Letter to Columbia University Detailing Conditions for Restoration of Funding - Part 12 (more rationale)
Back in late March, we reproduced an item from a Columbia University alumni group concerning the pressures Columbia was under after receiving detailed demands from the feds. Since that time, Harvard rejected similar demands to great fanfare. But as the item below from the same group points out, where as both Harvard and Columbia are in the Ivy League, they are in different financial leagues.
Why Not All Universities Can Engage in Resistance Performance Art: A Tale of Financial Realities
Recently, we wrote about why Columbia’s endowment can’t simply be weaponized as a war chest to “fight Trump”, in reaction to some of the feel-good-but-financially-illiterate calls out there to do so.
Mixed messages from Ivy League schools have emerged following recent events. The Trump administration froze select contracts or grants at Princeton and Harvard, prompting bold statements from these institutions. Princeton President Christopher Eisgruber solemnly declared his willingness to “say no to funding,” although he stopped short of promising Princeton would “litigate forcefully,” which he freely advised other universities to do weeks earlier. Likewise, Harvard’s former president, Larry Summers, strongly urged wealthy institutions like Harvard to “resist the arbitrary application of government power” through “acts of resistance”, but he didn’t say exactly what this would be. Presumably, universities should be very, very angry and write a letter saying how angry they are.
What’s behind this discrepancy between institutions? Why can Princeton and Harvard—at least in rhetoric—defy Trump, while Columbia seemingly struggles to take a similar stance?
The uncomfortable truth boils down to money and the prosaic realities of university finance: universities can be asset-rich—that is, wealthy on paper—while being cash flow-fragile. Universities operate with uneven cash flow, receiving large sums on regular but extended cycles (tuition, government grants, reimbursements) but payroll and bills are due every few weeks. Last week, we showed the details of Columbia’s unbalanced working capital cycle, where it takes roughly twice as long to collect cash versus the need to disburse cash. Even slight fluctuations in these flows can create financial strain. Old hands at Columbia will recount how in the 1980s even after selling Rockefeller Center land for $400 million and doubling our endowment, there were still months when the University was nervous about making payroll.
Institutions sometimes rely on bond markets during crises, as Columbia and others recently did. However, debt markets can be unpredictable. Harvard’s recent (attempted) bond issue of $450 million—one might expect this global academic giant to find eager investors—was surprisingly undersubscribed, highlighting that investor confidence in university finances varies significantly.
The Stand Columbia Society uses two key metrics to explain why some schools posture confidently, while others cannot.
We call the first one the endowment coverage ratio, the percentage of a university’s revenue covered by endowment distributions (excluding patient care revenue to avoid distortions). Columbia’s endowment distributions account for only 13% of its annual revenue—one of the lowest in the Ivy League. By comparison, Princeton’s ratio is a robust 66%. A higher ratio means that the university is largely financially self-sufficient on its endowment distributions alone, without need for much external funding—and despite that Princeton is still considering issuing bonds, indicating the cash flow fragility of universities. We note that Harvard’s is a comfortable 41%. In other words, Columbia doesn’t have the financial cushion to comfortably weather cash flow shortfalls.
This leads us directly to the second metric—what we call the grant coverage ratio. This represents the share of university revenue from government grants (including patient care, as grants are disproportionately driven by NIH and related agencies). Columbia ranks high in grant dependence, receiving almost three times more federal funding than Princeton (which doesn’t have a hospital system.) Princeton’s bold and brave willingness to risk federal funding underscores its relatively secure financial footing and low risk exposure. In the meantime, this high dependence exposes us disproportionately to federal risk.
There are two quirks with this approach. Notably, Harvard has a unique financial structure. Harvard’s extensive healthcare affiliations (over 11,000 healthcare providers are affiliated with Harvard Medical School) separate much of its grant funding onto external entities’ books. This is why the federal government is examining $9 billion of Harvard’s grants (spread over multiple years), despite only $1 billion listed on its financial statements. Meanwhile, Stanford and MIT operate federal laboratories, skewing their grant figures.
But overall, what does this mean? It means Columbia is overexposed to federal funding risk from its high proportion of grants, and undercushioned from its low proportion of revenues from endowment distributions. Thus, when institutions like Princeton or Harvard publicly challenge political pressures, they speak from positions of greater financial stability with a higher capability of withstanding shocks. Brown, which also had $510 million of federal funds frozen, instead put out a statement co-signed by Hillel and Chabad leaders on how they were successfully fighting antisemitism. It’s easy to be brave when you’re playing with someone else’s poker chips or simply have a larger stack. Columbia, unfortunately, doesn’t.
Columbia’s cautious approach isn’t cowardice or capitulation. It’s basic financial reality and prudent financial management. Columbia has to play its hand carefully because it simply cannot afford reckless posturing. The fact that we punch above our weight academically despite these financial constraints is a testament to our strong faculty, location in New York, and the professionalism, conservatism, and care of our finance function’s leadership. Columbia’s mission is too important—its students, faculty, and staff too vital—to risk institutional stability in a battle it simply can’t win financially.
In short, reckless bravado is cheap, but prudence and financial stewardship are costly, often unappreciated, but absolutely necessary.
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