OPINION: Now is not the right time for austerity at Pomona College

My senior year at Pomona College was unpleasantly interrupted by the realization that my financial aid was being reduced. It was nothing I had done; it was just 2009. 

“In this economy?” I imagined Pomona’s administrators exclaiming, “Financial aid for him?” I was perhaps viewed as fat that could be trimmed, as my family had a decent income. 

To this day, I don’t know how deep the cuts to financial aid were and which of my fellow students were impacted. What I do know is that cuts to staff — specifically the most vulnerable hourly staff — were so deep and indiscriminate that the class of 2010’s senior year was marked by rolling student protests in support of the staff and against the administration that had cut staff hours.

Sure, students could live with only three out of five nighttime snacks per week, but scaling back the cafeteria staff’s normal hours seemed cruel.

All this was ancient history until a few days ago when the memories came streaming back. Harvard University, its $40.9 billion endowment notwithstanding, had cut its subcontracted dining workers off without pay.

Harvard’s draconian (and patently unnecessary) measure was met with immediate outrage and predictable student protests. A mere three days later, the university backtracked and an announcement that the workers would receive two months of pay was made. A small victory for social justice, and a self-inflicted black eye for Harvard. 

Little comfort can be taken at this stage, though. Trust me, I’ve seen this movie before. Rest assured, the war of austerity has just begun on college campuses across the country. 

In the coming months, Pomona College’s administrators will no doubt be looking at the red ink spilled all over the endowment and looking for ways to share the economic pain with the entire Pomona College community. Students, faculty and workers beware.

The shortsightedness of wealthy educational institutions with infinite time horizons cutting back on their most vulnerable staff and students following temporary market fluctuations should be self-evident. It doesn’t take a degree in economics from an elite liberal arts college to know this, just a bit of common sense. Let’s have a look at the economics anyway though, just to be sure. 

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First, a brief summary of Pomona College’s financial position. According to its 2019 financial statements, the endowment sits at a whopping $2.59 billion, or over $1.55 million per student, among the highest per-student figures in the country. 

It’s not just the endowment though; Pomona has AAA credit ratings from all three major rating agencies. Not even the U.S. Treasury can boast that.

Why would a financial juggernaut like this turn to austerity in the face of market gyrations that are sure to reverse in the medium-term? A 2014 article published in the American Economic Review titled “How University Endowments Respond to Financial Market Shocks: Evidence and Implications” shines a bright light on the questionable choices made by rich universities faced with a bear market. To quote the article at some length:

“We find that although most universities have formal policies intended to smooth payouts over time, endowments significantly deviate from these policies following negative financial shocks. Surprisingly, they deviate in the direction of reducing their payouts by more than their formal smoothing policies would suggest.” 

Or in plain English, rather than maintaining their spending levels by dipping into their endowments following financial market drawdowns, universities prioritize endowments and cut spending, contrary to both economic logic and their own stated policies! 

Attempting to explain why, the article continues: “Our results are consistent with a model in which university leaders care directly about the size of the endowment, perhaps due to the private benefits (e.g., prestige, future career opportunities, high compensation, etc.) they obtain from a larger endowment.” 

Yikes! Dark stuff indeed. One can almost smell the leather and tobacco in the smoke-filled room back at Harvard University and see the mustache-twirling administrator cutting off cafeteria workers from the spigot in order to spare the endowment and its precious billions. 

But it couldn’t happen at dear old Pomona College, could it? Well, in 2009, when markets fell, it sure did. 

President G. Gabrielle Starr — please don’t let it happen again. Let’s not be the Harvard of the West. Let’s be wiser, kinder and better. Protect students and staff, and if that means a mild dip in the endowment in the short-term, then so be it.

After all, this is precisely why we have an endowment in the first place. It is not just a very large number in a financial statement meant to impress credit analysts, college ranking services and potential donors. Rather, it is a rainy day fund meant to ensure that each generation of Pomona students, faculty and staff receive the same world-class experience, even if they are so misfortunate as to have their tenure overlap with a bear market or recession. 

When the health crisis is resolved, be brave, look past the endowment and operate as you had planned to. It’s as simple as that.

Alex Etzkowitz PO ’10 won the Brystine Prize for Finance from Pomona College in 2010. He lives with his wife, Natalie Lu PO ’10 and two rabbits in Costa Mesa, California.

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