University of Chicago
Levi Hall
The University finds itself grappling with ballooning costs and a dramatically increased budget deficit. These changes are causing severe financial pressures as UChicago has attempted to catapult itself into contention with universities that have far larger endowments over the past two decades.
Provost Katherine Baicker and newly appointed Chief Financial Officer Ivan Samstein provided details of the University’s finances to employees at an invitation-only Budget Town Hall on December 7. In presentation materials reviewed by The Maroon, financial figures were exhibited alongside details for a long-term financial strategy that the University Budget Office is working to unveil in March.
While UChicago’s investments have allowed it to punch above its weight for decades, rising interest rates and a drop in operating income have necessitated a range of cost-cutting measures, including a temporary staff hiring freeze and voluntary staff retirement packages, as well as budget cuts for programs across the University.
When asked why students were not invited to the presentation or informed of the University’s precarious financial situation, a University spokesperson responded that information regarding budget deficit reductions mainly concerned University employees. However, they added that “University leaders plan to discuss these topics with student leaders in the new year.”
The presentation looked at the 2023 budget deficit of $239 million in the context of the University’s overall financial health. The slides also compared UChicago’s financial health with its Ivy Plus peer institutions. The last slide of the presentation shared short, medium, and long-term plans to improve the University’s deficit.
Since 2013, UChicago has seen a 25 percent student enrollment increase across its undergraduate, Ph.D., masters, and professional divisions. This increase is one of the highest among UChicago’s Ivy Plus peer group, second only to Columbia’s 27 percent student enrollment increase during the same time period.
However, UChicago’s 2022 endowment market value of $10.3 billion stood lower than many of its peer institutions. A majority of these institutions were founded before UChicago, affording them more time to invest and grow their endowments. In a recent letter to the editor in The Maroon, former dean of the College and Senior Advisor to the President John Boyer blamed UChicago’s lower endowment value on decades of low student enrollment rates between the 1950s and 1990s. But the University’s endowment growth has also underperformed its peers for nearly a decade.
The presentation largely mirrored Boyer’s framing of the school’s financial state in his recent letter. While investments in recent decades have proved costly, they have allowed UChicago to climb a number of rankings and compete with its better-funded peers. But now, the University “must address the ongoing need for new pathways to financial resource generation and endowment growth, while preserving the special intellectual culture of the institution,” as Boyer wrote.
Increased enrollment in the face of UChicago’s lower endowment value is resulting in a series of financial growing pains. The deficit growing at a 16.4 percent Compound Annual Growth Rate (CAGR) since 2019 shows that revenue stream increases from sources like grants, contracts, and tuition dollars over the same time period have not been able to keep up with rising costs for services, supplies, and staff salaries.
The University ended fiscal year 2023 with a roughly $239 million deficit, meaning that revenue was unable to cover eight percent of the University’s $3.14 billion operating expenses.
Between 2019 and 2023, operating expenses rose 24 percent, from $2.53 billion to $3.14 billion. Additionally, the University increased full-time equivalent (FTE) positions by eight percent for academics and 10 percent for staff.
By contrast, the University’s operating revenue only rose 16 percent in the same period, from $2.49 billion to $2.90 billion. The rise is partially due to tuition and fee increases since 2019. The University’s gross revenue from tuition and fees, which includes financial aid, was $1.18 billion for 2023, while net revenue, which excludes financial aid, was $601 million.
Meanwhile, UChicago’s “strategic investments” have included projects that expand financial aid, student housing options, investment in neighboring communities, and investment in “new academic and research initiatives to recruit top faculty and students,” according to the presentation.
In the period before the COVID-19 pandemic, the University’s operating deficit hovered near breakeven, but since 2021, UChicago’s operating income has crashed into greater and greater deficits.
“The deficit exists because the growth in expenses has been greater than the increase in revenue,” wrote a University spokesperson in response to a question from The Maroon.
The presentation included metrics that compared UChicago’s staffing ratios and endowment per employee with some of its peer institutions. According to one slide, current staffing ratios show that UChicago is not overstaffing in relation to students or academic faculty. Instead, it falls on the lower end of the spectrum in relation to peer institutions. Another slide showed two charts depicting UChicago’s endowment per tenure track faculty member and per FTE student, essentially full-time enrollments measured by hours worked.
On both endowment per FTE students and per tenure track faculty member, UChicago fell on the lower end of the scale.
When asked why the University had lower endowment per staff metrics than its peers, a University spokesperson responded that “The University’s overall staffing is consistent with the levels needed to fulfill our academic mission.”
Looking forward, the University has outlined a list of short, medium, and long-term “developing categories” to decrease its deficit. Some key short-term items include “potential sunsetting,” meaning the potential closing of certain programs or services, and “stewarding resources.”
The University’s choice to operate at a deficit in recent years has seen a series of repercussions. According to a draft paper written by classics and history department professor Clifford Ando that is set to be published in the Chronicle of Higher Education, the University’s debt grew from $2.236 billion in 2006 to $5.809 billion in 2022, which represents an increase of 260 percent.
While the University’s credit rating has remained strong over the past decade, credit rating firm Fitch stated the University’s ability to take on “new debt beyond the current issuance is limited at the current rating.”
Despite this, the University fixed rate debt increased by around $120 million to a total of $4.2 billion between 2022 and 2023, and it has begun to rely increasingly on more expensive forms of variable or floating-rate debt rather than fixed rate debt.
Floating-rate debt increased by over $300 million, from $170 million in 2022 to $481 million in 2023. The increase came in the form of lines of credit from banks which charge the highest interest rate paid by the University.
Interest payments on floating-rate debt increase as interest rates across the broader economy, making them especially risky for institutions like UChicago which have few ways to quickly reduce costs or increase revenue to cope with higher interest payments.
In other words, “big economic disruptions can be very challenging for such big institutions that have lots of obligated forms of spending,” said economics professor Michael Dinerstein. Dinerstein, who researches the economics of education, explained that much of a university’s money pools, especially endowment funds, are tied to specific functions.
“That lack of flexibility just complicates responses to economic shocks,” Dinerstein said. In times of economic shock, such as rapidly rising inflation and interest rates, Dinerstein told The Maroon that “in times, like inflation, where the economic conditions are changing, universities might need to re optimize.” However, “the more constraints that they face in the optimization make it harder,” he said.
In his draft paper and in an event on campus in early November, Ando argued that UChicago’s solution to rising interest and debt payments has been to prioritize professional schools and STEM fields, often at the expense of the humanities and social sciences.
And while he cited the presentation from the Budget Office as “a welcome step toward transparency,” he has concerns about the feasibility of the University’s medium term revenue growth strategies which include expanding professional and masters degree programs, research licensing, and greater facility utilization with summer programs and conference hosting.
“Comparative and historical data suggest that the University’s plans to meet its budget deficit in part through increased revenue face very strong headwinds,” Ando wrote in an email to The Maroon.
“In other areas of higher education, breaking into a space like professional education that is already populated by established providers has proved exceptionally difficult; and data from the Association of University Technology Managers suggests that only a tiny handful of universities have ever profited from patents owned or co-owned by universities,” Ando added.