-world experiment: if alumni giving didn’t drop very much, that would be a good reason to extend the abolition to the entire charitable-giving nexus more broadly.

I don’t think that Cooper should, or will, lose the tax equivalency payments it receives from the Chrysler Building — they’re no more odious than all the other tax exemptions received by universities across the nation. But if all colleges lost all their exemptions, and got their federal subsidy directly instead of indirectly — now that I would applaud.

COMMENT

Cynic seems to think that the government will need to subsidize the University to make up for the lost benefit of taking away their tax exemption.

If the federal tax exemption is worth $32.8 million to Northeastern, that means that it made nearly $100 million in profit. That’s $5,000 per enrollee at the university.

So explain to me, with that level of profit, why does it to be subsidized?

Posted by johnglover | Report as abusive

Cooper Union’s shameless trustees

Felix Salmon
May 20, 2013 03:23 UTC

It’s tragic that Cooper Union has decided to start charging tuition. The fateful announcement was made by Mark Epstein, the self-aggrandizing chairman of the board of trustees, and was greeted with dismay by thousands of Cooper students, faculty, alumni, and friends.

It’s the trustees who are in charge of the school, and the trustees who most need to be held accountable for what happened. To date, Jamshed Bharucha, the president of Cooper Union, has shouldered most of the blame — and he does deserve a good chunk of it. The decision would not have been taken without his pushing for it, and while he has the full support of the board, which is paying him $650,000 per year, he has signally failed to garner the support of the broader Cooper community. (It will take the tuition payments from 67 average students just to cover Bharucha’s salary; to put that in context, a full freshman class comprises about 20-35 architecture students, 65 in art, and 115 in engineering.)

That said, Bharucha’s situation is a bit like that of Greece’s George Papandreou: he’s a leader who inherited a crisis which was much deeper and more serious than he had any reason to believe. Cooper’s parlous state was bequeathed to him by the previous president, George Campbell, but also by the a board of trustees which signed off on a series of dreadful decisions, most catastrophically the decision to borrow $175 million to build a shiny new building, while having no ability whatsoever to pay that money back.

In order to recover from such atrocious decision-making, the first thing you have to do is to draw a clear line under the past, being very explicit about what went wrong and where. If you can’t admit your own past mistakes, then you’ll be doomed to continue to make those mistakes in the future.

Which is where Mark Epstein comes in. Epstein, unlike Bharucha, was intimately involved in most of Cooper Union’s worst decisions. He should therefore be disqualified from making even more bad decisions, at least unless and until he can demonstrate that he understands what the board did wrong and how they managed to bring Cooper Union to its fiscal knees. This is one reason the tuition announcement was received so badly: the Cooper community quite understandably has no reason to trust that Epstein’s board will do the right thing. Quite the opposite.

There has been no hint of any apology or remorse from Epstein when it comes to the board’s past mistakes; indeed, he hasn’t even come out and admitted that the board made any mistakes at all. When I appeared on Democracy Now with him Thursday morning, he aggressively defended everything the board did in the past, including the decision to build the ridiculously expensive New Academic Building.

Epstein set the tone for the conversation from the very start:

Let me first categorically state that had we had enough money and were able to generate enough revenue to cover our expenses and keep the school with 100 percent scholarship policy, that was our intention. But we can’t. We don’t have the ability to raise enough revenue.

A big part of that problem—and I’ve made this public before—is that we don’t have enough alumni support. Traditionally, only 20 percent of our alumni, who have gotten 100 percent scholarships, give back to the school on a regular basis. You know, contrast that with Princeton. Princeton charges now $40,000-some-odd a year for scholarships, and they’re one of the best schools at alumni participation. They get a participation rate of approximately 65 percent.

I’ve pretty much responded to the first part of this already, so suffice to say: if you’re running a free school, you don’t start with your expenses and then try to work out how you’re going to “raise enough revenue”. Instead, you start with your revenues, and then work out how many students you can educate with that sum of money.

As for the idea that the alumni are to blame, and that Cooper should be more like Princeton — well, that is so misguided, on so many levels, that no one capable of making that statement should ever be the person who makes the decision to start charging tuition. Princeton is very good at being Princeton, but Peter Cooper was never trying to create a center of research excellence, where Nobel laureates regularly rub shoulders and where undergraduates can study any subject under the sun.

Cooper prides itself on being one of the most selective colleges in America, and picking students solely on merit. Princeton is also highly selective, but can’t claim that its admissions process is entirely merit-based: some 40% of legacies applying to Princeton end up being admitted, compared to just 9% of non-legacies. Alumni donate to Princeton in large part because they rationally believe that doing so will help their kids get in there; Cooper’s alumni, in contrast, would be horrified were Cooper to start admitting applicants on the basis of who their parents are. Besides, most kids don’t even want to attend Cooper, given that the only choices it offers are art, architecture, and engineering.

Epstein basically wants Cooper’s students to pay for their education after they’ve graduated — but if you wanted to create the kind of school where students effectively paid their tuition ex post rather than ex ante, you wouldn’t create Cooper Union. Art students don’t tend to go on to particularly lucrative careers, and neither do architects, who generally have an astonishingly low incomes given the amount of skill and education required to do their jobs. Even the engineering school only rarely generates highly-paid graduates, and then often only when they leave engineering to pursue a career on Wall Street.

Within days of Epstein’s announcement that Cooper would be forced to charge tuition for the lack of alumni donations, Ronald Perelman announced that he was giving $100 million — to Columbia Business School, a place which really doesn’t need the money. Perelman will get his name on a building, of course: The Ronald O. Perelman Center for Business Innovation will sit across from the Henry R. Kravis Building, which was itself the result of another $100 million donation. But that kind of thing has never been what Cooper Union is about, and it’s profoundly depressing that Epstein seemingly aspires to it.

On Democracy Now, Epstein talked about how Cooper had “raised $60 million in specific naming opportunities for the new building as part of the capital campaign”; as far as I know he has never admitted that the campaign was anything other than a glowing success story: “a triumph of grit, determination and the gradual evolvement of dedicated volunteer leaders: the board, alumni and friends”.

In 2007, Cooper Union’s five-year strategic plan talked about alumni giving as a key area of success, and added:

Current financial projections indicate that in fiscal year 2008, the college is likely to achieve positive cash flow for the first time in about a quarter century, and longer term projections indicate that the overall annual cash deficit problem will then be left behind for the foreseeable future.

As late as June 2009 — with the worst of the financial crisis behind it — Cooper’s board was still getting the message out that the college had “sidestepped the crisis” and was “basking” in good fortune. No hint there of desperate financial straits, or any need for massive and urgent alumni donations, without which the board might be forced to break the century-old tradition of free tuition.

So you’ll excuse me if I raise an eyebrow when Epstein points the finger at tight-fisted alumni, rather than accepting any blame at the board level. Cooper has never had much in the way of alumni donations, and in fact alumni donations have been much higher in the past 15 years or so than they ever were before. So where did this sudden desperate need for extra alumni donations come from — and who on the board decided that it made sense to embark on a plan which required unprecedented levels of alumni giving? Cooper’s alumni have a lot of love for the institution. But there aren’t very many of them — it’s a small school — and they don’t tend to become massively wealthy.

According to Epstein’s version of events, Cooper is a victim of circumstances largely outside its control: “the costs of education have gone up,” and Cooper Union’s revenues haven’t managed to keep pace. And it’s certainly true that Cooper’s costs have gone up. Never mind the enormous presidential salaries, just look at the interest payments on the loan which Cooper took out to construct its New Academic Building.

Stay with me here: according to Epstein, the poorest 25% to 30% of students will still get a full scholarship, and the richest 25% to 30% of students will be expected to pay the maximum amount of $19,250; the rest will be assessed on a sliding scale between the two endpoints. To a first approximation, then, we can anticipate that total tuition payments will average out to roughly $9,625 per student. The interest payments on the $175 million loan from MetLife come to $10.3 million per year, which means that Cooper will need the income from roughly 1,070 students just to pay the interest on the loan. (Never mind the extra $5.5 million per year in principal repayments which start in 2019.) Coincidentally, 1,070 is pretty much the size of Cooper’s entire student body.

The conclusion is hard to resist: Cooper Union’s tuition payments are required to pay off the interest on its $175 million loan, and if it hadn’t taken out the loan, then charging tuition might not have been necessary.

So, is that $10.3 million per year — all of which goes directly into the maw of a giant insurance company — a legitimate “cost of education” at Cooper Union? Yes, in that Cooper can’t educate its students unless it makes those payments. But we’re not talking, here, about some generalized and inchoate force which is driving tuition payments up across the board; we’re talking about a very specific decision, made by Cooper’s trustees, which had dreadful consequences.

Of course, Epstein doesn’t see it that way. Here’s what he said on Thursday:

The building helped us financially; it did not hurt us. We had two buildings that were in need of tens of millions of dollars in upgrading to make them building and fire code compliant, to make them ADA compliant. The accrediting boards that determine whether or not we can offer degrees questioned the validity and the viability of our facilities, because they were falling behind par.

The new building was paid for by selling the ground lease under our old engineering building, which we got $97 million for, right before the crash. And we raised $60 million in specific naming opportunities for the new building as part of the capital campaign. The new building going up on our old engineering building site, being built by Minskoff, will generate $2 million a year at least, ongoing, to the school. The building was paid for by those funds, not the loan.

The loan proceeds were eaten up by the deficit.

Let’s be very clear about what Epstein is saying, here. Cooper borrowed $175 million, in the form of a 30-year fixed-rate mortgage. It then built a new building at a cost of slightly less than $175 million. But don’t for a minute conclude that the loan was used to pay for the building! Not at all! The loan was simply “eaten up by the deficit”.

Here’s my challenge to Epstein, and to Cooper Union: find me one person — just one — who (a) believes this version of events, and (b) isn’t a member of Cooper’s Board of Trustees, either now or when the decisions were made. In fact, I would be astonished if even a majority of the current board would agree that the new building was helpful rather than harmful, financially. You just need to look at it to see how much of a white elephant it is; you don’t need to know that the engineering faculty — which mainly uses the new building — voted against it twice, and that the myth about the new building being required in order for Cooper to keep its accreditation is, well, let’s just say that none of the faculty believes it.

The reality is that you don’t need to know anything about the building at all in order to understand that you can’t take Epstein at face value here. All you need to know you can be found in one sentence from the official Cooper Union FAQ:

The MetLife pre-payment penalty for the 30-year loan is approximately $81 million (as of August 2012).

You read that right: even if some gazillionaire (or capital campaign) dropped $175 million into Cooper’s lap tomorrow, they still couldn’t pay off their $175 million loan: it also has a whopping $81 million prepayment penalty.

The trustees’ story is basically that they expected to be able to pay for the new building through their capital campaign: one of them told James Stewart that the college expected to raise $125 million more than it actually did. And Epstein told me, when I asked what the $175 million was for, that “part of it was used as a bridge loan, while the building was being built, because the moneys from the capital campaign takes years to come in”.

But here’s the question: if the MetLife loan was meant to just be a bridge to future alumni donations, then why was it structured as a 30-year fixed-rate loan with a prepayment penalty of as much as $81 million? The capital campaign ended in 2012, not in 2036.

All of which is a very long-winded way of saying that Cooper’s trustees, who couldn’t be trusted a year ago, still can’t be trusted today — and that so long as Mark Epstein is chairman of the board, the broader Cooper community simply will not rally behind him and give his decision to charge tuition any kind of broad-based legitimacy.

On Friday, Kevin Slavin — one of the most outspoken opponents of charging tuition at Cooper — was elected to the position of alumni trustee for the period from December 2013 to September 2017. Slavin didn’t even run: he was a write-in, a protest at the way in which Cooper’s trustees seem to be unaccountable to anybody. The vote wasn’t for Slavin, so much as it was against Bharucha, and Epstein, and everybody else on the board who has consistently downplayed their own culpability in the Cooper fiasco.

Charging tuition doesn’t solve Cooper’s financial problems — far from it. In order for Cooper to get onto a sustainable footing, it’s going to need to regain the admiration of multiple constituencies, including current students, alumni, current faculty, and prospective students. It’s pretty clear that the board isn’t going to get that support by blustering and stonewalling and pretending that they didn’t do anything wrong. So maybe, if and when Bharucha manages to find a new communications chief, that person could start by persuading the board to give a full explanation of — and take full responsibility for — everything which went wrong.

COMMENT

My family has supported CU since graduation of 1975 well above the suggested $1000/yr as have many others. Unfortunately, those of us who are grateful and appreciative to be chosen to attend an elite insitution for free are a minority. We have worked hard over the years to educate the alumni about the importance of giving without success. This financial crises was self evident many years ago, with different boards and different presidents. Those of us who truly love CU feel little sympathy for the demonstrators. Before any grant proposals can be seriously considered, the participation rate of alumni giving must go up to prove the sincere efforts of those affected by any changes to CU present and future.

Posted by EE75 | Report as abusive

Are Cooper Union’s finances fixable?

Felix Salmon
May 11, 2013 21:21 UTC

James Stewart has an important column on Cooper Union today: if you read it carefully, it hints at how much further Cooper might yet fall from its founding mission of providing free education. Cooper’s trustees are press-shy these days, but Stewart snagged an on-the-record interview with one of the most important ones: John Michaelson, the chair of the investment committee.

Stewart chides Michaelson for his reliance on hedge funds, which have not served the Cooper endowment well. In the 2012 fiscal year, for instance, Cooper’s returns on its managed endowment were negative: they were down 5%, in a period where a standard mix of 60% stocks and 40% bonds would have returned a positive 8%. And with more than $100 million in hedge fund investments in 2008, Cooper was paying more than $2 million a year in hedge fund management fees alone, never mind performance fees. That’s the kind of money the college desperately needs for operational expenses.

Still, overall, Stewart is far too gentle on Michaelson, who was pictured grinning next to former president George Campbell in a highly-mendacious 2009 WSJ article extolling the performance of the Cooper endowment. Here’s how Stewart characterizes the endowment’s performance:

Compared with many universities, Cooper Union did a good job managing its endowment through the recent financial crisis. As recently as 2009, the school maintains, it ranked first among all American universities for endowment performance.

In reality, as Stewart never really explains, that “endowment performance” was entirely fictional — it was magicked out of thin air when Michaelson revalued the land under the Chrysler building upwards in order to mask a torrid performance from the rest of the endowment.

On top of that, Cooper levered up its endowment at exactly the wrong time, borrowing $34 million at an interest rate of 5.875% and investing it in the endowment, where it promptly evaporated during the financial crisis. Michaelson tries to explain this away by saying that the borrowed money was kept in cash, while it was the rest of the endowment which lost money. But if you look at the endowment that way, then, as Stewart points out, hedge funds accounted for more than 60% of the funds Michaelson was managing. That’s an insane ratio, especially given that Michaelson was quoted in the WSJ as being “especially critical” of the Yale Model of investing in illiquid alternative asset classes.

Stewart also goes easy on the trustees — Michaelson foremost among them — for making their single biggest mistake: borrowing $166 million to build the grandiose New Academic Building. “Hardly anyone disputes Cooper Union’s need for new engineering facilities,” he writes — and he’s hilariously, egregiously wrong about that. Virtually everyone outside the Board of Trustees disputed Cooper’s need for new engineering facilities — even a large chunk of the engineering faculty, which had the most to gain from the new building. The “need”, it’s now abundantly clear, was not a real need at all; instead, it was a device, an excuse to make the decision to construct the new building seem reasonable, even necessary.

Stewart essentially says that Cooper did need to build something new, it just didn’t need to build something quite as grand and expensive as it ended up with. But he’s deeply and importantly wrong about that. Here’s the thing about mortgages: they’re not just free money, they’re something you need to pay off, over time. And in order to do that, you need income. When Cooper Union’s trustees, including Michaelson, took out a $175 million 30-year fixed-rate mortgage at 5.875%, they knew exactly how much money Cooper would need to repay that mortgage every year.

And they had no idea where that money was going to come from.

This — much more than any endowment mismanagement — was the colossal, fatal error made by Cooper’s trustees. There are generally two ways of paying down a mortgage: either you go to work and earn money you then use to pay the mortgage, or else you rent out the building itself and use the income it generates to cover the mortgage payments. Neither route was available to Cooper: all of its income, and then some, was needed to run the school, which meant that there was nothing left over to pay the mortgage. And with the exception of a tiny coffee shop on the ground floor, Cooper isn’t renting out any of the new building.

At the end of Stewart’s piece, Michaelson makes a very important admission:

Mr. Michaelson conceded that the school could have continued to invade the endowment to cover deficits and would have survived until 2018, when the higher payments from the Chrysler lease kick in. “But what kind of school would you have had by then?”

The answer, of course, is a free one; if this really was an option, then the trustees owe the Cooper community a serious, detailed explanation of how and why they ended up making the decision to charge.

But the real answer is that while the higher payments from the Chrysler lease would be enough to cover the operating costs of a small, excellent college, they would not be enough to cover Cooper’s operating costs and the mortgage payments on the new building. Michaelson is making it sound, here, as though he decided to charge tuition for the sake of the school. In fact, he decided to charge tuition because that’s the only way that the school can pay off the monster loan he took out with no conception of how he could ever pay it off.

What’s Michaelson’s explanation of where he thought the money for the mortgage payments was going to come from? He doesn’t seem to have one, but the closest thing that Stewart finds is a deluded “if you build it, they will come” mindset:

Trustees told me that the college’s development consultants told them that a signature building with a marquee architect — in this case, Thom Mayne of Morphosis Architects — would attract a large donor eager to have his or her name on a trophy building.

But no such donor materialized, and experts I consulted said Cooper Union had it backward — the first step is to attract the donor, who then is involved in choosing the architect and designing the building. “I’ve never heard of a case where you build the building first and hope a donor comes along,” said Kenneth E. Redd, director of research and policy analysis for the National Association of College and University Business Officers.

Passing the buck like this to anonymous “development consultants” is just despicable. It was the board which borrowed $175 million without being able to pay it back, not the development consultants. And what’s more, it was the board which locked in a fixed 5.875% interest rate for the next 30 years, which isn’t the kind of thing you do if you’re basically just borrowing money on a short-term basis before a deep-pocketed donor comes along to pay off the mortgage in full.

And in any case, according to what we now know, once the building had been constructed and no beneficient billionaire had materialized to pay for it, Cooper was financially doomed: it had no ability to pay off the monster mortgage. If that was the case, then why on earth was Michaelson telling the WSJ — after the New Academic Building was finished — that Cooper’s financial condition was positively rosy?

All of this, however, is stuff we already knew, pretty much. The scariest part of Stewart’s article comes with another quote from Michaelson, where he grumbles about the fact that most of Cooper’s income comes from the Chrysler Building. (The land under the Chrysler Building was bequeathed to the college by Peter Cooper.)

Stewart quotes Michaelson as saying that having 84% of the endowment in a single asset “is against everything I stand for”. He then does a lot of back-of-the-envelope calculations designed to show that maybe Cooper should sell the land under the Chrysler Building, and intimates that the main reason Cooper hasn’t done so is the board’s “nostalgic attachment” to the asset.

On its face, this is completely crazy. The land under the Chrysler Building is worth substantially more to Cooper Union than it is to anybody else, because under a deal that Cooper Union struck with New York City, the college receives more than $18 million per year in something called payments in lieu of taxes, or PILOTs. That’s the amount of money that the building would normally generate in property-tax payments for the city; instead, those payments end up going straight to Cooper Union, and New York City gets no property tax revenues at all from the iconic skyscraper.

If Cooper sold the land under the Chrysler Building, all those property tax payments would revert to New York City, rather than the new owner, and a substantial revenue stream would be effectively destroyed, rather than sold. I don’t know what the net present value is of the Chrysler Building’s PILOTs, but it’s got to be somewhere in the region of half a billion dollars, if not more. It makes no sense whatsoever to give that up for nothing.

So why is Stewart taking this cockamamie talk seriously, and why is Michaelson talking with a straight face about selling the land under the Chrysler Building? The answer, I fear, is that Cooper Union, in deciding to charge tuition, has given New York City more than enough ammunition to tear up the deal whereby Cooper gets the Chrysler Building’s PILOTs.

Cooper Union says that the current occupation of the president’s office “has created a poisonous and dangerous atmosphere that can potentially destroy the school forever”. No one in the administration is going to come out and say explicitly what that means, so let me translate it into English for you: they’re saying that the more noise Cooper’s students make in protest at the tuition decision, the more likely it is that New York City is going to decide that it wants its property-tax revenues back, and that Cooper Union, without free tuition, is not a worthy enough cause to justify an effective $18 million per year public subsidy.

If Cooper loses its PILOT payments, then that really would be financially devastating for the college, and it would at that point be effectively forced to liquidate the Chrysler asset, whether it wanted to or not. It seems to me that Michaelson is using Stewart to help lay the groundwork for such an eventuality, and is trying to make the case that selling the Chrysler Building land is not such a dreadful thing to do after all.

I don’t buy it. But looking at what Michaelson says in Stewart’s piece, I can’t help but wonder whether maybe there is a solution here after all. The problem, remember, is that Cooper can’t sell the Chrysler Building land because if it were to do so, the new buyer wouldn’t receive those massive PILOT payments. But what if the purchaser of the land were another important civic institution? Could Cooper Union, working with the Bloomberg administration, work out a deal whereby the Chrysler Building land — with its PILOTs intact — could get sold to Trinity Church, or one of New York’s big non-profit hospitals, or even possibly the Bloomberg Foundation? New York has no shortage of massively-endowed foundations and non-profit organizations which have the wherewithal to buy such an asset; many of them might be interested in it.

It’s not clear why New York City would have any particular desire to go along with such a deal, unless they could by doing so claim to have managed to preserve Cooper Union as a tuition-free college embodying Peter Cooper’s founding principles. In other words, Cooper’s board of trustees would have to go back on their decision to start charging tuition. But the proceeds from selling the Chrysler Building land would be more than enough to pay off the mortgage on the New Academic Building; and at that point, the trustees would just have to work out how many students they could afford to teach on the income from the money left over. Cooper Union would continue to exist, it would continue to be free, and Mike Bloomberg would end up capping his tenure as mayor by saving a noble institution from the brink of disaster. I think Jamshed Bharucha should put in a call, even if he has to do so from his home phone.

COMMENT

Enlightening. Great and necessary clarification. To bad it’s needed. Thank you, thank you.

ML, CU A’76

Posted by unreceivedogma | Report as abusive

The tragedy of Cooper Union

Felix Salmon
Apr 29, 2013 18:29 UTC

This time last year, I wrote about the pressure that public companies face to grow at all costs, and how destructive that pressure can be. Growth is, weirdly, inimical to longevity: if you want something to last for a very, very long time, then what you really want to create is something large — but not huge — and which doesn’t need to grow at all. The world’s oldest companies are nearly all family-owned affairs; they’re big enough to keep those families well-off, and they tend to produce goods or services for which there is a steady demand across the centuries. (Hotels, for instance, or wine.)

Peter Cooper understood this well. A wealthy man, he owned a lot of land in Manhattan — including the land underneath what is now the Chrysler Building — and he knew that land would, literally, produce healthy rents in perpetuity. A philanthropist, Cooper knew exactly what he wanted those rents to be spent on: he created the Cooper Union, a college with the defining characteristic that it would charge its students nothing. It was — and is — a noble cause. And in the early days, its trustees quite literally bought into that cause: they helped out with its endowment, and covered its deficits in years where it lost money.

Cooper understood that free education doesn’t really scale. If you’re charging, then extra students provide extra income which can pay for extra teachers and administrators and buildings. But if you’re giving education away for free, then it’s imperative that you operate strictly within your means. The only way to grow is if you persuade some new generations of wealthy benefactors to contribute their own money or land. But at Cooper Union, that hasn’t happened for many decades.

As a result, Cooper Union has always been an extremely special educational institution, the kind of place where a little went a very long way. The faculty was not well paid; the facilities were bare-bones. But the students were fantastic, because Cooper could pick the very best of the very best. And the college’s overriding social mission engendered a huge amount of loyalty and love for the institution, as well as being reflected deep in its curricula. Here’s Sangamithra Iyer, for instance:

When I graduated from Cooper, in 1999, I received a scholarship for a master’s program in geotechnical engineering at UC Berkeley. That summer, a major earthquake devastated Turkey. The first day of classes, the first thing one professor said was that Turkey smelled “like 40,000 dead people” and that “engineers who know that smell do their work a lot differently than those who don’t.” It was this sense of social responsibility that led me to pursue engineering, but also to leave it from time to time. A Cooper education freed me from debt, and allowed me the freedom to pursue purpose, not profit-driven endeavors. Its Union, for me, not only united the arts and the sciences but also was about making connections between the technical, the political, and the social.

While the Cooper Union ethos never left the students or the faculty, however, it did seem to desert a significant chunk of the Board of Trustees and the administration. Starting as long ago as the early 1970s, the board started selling off the land bequeathed by Cooper, not to invest the proceeds in higher-yielding assets, but rather just to cover accumulated deficits. Cooper hated debt and deficits, but that hatred was not shared by later administrators, who would allow debts to accumulate — bad enough — until the only solution was to sell off the college’s patrimony, thereby reducing the resources available for future generations of students. If you visit Astor Place today, the intersection once dominated by the handsome Cooper Union building, the main thing you notice are two gleaming new glass-curtain-walled luxury buildings, one residential and one commercial, both constructed on land bought from Cooper Union.

Then, when you turn the corner and look at what hulks across the street from the main Cooper Union building, you can see where a huge amount of the money went: into a gratuitously glamorous and expensive New Academic Building, built at vast expense, with the aid of a $175 million mortgage which Cooper Union has no ability to repay.

The bland name for the building is a symptom of the fact that Cooper’s capital campaign, designed to raise the money for its construction, was a massive flop: no one gave remotely enough money to justify putting their name on the building. It’s also a symptom of the fact that no one on the board had any appetite for naming it after George Campbell, the main architect of the scheme which involved going massively into debt in order to construct this white elephant.

Campbell, pictured grinning widely in a now-notorious 2009 WSJ article, claimed that Cooper was a financial success story when in fact it was on the verge of collapse. He’s the single biggest individual villain in the Cooper story, and it’s a vicious irony that Cooper’s latest Form 990 shows him being paid $1,307,483 in 2011 — after he left Cooper’s presidency. (Cooper Union explains that the amount represents six years of “deferred compensation/retention payments”, but the timing couldn’t be worse.)

Campbell’s enablers and cheering squad were a small group of trustees, many of them Cooper-trained engineers gone Wall Street, who had so internalized the ethos of the financial world that it never occurred to them that they shouldn’t be constantly trying to get bigger and better and shinier. Campbell was paid $668,473 in his last year at Cooper — he was one of the highest-paid college presidents in the country, despite running a naturally small institution with serious space and money constraints. Board-member financiers enabled his dreams of growth and glory, hoping that some of the glamor from the newly-revitalized institution would reflect back on themselves. Naturally, when the whole project turned out to be a disaster, they scurried ignobly off the board as fast as they could.

The turnover on the board continues: the latest Form 990 alone shows six trustees — Marc Appleton, Robert Aquilina, Judith Rodin, Moshe Safdie, William Sandholm, and Philip Trahanas — resigning their posts over the course of the year. And if you look at the current list of trustees, you’ll see there have been other resignations since then: Douglas Hamilton, Vikas Kapoor, Audrey Flack, Stanley Lapidus, Giorgiana Slade, Cynthia Weiler, and Ronald Weiner. That’s 13 resignations in the course of just over two years; the entire board has only 22 members.

For an institution which was founded to exist in perpetuity, this kind of board turnover is decidedly worrying, especially since it was the board which decided and announced that Cooper Union will start charging tuition. If this board is just passing through, with precious little aggregate tenure or institutional memory, the legitimacy of that decision is surely greatly reduced.

What’s more, a weak board puts extra power in strong presidents — and both the current president, Jamshed Bharucha, and his predecessor, George Campbell, seem to have been able to persuade the board to implement anything they wanted to do. Bharucha is no fan of Campbell, for obvious reasons, but in many ways the two well-paid presidents are quite similar. I recently obtained a highly-unofficial transcript of the September 2012 board meeting*, where Bharucha was far from despondent or apologetic about the fact that Cooper’s board felt as though it was being forced to choose between charging tuition and closing down entirely. “Turning adversity into opportunity is really an opportunity that very few institutions have,” he said, before talking about something called “a vision process”. Later, he comes out with this:

I resonate very much to future-oriented thinking about higher education. I assure you that I will be guiding the institution to embrace these technologies and we’re not going to be trapped in the past. I think if we get over this hump there will be so much opportunity… I think we can lead… We don’t have a global brand. We’ve got to build that global brand.

Similarly, the trustees’ statement includes worrisome language like this:

Maintaining the highest standards of excellence means that we must constantly aim to improve through investment. We must engage in a continuous process of strengthening our academic programs, our faculty, and the clarity of our academic reputation. The institution will invest in our programs and our faculty to ensure that we always are, and are regarded as, equal to the best.

This is emphatically not Peter Cooper’s vision. The United States is full of higher-education institutions trying to carve out “a global brand” for themselves, often through “investment”. They generally have multi-billion-dollar endowments, global name recognition, and undergraduate tuition costs somewhere north of $40,000 a year. You could name a dozen of them off the top of your head, and Cooper Union would never be one of them. On the other hand, what you can’t do is name a dozen — or even two — institutions like Cooper, based on a social mission and free tuition and low-key excellence, where the pedagogy is not reliant on the provision of climbing walls, and where the health of the institution is not reliant on jet-setting deans who address the World Economic Forum on the subject of Global Leadership.

An investment is what you do when you spend money today, with an eye to reaping a profit in the future. Investments, by definition, are associated with future cashflow: if they’re not, then they’re not investments. Once Cooper Union starts “investing” in programs and faculty, it will have to charge for those programs and faculty in order for the investments to bear fruit. All of which is to say that this tuition charge is permanent: once it’s implemented, the chances of it being reversed are de minimis.

Bharucha, like Campbell before him, is intensely focused on improving Cooper Union’s name recognition. Cooper Union has historically not been very well known, even among New Yorkers: they often think it’s some kind of labor union, rather than an undergraduate college. That’s fine: the people who matter — the teenagers applying to the art school, the entire architectural profession — know exactly what Cooper Union is, and what it stands for. Not every non-profit organization needs its own awareness campaign — but of course if Cooper Union now has to start attracting richer kids capable of paying $20,000 a year in tuition, it’s going to have to start marketing itself more aggressively. Again, that’s not something it historically ever wanted or needed to do, and it’s not something Peter Cooper would be remotely happy about. His resources were meant to go towards education, not towards marketing and billing and “development”.

Another thing that Bharucha and Campbell had in common: both entered into talks about essentially selling Cooper Union to a deeper-pocketed institution. Campbell talked to NYU in the mid-2000s; Bharacha talked to Bard more recently. Obviously, none of those talks got very far; the NYU discussions ended when it decided to buy Polytechnic University instead, in 2008. In either case it’s hard to see how Cooper Union’s social mission and commitment to tuition-free education could have been preserved in perpetuity.

But the end result — what we ended up with — is arguably worse. Once you start charging tuition, you can’t go back: you build a huge amount of infrastructure for students who feel entitled to certain amenities, given how much they’re paying. And the college becomes a business with a P&L, having to chase revenues and persuade potential students that it’s a better financial deal than the various alternatives they have.

The result is that Cooper is certain to lose its much-cherished selectivity: according to the transcript, the September board meeting discussed a report from Maguire Associates which concluded, intuitively enough, that there’s simply no way to charge $20,000 a year and still accept less than 8% of applicants. That selectivity helps Cooper Union rank top among “regional colleges” in the influential US News ranking; both the selectivity and the ranking are sure to fall once tuition is introduced. (Cooper Union claims that it will have “need-blind” admissions, and that if you’re eligible for any kind of Pell Grant, you will get a full scholarship. But there’s no getting around the fact that it will need a certain number of paying students in order to make the math add up.)

Bharucha has also managed to ensure the undying opposition of Cooper Union’s most passionate students. Just this weekend, they painted the lobby of the architecture school black in protest, unaware that during the September board meeting, Bharucha complained about their “politics of destruction”. The relationship between Cooper Union’s administrators and its students has never been worse — and that’s not going to make it easy for Cooper to be able to paint itself as a prestigious institution worth paying $20,000 a year to attend.

In September, according to the transcript, Bharucha talked of the “enormous reputational risks” of charging tuition, and the “difficulty recruiting new students”. So it’s not like any of this was unexpected. “If it weren’t for all this noise”, Bharucha said in the meeting, he would be much more confident that charging tuition could work. But with it, he said, “it will be very difficult” to make a success of the new strategy.

The board has gone along with Bharucha’s strategy anyway, in the belief that all the alternatives are worse. In large part they were forced into their decision by the mortgage on the New Academic Building: you can’t shrink your way to sustainability when you owe MetLife $175 million, and you have to come up with the eight-figure debt-service payments somehow. Given that no one was about to write a $100 million check to Cooper Union, the only other place to find the necessary money was by charging. Even if doing so means destroying the very basis upon which Cooper Union was founded.

*A word about this transcript. Cooper Union spokesman Lloyd Kaplan told me that board meetings are not officially recorded or transcribed in any way, which is consistent with what my sources are telling me — which is that the meeting was recorded without the knowledge or consent of the board members.

The transcript is an important document, and I’m sure it will make its way onto the internet sooner or later. I’m not going to be the one to do that, however, because I have no evidence which can vouch for its authenticity, or demonstrate that the people named in the transcript actually said what it says they said. Conversations with two different sources have convinced me that the transcript is accurate; even then, however, I have only directly quoted Jamshed Bharucha, the president, rather than any unpaid board members.

Kaplan has told me that Cooper will have no comment on whether Bharucha actually said the things I’ve quoted him saying: he won’t confirm that he said them, but neither will he deny that he said them. My sources and I are sure that the quotes are accurate, but you should be aware that it’s never going to be possible to be 100% certain on that question.

COMMENT

Just looked this up after hearing the author accused of inaccuracies on Democracy Now, and yet that “Trustee” did not give any examples, good important story!

Posted by Reader3421 | Report as abusive

It’s time to air Cooper Union’s dirty laundry

Felix Salmon
Apr 24, 2013 19:44 UTC

If you want to really understand the importance of Cooper Union and its century-long tradition of free tuition, I can’t recommend Sangamithra Iyer’s excellent article in n+1 highly enough. And it contrasts greatly, of course, with the official statement from Cooper Union’s Board of Trustees, saying that the college is going to stop being free very soon: beginning, in fact with the students entering in September 2014. The statement is curiously upbeat, for a decision which essentially marks the death of Cooper Union as we know it. And it’s chock-full of the kind of doublespeak which is all too easily deciphered:

After eighteen months of intense analysis and vigorous debate about the future of Cooper Union, the time has come for us to set our institution on a path that will enable it to survive and thrive well into the future…

Under the new policy, The Cooper Union will continue to adhere to the vision of Peter Cooper, who founded the institution specifically to provide a quality education to those who might otherwise not be able to afford it…

Maintaining the highest standards of excellence means that we must constantly aim to improve through investment…

Although we appreciate that these decisions are difficult for everyone to accept, we look forward to working together with all of you to building a future that will ensure the preservation of Cooper Union as a great educational institution that remains true to Peter Cooper’s founding principles.

The fact is, as Iyer clearly lays out, that charging tuition runs in direct violation of Peter Cooper’s vision and his founding principles. Indeed, the original Cooper Union charter held the institution’s trustees personally responsible for any deficit, while ensuring that education was free to all enrolled students.

Over the past 40 years or so, however, Cooper Union has been living beyond its means, financing structural deficits by periodically selling off various bits of land that it owned inside and outside New York City. That’s clearly an unsustainable strategy, and it finally came to an end when Cooper Union sold off the last sellable plot it had — the old engineering building at 51 Astor Place, which is now becoming a big ugly office block. The proceeds from that sale failed to remotely cover the costs of building the fancy New Academic Building at 41 Cooper Square — a building which the NYT’s architecture critic, Nicolai Ourourssoff, declared upon its opening to be an icon of the “self-indulgent” “Age of Excess”.

But here’s the most astonishing thing, at least to me: no one seems to care how this happened, no one has been held responsible, no one has been blamed. The current trustees talk vaguely about how they “share your sense of the loss” of free tuition, but they don’t apologize for their decision, and not one of them, as far as I can tell, has resigned in protest or shame.

Make no mistake: Cooper Union suffered a massive failure of governorship, and its trustees have abandoned the principle which underpinned the entire institution. A trustee is someone who governs for the benefit of others — and Cooper Unions trustees have failed, spectacularly, in their first and highest role, which was to preserve Peter Cooper’s tuition-free institution.

And after failing so miserably at their own jobs, the trustees then had the nerve to announce, right in the middle of dropping their bombshell, that they expected the current students of Cooper Union to give more to the institution! Never mind that Cooper Union will never be the same again, and that the whole reason why it is so beloved has now been jettisoned. Start donating today, and maybe future students might be able to save a few hundred bucks on their future tuition bills. Or maybe the president will just get a raise to $1 million a year. Who knows: the trustees seem to be capable of anything.

There’s a lot of recrimination going around right now, and the entire Cooper Union community is in desperate need of some catharsis; the trustees, collectively, and over time, managed to break the very thing that they were entrusted to preserve. Cooper Union’s students, and alumni, and faculty, and supporters all deserve a full accounting of exactly how that happened, and who was primarily to blame. It’s in the nature of institutions like boards of trustees that they are very good at protecting the guilty, but in this case the trustees have to come clean. No one will ever trust Cooper Union, or its trustees, or its president, unless and until such an accounting is made public. And, justice demands it.

COMMENT

While hindsight is always terrific, the need for at least a new engineering school building was very clear to me in 1998. At that time, I took a tour of the school with my two kids, who were looking at colleges at the time.

When we looked at the engineering school, unfortunately, I can only say that the facilities compared very poorly to those of Cooper’s peers. It looked like very little had changed in the 25 years since I graduated, and that made me very sad.

In the end, my kids ended up at Rose-Hulman and Carnegie Mellon. They would not even consider applying to Cooper.

I am very grateful that Cooper’s no tuition policy allowed me to get a degree that I am extremely proud of. But I also know that the world has changed and I would hope that the trustees and alumni would work together to make sure that the school’s finances are stable while also providing the top notch faculty, facilities and equipment that are needed to attract the very best students.

Posted by Ethan919 | Report as abusive

Are construction costs driving up college tuition?

Felix Salmon
Dec 14, 2012 17:29 UTC

Andrew Martin has a very long, and not particularly illuminating, article about college indebtedness in today’s NYT. The title of the piece is “Colleges’ Debt Falls on Students After Construction Binges”, and it’s almost 3,000 words long, but somehow Martin fails to even hazard a guess as to the degree to which colleges’ debt is falling on students after construction binges. We’re certainly told that it’s happening:

A decade-long spending binge to build academic buildings, dormitories and recreational facilities — some of them inordinately lavish to attract students — has left colleges and universities saddled with large amounts of debt. Oftentimes, students are stuck picking up the bill…

Higher debt payments and other expenses have contributed to the runaway inflation of college costs, and the impact on students is real and often substantial.

How big are these bills? How substantial is the impact on students? Martin doesn’t hazard a guess: instead, he just says that “the costs are not easy to isolate”. But there are a few hard numbers, far down in the piece:

Outstanding debt at the 224 public universities rated by Moody’s grew to $122 billion in 2011, from $53 billion in inflation-adjusted dollars in 2000. At the 281 private universities rated by Moody’s, debt increased to $83 billion, from $40 billion, in that period. Rather than deplete their endowments, some colleges borrowed to help pay bills after the financial crisis, but most borrowing was for capital projects.

Since 2000, the amount paid in interest and principal has increased 67 percent at public institutions, to $9.3 billion in 2011, and it increased 62 percent at private ones, to $5 billion last year.

Martin doesn’t tell us what this works out at on a per-student basis, so let’s try. According to the Census Bureau (see Table 5), there are 20.4 million students enrolled in US colleges, split between 16.6 million undergrads and 3.8 million graduate students. According to Martin, using numbers from Moody’s, the amount of college-level debt being borne (in part) by those students has gone up by $112 billion, and the annual debt service has gone up by $5.6 billion. (These are numbers Martin could have just printed directly, but for whatever reason he chose not to; instead, you need to back them out of the numbers he cites.)

Students don’t bear all those extra costs: as Martin notes, “in some states, including New York, California and Connecticut, borrowing for public colleges and universities is mostly paid for by taxpayers, so students are not directly responsible for payments on the debt”. But for the sake of argument — and despite the fact that the University of California is the single biggest debtor, with SUNY at number 2 — let’s assume that all the extra costs are borne by students. In that case, we have 20.4 million students paying an extra $5.6 billion per year in interest, which comes to an annual cost of $274 per student.

Remember that $274 is a deliberate over-estimate, since a lot of the extra borrowing that Martin is writing about will get paid out of state budgets rather than out of students’ tuition fees. What’s more, the rise in interest payments coincides with a lot of universities shifting floating-rate debt to fixed-rate debt, which increases the interest payments but makes it them much less prone to rising unexpectedly.

Obviously, the increased costs will be higher at the universities with the most construction activity, and lower at more frugal colleges: the $274 is just an average. And I’m no fan of what Martin calls the Edifice Complex: I’ve been highly critical of capital projects at Harvard and NYU. But if it wants to make the case that students are paying “often substantial” sums as a result, the NYT is going to have to do better than this.

Indeed, if you want to criticize big capital projects, then “students end up paying a large part of the interest expense” is way down the list of good ways to do so. Interest expenses are generally small as a percentage of capital costs, because interest rates are low; what’s more, when you divide them between tens of thousands of students, the per-student cost becomes entirely manageable. The problem is more in the way that these projects force universities to lose a lot of flexibility in terms of their optimal size: it’s much easier to grow than to shrink, even as it’s hard to maintain quality when you’re growing too fast. The result, all too often, is shiny facilities, and a lower-quality education.

There’s a bigger lesson here, too, for the NYT. Martin says that the data underpinning this article was compiled for the NYT by Moody’s, which means that the NYT has access to a full and rich database. So why doesn’t it publish that data? Good data-driven journalism both publishes as much data as possible, and uses the data to drive conclusions, rather than simply dropping numbers into a foreordained article.

What should have happened here was for Martin to take a deep dive into Moody’s data, to try to work out which colleges saw the largest debt-service increase and whether there was any correlation between debt-service increases and tuition increases. Even if he didn’t have the appetite to do that work himself, at least if he published the data then the rest of us could do it. Instead, we just get an article which is very long on anecdote and very short on useful data. It’s a shame.

COMMENT

Part of the problem is that undergraduate tuition is being used to subsidize many things from which undergraduate students do not benefit.

For example, many professors do not teach undergradutes directly, yet their salaries are funded by tuition payments.

Most research conducted on campus does not benefit undergraduates, yet is largely funded through undergraduate tuition payments.

If you want to get the most bang for your buck, go to a community college for your first two years (where there is no research infrastructure), and then transfer.

Posted by mfw13 | Report as abusive

Occupy Cooper Union

Felix Salmon
Dec 5, 2012 07:48 UTC

When we last checked in on Cooper Union, it was an opaque morass of murky finances in desperate need of some sunlight. President Jamshed Bharucha has made all the right noises: he told Brian Boucher, for instance, that “if you have a financial problem, you need to put that out there, along with all the possible options”. But the fact is that since he arrived in July 2011, he has released little more in the way of financial information than any of his predecessors*, while making it clear to his favored media outlet (the Wall Street Journal) that the conclusion of the current process is foreordained: Cooper Union is going to start charging tuition, after more than a century of being free.

But Bharucha has lost control of the narrative: a group calling itself Students for a Free Cooper Union has occupied the top floor of the iconic Foundation Building, and is getting a lot of mostly very positive press. It’s worth noting that the protesting students are guaranteed free tuition until they graduate: they’re not protesting out of narrow self-interest. But they do understand that free tuition is at the very core of what it means to be Cooper Union, and that Cooper without free tuition simply wouldn’t be Cooper any more.

But don’t take the protestors’ word for it. Look at the official Revenue Task Force report, from October. It’s worth quoting at length, since the occupiers themselves couldn’t put it any better:

The learning environment created by The Cooper Union’s policy of full-tuition undergraduate scholarships is inimitable, attracting a student body with a high degree of engagement and intensity. Many Cooper students who were admitted on scholarship to other top-tier schools have chosen Cooper for its ethos of scholarships for all.

Rather than competing with one another, Cooper students are known for teaching each other, fostering a culture of collaboration in which the students see themselves as colleagues with the faculty, rather than as consumers purchasing education as a commodity.

Full-tuition scholarships are a 110-year tradition at Cooper Union, and also serve as a counter- point to the crisis in American higher education, one in which crippling costs, divestment in public funds, and ever-decreasing avenues of access are becoming the new normal.

By operating outside higher education’s conventional consumer model, Cooper Union’s meritocracy has engendered far-reaching creative, cultural, economic and political implications and consequences. The college’s twinned commitment to access and excellence is not only the key to the Cooper student’s accomplishments inside its classrooms, laboratories, and studios; it is also a model for the field of higher education as a whole.

The problem is that even after saying all this, the Revenue Task Force was in an impossible situation: while coming to the conclusion that free undergraduate tuition is untouchable, they were also told that the revenues they were tasked with finding could not come from other obvious places, like the Board, alumni, or the sale of assets.

And so the report comes to the conclusion that undergraduate enrollment should shrink by “up to 30%”, in order to make space for a set of new graduate programs, some of which would charge more than $30,000 per year.

Now Cooper Union has never really been a home to graduate programs: there are a handful of grad students now, but Cooper Union has always been much more about teaching than about research, and no one has really thought through how Cooper might move to a system where a large part of the budget would come from grad students, even as the undergrads continued to be the heart and mission of the school. It’s not at all clear that potential grad students would even want to shell out $30,000 a year — plus downtown New York living expenses — to attend a boutique college housed in all of two buildings. And given that Cooper students study art, architecture, and engineering, where on earth did the idea come from that the college should offer a two-year pre-med course?

The whole concept reeks of mission creep, at a school which already relies far too much on its students, rather than its teachers, when it comes to maintaining quality. Cooper has a lot of adjuncts and a very small tenured faculty, and if you ask anybody associated with the school how it keeps its quality high, they’ll tell you that it’s a function of the enormous pool of applicants. The idea is that Cooper is extremely good at identifying America’s most talented teenagers, and can basically get its pick of the crop thanks to its free-tuition policy.

It doesn’t really matter whether that’s empirically true or not; what’s certain is that Cooper’s exceptionalism is an article of faith among both students and faculty, and that it is deeply rooted in the school being free. How and whether that could translate to a for-profit grad-school program is far from clear — and given the success of the board in implementing previous grand projects, it’s hard to have much faith in its success. After all, if the quality of Cooper comes in large part from its ability to pick and choose its students, then there’s really no reason to believe that a non-free graduate program would have particularly high quality at all. Charging for some students would violate Cooper’s stated mission, which says that it “awards full scholarships to all enrolled students”. Worse, it would set a very dangerous precedent: in the likely event that the grad-school program was a flop, it would at that point be much easier to extend the tuition fees to undergrads.

Indeed, that is already being talked about. A document leaked on Monday, written by a mysterious “Undergraduate Tuition Committee” somewhere within the engineering school, lays out all the reasons why Cooper should start charging tuition to everyone, including the inevitable “under-performance of other revenue sources”. Here’s a taster:

A low undergraduate tuition (eg, initially ~$9600/yr) holds the prospect of a minimal and reversible impact on the academic quality of future classes and on the institution’s reputation… in the event that more risk-laden revenue generation efforts underperform, progressive increments in undergraduate tuition might be applied…

Charging undergraduate tuition is the most likely method to succeed in meeting the School of Engineering’s five year target. Some alternative approaches, such as creating new graduate programs (for which tuition will be charged) are, in the short term, too uncertain to rely on.

The document is both marked up and scanned, and includes this astonishing passage:

Or, in English, “never mind if bright minority candidates can’t afford to study at Cooper Union any more, there are much better good financial packages for them at lots of other colleges”.

The document was greeted by the occupiers for precisely what it is: a clear indication that undergraduate tuition is on the table at Cooper Union. As such it only adds urgency to the first of their three demands, that “the administration must publicly affirm the college’s commitment to free education”.

It also shows the importance of their second demand, that “the Board of Trustees must immediately implement structural changes with the goal of creating open flows of information and democratic decision-making structures”. Important discussions about the future of Cooper Union should happen in public, in full view of all stakeholders, especially students and faculty. Such discussions will be noisy and protracted, and probably unpleasant for trustees — especially the ones who signed off on a massive mortgage for the new engineering building, without any idea how they were going to pay it. But the trustees need to bear in mind exactly who they’re representing, and put up with a certain amount of unwelcome publicity. As the current occupation shows, they’ll get it anyway.

There’s no good reason why the very existence of the “Undergraduate Tuition Committee” was a secret** until its report was leaked on Monday, and Cooper Union, in its official communications, still hasn’t said anything about it. Instead, Assistant Director of Public Affairs Jolene Travis put out a statement dismissing the occupiers as “eleven art students” who “do not reflect the views” of the broader student population, adding for good measure that “full tuition scholarships at The Cooper Union are currently valued at $38,550″. (The reaction to this statement, which was handed out to select journalists, can be found here.)

The third and final demand of Students for a Free Cooper Union is the resignation of Jamshed Bharucha, which seems like a good idea to me. He is running a financially-struggling school, which desperately needs all the money it can get. But no one is going to donate money to a shambles which looks like this. The university frequently asserts that the protests are coming from a small minority, while a silent majority actually supports the administration. But I see no evidence for this view at all*: it looks more as though the senior folks at Cooper are simply deluding themselves.

A year and a half into Bharucha’s tenure, there’s very little reason to believe that he’s the right man for the job — while the current occupation, which was vocally supported at a press conference Tuesday afternoon, seems to provide a pretty strong prima facie case that his university has no faith in him. Bharucha should at the very least make it clear to whom he considers himself answerable, and under which circumstances he would resign. But it seems to me at least that Cooper needs a leader: someone who can communicate effectively, be honest about the many enormous mistakes that were made in the past, and lay out a plan to keep this storied institution on a sustainable footing for centuries to come.

That plan should probably include most of the ideas in The Way Forward, a paper compiled by the Friends of Cooper Union which suggests a number of ways that the college can fix some of its fiscal issues. Even together, they probably don’t add up to enough to pay the mortgage on the new engineering building. But they’re a well-intentioned start, which the university could rally behind while it works on outstanding financial issues. Who knows: faced with a broad new sense of purpose and a new president, donors might even be willing to open their checkbooks again.

*Update: Bharucha has actually been more transparent on the financial side than I gave him credit for; specifically, I missed the Audited Financial Statement Summary, which gives a pretty good indication, if you’re good at reading financial statements, of how Cooper Union wound up in its present predicament. And as for Bharucha’s support within the student body, it turns out that it does exist, among the engineering students. They’re just very quiet about showing it: you won’t find much in the way of public statements of support on the internet, for instance. Most of the opposition to Bharucha is being organized by art students, which maybe makes sense, given the level of income the average art student can expect upon graduation.

**Update 2: Maybe not entirely a secret. Go to the Minutes page of the Engineering Students Council. Then click on “Open Student Body Meeting with Dean Wolf – (2012-10-16)”. Under a heading named “August”, the existence of the Undergraduate Tuition Committee is referred to.

Update 3: I have now received a long response to this post from Cooper Union: you can read the whole thing here. This is what it says about the Undergraduate Tuition Committee:

The acting dean of the Albert Nerken School of Engineering has organized committees to identify possible revenue streams through the creation of new programs. An analysis, which included 500 variables, was conducted to see at what level of revenue would be needed in order to maintain the full tuition scholarship for undergraduates. This is an ongoing process and no decision has been made.

Also, a group calling itself the Engineering Student Council has released a statement in support of Bharucha.

 

COMMENT

This is the most comprehensive coverage of the Occupation I have seen. Excellent work.

Posted by ChrisJames | Report as abusive
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