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Brandeis University's Community Newspaper — Waltham, Mass.

Capital projects not cause of univ. financial crisis

Published: October 30, 2009
Section: News

President Jehuda Reinharz sent an e-mail message to all faculty members last week debunking an article written in Harper’s Magazine entitled, “Voodoo Academics: Brandeis University’s hard lesson in the real economy,” that raised questions about the effects Brandeis’ capital projects over the last 10 years may have had on the university’s current financial crisis.

In reality, the university’s current budget crisis, which includes a $23 million budget gap over the next four years, is related more to the nation’s economic crisis than to the university’s actions.

At the end of Fiscal Year 2009, the university had a negative 17 percent return on its endowment, an unrealized loss of $125.4 million, as a result of the faltering stock market.

The Harper’s article, written by Christopher Beha, suggests that this loss is a result of the university shifting its investment strategy from low-risk, low-yield investments to alternative investments like hedge funds in the wake of the national economic crisis. However, Executive Vice President and Chief Operating Officer Peter French wrote in an e-mail that this is false.

“Brandeis has been implementing a diversified investment strategy, including alternatives, for over a decade,” he wrote. “Our strategy did not change during the economic crisis. Over the long-term, the model has proved beneficial through various economic climates.”

Reinharz also wrote in his e-mail to the faculty, “For FY09, the Endowment’s hedge fund investments reported an aggregate loss of 5 percent, compared to the S&P 500 [or stock market] loss of 17.4 percent.”

Additionally, Senior Vice President of Administration and Finances Jeff Apfel announced at last month’s faculty meeting that the university is primarily concerned with how to solve Brandeis’ budgetary problems in the short term than in the long term.

In his letter, Reinharz wrote that the Harper’s Magazine article, which used incorrect figures to describe Brandeis’ current financial situation, had “a lack of journalistic ethics in the manner in which the magazine conducted its research and reporting.”

“This is in no way a “‘sour grapes’” reaction to an unfavorable story about Brandeis,” Reinharz wrote.

According to Reinharz’s letter, the article was written by Christopher Beha without any interviews from the university administration.

The article also accuses Brandeis of being irresponsible in its construction of capital projects, saying the university has been “living beyond its means, paying on credit for a seemingly endless string of expansion and renovation projects.”

In fact, the university developed a “campus master plan” in 2000 and 2001 that “was intended to provide options for addressing and prioritizing the serious deficiencies in the university’s facilities at that time,” French wrote.

“The capital projects that have been carried out have been carefully targeted to address those priorities—for example, for new residence halls and new academic buildings,” he wrote.

Since 1999, “just under half of the cost of major capital projects at Brandeis has been gift funded,” Reinharz wrote in his e-mail. Many of those gifts are given as restricted gifts and cannot be used for any other purpose.

Forty-three percent of the cost of major capital projects since 1999 have been debt-funded, or funded with a loan. The rest has been paid for with university funds that had been set aside for capital projects.