January 28, 2013--Downgrading Williams College

While many have been focused on and concerned about the United States' credit rating--it was lowered from AAA to AA+ in August, 2011 by Standard & Poor's during one of the previous budget cliffhangers--S&P and Moody's also rate other institutions that we should be concerned about.

For example, our colleges and universities.

Since it is not widely known that places such as Moody's Investors Service measure the credit-worthiness of colleges, it came as a surprise to many that they downgraded some very esteemed institutions and put others on a watch list--Georgetown in the latter instance and highly-selective liberal arts colleges such as Mills and Williams in the former.

These downgrades will make it more expensive for places such as Illinois Wesleyan and Tougaloo to borrow money for campus capital improvement projects--redoing labs, building or renovating classrooms and dorms, and generally keeping campuses in good repair.

it is claimed that the reason for the downgrades are a combination of a number of factors--poor financial management of institutions' endowments (Illinois Wesleyan, for example, has seen its endowment shrink by nearly half, down to $53 million from $103 million in two years), declines in enrollments as students opt for lower cost public colleges (and thus private colleges lose income from tuition and fees), and the need to offer more financial aid as students' parents' incomes have declined as a result of the stalled economy.

All the while institutional expense budgets have risen faster than the rate of inflation. Some of it inevitable, from rising fuel and insurance costs to just plain increases in the cost of everything; but much of it is the result of mismanagement and rapidly rising staff salaries, especially the salaries of professors and senior administrators.

Thus our college and universities are among the world's most inefficient operations.

Presidents, deans, department chairs are almost all managerial amateurs. Scarcely any of them come from the business world or have ever had any accountable managerial experience prior to assuming leadership positions at institutions of higher learning. As a result, when looking around the country, we see almost nothing but bloated expense budgets and chronic inefficiencies.

At my old institution, New York University, not yet downgraded or on Moody's watch list, professors work nine months a year, teach two to three courses per semester (typically scheduled on two to three days a week) and have annual salaries that average $180,000. In addition, many live is dramatically subsidized faculty housing (paying less than half the going market rate in rent), and receive generous benefits packages. And, since they have tenure, professors are not accountable to anyone, and cannot be dismissed for any reason other than having being convicted of committing a felony.

Though I wish I were, I am not being facetious.

All the while, China is using a good portion of its $3.0 trillion in foreign reserves to expand and improve its higher education system so that within a decade they will surpass the United States in the percentage of high school graduates going to college and the number graduating.

Let's hope that Moody's alerts will serve as enough of a wakeup call for us to get serious about the trouble our colleges and universities are in, much of it self-generated.