Sunday, May 18, 2008

The University of Raising Big Money

October 21, 2006
Correction Appended

Last week, Stanford University unveiled its new capital campaign, called the Stanford Challenge, which aims to raise $4.3 billion by 2011. That stunning amount is a record for a university fund-raising campaign, but not by much. It overtook Columbia, which just a few weeks earlier had announced a $4 billion campaign of its own.

Then there’s Yale University, which has just begun a $3 billion campaign. The University of Virginia is also raising $3 billion. Brown University is trying to raise $1.4 billion; Johns Hopkins, $2 billion; New York University, $2.5 billion; the University of Chicago, $2 billion. Back in 1987, Stanford was the first school to raise $1 billion in a capital campaign.

Today, according to the Chronicle of Higher Education, more than 25 universities are conducting campaigns of $1 billion or more. Indeed, just about the only school conspicuously missing from the list is Harvard. But that is highly unlikely to remain the case; no one in higher education expects Harvard to stand pat while all of its peers are raising gigantic sums of money.

These are, of course, America’s elite educational institutions — brand names in their own right. They are the schools the very best high school students vie to get into — and are bitterly disappointed if they fail to do so. They are also very wealthy institutions, with endowments that in most cases run into the billions. Stanford, for instance, has an endowment of around $15 billion, making it the third largest among universities, behind only Yale and Harvard. (Harvard’s astounding endowment is now nearly $30 billion.) And of course if you’ve ever visited Stanford —with its fantastic medical complex, its professional-quality athletic facilities, and its gorgeous campus — you know that what is most striking is not how much Stanford seems to need, but how much it already has.

All of which made me wonder: does Stanford — and Yale, and Brown and N.Y.U. — really need to raise ever more billions to add to the billions it already has? Or is this an example of fund-raising run amok, a case of the rich getting even richer — just because they can?

“I like to say that if this campaign ends up only being about $4.3 billion, we will have failed,” said Martin W. Shell.

Mr. Shell is the vice president for development at Stanford — i.e. the chief fund-raiser — and he was making the case that the sum of money the university was trying to raise, eye-popping though it is, was far less important than the way the school planned to spend that money.

The list of goals for the Stanford Challenge is undeniably impressive. Stanford plans to spend $500 million on “The Initiative on Human Health” which will focus on research “that speeds the conversion of fundamental discoveries into new approaches for diagnosing and treating human diseases.” It will undertake expensive new initiatives on the environment and K through 12 education. It hopes to use some of the money to “reinvent graduate education.” It has many other purposes as well, all of which tend to revolve around the school’s graduate programs. Like most of America’s great universities, Stanford views itself as an important research institution as well as a teaching institution, and that is reflected in the campaign.

It is hard to criticize any effort to raise money that might help cure disease, and far be it from me to try. “To equip a modern scientific lab is hugely expensive,” said William G. Bowen, the former president of Princeton. “If you are Stanford and have a major commitment in science you are going to have to go out and raise substantial resources.” One thing Stanford officials point out, for instance, is that the university plans to use some of the money to build a laboratory for stem cell research.

One thing that struck me, as I listened to Mr. Shell and others, was the extent to which at least some of these initiatives dovetailed with issues that were already on the minds of potential donors. For two years before the introduction of the capital campaign, Stanford was raising money during what’s called the “silent phase,” talking to donors, gauging the market and getting a sense of what alums and others might be willing to fund.

Although Mr. Shell insisted that Stanford was focusing on areas “where we are already strong,” he also told me that “we had long conversations with our donors” during the silent phase. Stanford had already decided to focus on the environment, but that is also a very popular cause among its alums. And the K to 12 initiative became part of the Stanford Challenge because it was something potential donors kept coming back to as they spoke to university officials..

It also seems clear that a good portion of the money will be aimed at enhancing existing properties. Philip H. Knight, the founder of Nike, has already promised $100 million as the lead gift for a new campus for the business school.

But wait: does Stanford really need a new campus for the business school? Not in the sense that its business school students aren’t managing just fine with the campus they use now. But the truth is — and this is a lot of the underlying rationale for all these capital campaigns — Stanford isn’t just trying to save the world. It is also trying to keep up with Yale and Harvard and the other elite institutions with whom it competes for students and faculty.

“If your competitor has a swimming pool, then you have to build a swimming complex,” said Arthur E. Levine, the former president of Teachers College at Columbia, who now heads the Woodrow Wilson National Fellowship Foundation. And if Yale and Harvard have ever-more attractive business schools, then Stanford has to keep pace. John V. Lombardi, the chancellor of the University of Massachusetts, describes the current mania for capital campaigns this way: “It’s an arms race.”

It’s not just fancy facilities or high-end research, either. To compete with the other elite schools, Stanford wants to attract the best faculty possible — which means luring the stars at other schools, offering them huge raises, laboratory space and research assistance. Capital campaigns and big endowments have accelerated the amount of poaching that goes on and have significantly driven up salaries.

These competitive pressures among the elite universities have led to an odd result — or at least odd when you think how competition normally works. Competition normally causes prices to go down. But as Mr. Levine points out, in the case of the nation’s most prestigious universities, competition actually causes prices and costs to rise because the ever-upward spiral of bigger salaries and better facilities and all the rest of it makes the running of the university that much more expensive.

One thing that surprised me was that so few people in the world of higher education seemed bothered by this. Whenever I asked about the high cost of tuition — and why these campaigns and huge endowments didn’t stop the relentless annual tuition hikes — I was told that tuition only covers about 60 percent of the cost of education, and besides, a great deal of money raised in capital campaigns went to financial aid. (Stanford tuition is currently $32,994, with room and board adding another $10,367.) Those students who are paying full freight — and their parents — have certain expectations about the kind of facilities they will have access to, the professors who will teach them, the computers they will use, and the schools are raising money in order not to disappoint. “They are responding to market demand, in which parents and students select the fanciest, most luxurious, best-equipped schools — and everyone wants their tuition discounted,” Mr. Lombardi said. The money raised in capital campaigns helps the elite institutions market themselves.

There is no question that the rise of the elite American university is one of the great success stories in modern life. In their own way, they are global leaders. The competition among them have made them all better. But it has also drained talent and money — and made life more difficult — for all the hundreds of universities that do not rank, in the public mind, with Harvard and Stanford and Yale. These other universities are the schools that educate the vast bulk of American college students. They can’t conduct $1 billion fund drives. And so, ever so slowly, they are falling behind. That’s not Stanford’s fault, or even Stanford’s problem, but it can’t possibly be good for the country.

One other thing about capital campaigns. Whenever I asked anyone involved in one whether they were trying to trump someone else’s campaign — whether, that is, the amount of money they were trying to raise was itself a form of competition — I was told that nothing could be further from the truth. Robert M. Berdahl, the president of the Association of American Universities, told me flatly: “You don’t have a capital campaign because one of your peers is having one. It is about the university’s need for resources.”

But then, a few days ago, something happened that made me wonder about that claim. Cornell got wind of what I was reporting, and a public relations executive sent me a series of e-mail messages trumpeting its own capital campaign, hoping that I would mention it in this column.

So here goes. The campaign will be announced Thursday in New York, and though the executive wouldn’t tell me its size, she strongly implied that it would be right up there with the big boys.

The Cornell campaign, she wrote me, would establish “a new Ivy lead in the ‘race for the top dollars.’ ” Competition, indeed.

Correction: Oct. 27, 2006

The Talking Business column in Business Day on Saturday, about the fund-raising efforts of large universities, misstated the room and board rates at Stanford University. The combined cost for room and board is $10,367 — not $4,796, which is the cost just for board.

Copyright 2006 The New York Times Company
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