Op-ed | Leaving the endowment alone during the crisis is the right call

Chancellor+Patrick+Gallagher+said+he+would+not+favor+using+the+University+endowment+as+a+reserve+to+pull+cash+from+and+stave+off+budget+cuts.

Caela Go | Senior Staff Photographer

Chancellor Patrick Gallagher said he would not favor using the University endowment as a reserve to pull cash from and stave off budget cuts.

By Ilia Murtazashvili, Associate professor of public policy

Multiple deans recently announced potential 10% budget cuts, as a result of the COVID-19 pandemic. Chancellor Patrick Gallagher has explicitly said the University endowment is off limits as a reserve from which to pull cash. Unsurprisingly, many are asking why we are not using our endowment to stave off some of these difficult cuts. Tyler Bickford, an associate professor of English who chairs one of the University budget committees and is active in faculty unionization, penned a thoughtful letter encouraging Pitt to use its $1.6-billion quasi-endowment to address the challenges arising from the COVID-19 pandemic.

There are several reasons why the chancellor’s call is the right one. The reasons have to do with faculty incentives and the increasingly competitive environment of higher education, each of which provide a powerful justification for trusting Pitt’s leadership.

Once we think about universities as a bureaucratic organization, it becomes clear why we cannot necessarily trust that faculty will prefer budget policies that are good for the University, but rather, those that benefit their “tribe” — their department or school. As Jason Brennan and Phillip Magness describe in their 2019 book, “Cracks in the Ivory Tower: The Moral Mess of Higher Education,” faculty are budget maximizers, even if it involves hurting an institution’s long-run sustainability or when expenditures do not necessarily help the students who ultimately pay our salaries. I’ve seen this countless times when we are confronted with budget cuts, where the first reaction is typically to see how they can be avoided without necessarily thinking about how we can improve our product. It does not mean faculty are not other-regarding, and surely it does not mean they are bad people. But on balance, their incentives are not necessarily aligned with the overall mission of the University.

The institutional solution to this problem is to delegate authority to decision-makers whose interests align with the entire institution, in this case, the various levels of chancellors and provosts. Unlike faculty, whose interest is primarily with their unit, Gallagher is interested in doing what is best for the University.

Any leader can make mistakes, but from an institutional perspective, what we would expect is that a leader would be the one most willing to put the long-run interests of the University at the forefront. In this case, it means preserving the endowment for the future students — reflecting institutional incentives to be forward-looking and patient.

The second reason to leave the endowment alone is because budgets should go down when there is less demand for services. A crisis provides a good time to trim the fat, so to speak, but we must be careful in how we think about this — many worthy endeavors are underfunded in universities. Faculty diversity is a huge problem, and more resources must be creatively deployed to ensure our faculty comes closer to reflecting our society.  

The current protests in Minneapolis and across the country in response to police brutality illustrate our collective inability to confront racism. There is not enough spending to address these issues. Rather, we should think about trimming the fat as an opportunity to reallocate resources to worthy causes such as this.

The pandemic, for all the problems it’s created, is an opportunity for universities to tighten their belts. Part of this process will involve exploring ways to offer our product more cheaply, such as by contracting out online teaching. Similar to the chancellor’s endowment decision, the contracting out of teaching has been subject to much consternation. Faculty members opposed it because it took away some of their power to shape the curriculum, but more importantly, it took away the demand for their courses, even if it is the right thing to do for students.

This is not to say Pitt’s budget policies and its implementation are perfect. Across-the-board policies are rarely the best way to proceed. If public administration teaches us anything, it is that a one-size-fits-all policy usually does not work all that well — that was a key lesson of Elinor Ostrom, who, in 2009, was the first woman to win a Nobel Prize in economics. Some units should get more funding during the pandemic, and others, well, should be tightening their belts. We should also be thinking right now about how to improve our competitiveness in what is certain to be a changing landscape for higher education.

It would also be useful to start thinking about making budget cuts permanent unless faculty can justify getting them back. Such competition could be used to encourage innovation because revenue ultimately depends on whether we can deliver on our promise of offering students skills that translate into better jobs in fields they enjoy. It would also be useful to consider progressive policies on merit pay, such as allowing for some merit raises for faculty at the lower end of the salary scale, while proceeding with cuts as we go up the scale.

It might seem like now is the time to spend part of the endowment — after all, there is more than a billion dollars available in the quasi-endowment — yet Pitt will be better off in the coming years through these austerity measures, especially if the bubble in higher education begins to burst. In such situations, we will all be better off with resources that allow us to adapt and thrive in an increasingly competitive environment.

Ilia Murtazashvili is an associate professor of public policy in the Graduate School of Public and International Affairs, and an associate director at Pitt’s Center for Governance and Markets. He is currently a nonresident Campbell visiting fellow at the Hoover Institution at Stanford University.

 

Leave a comment.