Cornell Faces Financial Challenges

How are Cornell’s financial plans working in a rapidly changing environment? 

Cornell’s federal funding is placed at risk when the incoming Trump Administration, including Elon Musk’s Department of Government Efficiency, is calling for a drastic reduction in federal spending in order to balance the federal budget. President-Elect Trump and Congressional Republicans are threatening to remove universities’ tax-exempt status if they fail to address antisemitism or “woke” ideology. The demise of Kamala Harris and the Democratic Senate majority in the November 2024 election gives credibility to these threats.

RELATED: Cornell Lobbies as Washington Transitions to Trump

Meanwhile, the Ithaca City School District (ICSD) depends on real property taxes to cover 75% of its budget, and in May 2024, its taxpayers revolted and refused to approve a budget based upon a 6.5% tax increase. In response, the School Board adopted a budget that cut positions, eliminated subjects like Latin, and deferred replacement school bus purchases. Seeing this as an annual challenge, the Ithaca Teachers Association is demanding that Cornell pay $10 million per year to help balance the ICSD budget.

At the state government level, Cornell lost its $1.6 million in annual Bundy Aid. New York is facing a $7 billion backlog in maintaining state-owned buildings (such as the Ag Quad and the Vet School) under the State Construction Fund.

On top of all of this, many thought leaders are questioning the value of a college education, and the 18 to 21-year-old population is shrinking. President Trump has proposed a tuition-free American Academy to compete with universities for students.

Cornell has accumulated the largest balance sheet in Tompkins County, and many people are looking to Cornell’s apparent “wealth” as a solution to fiscal problems at the national, state, and local levels.

How Threatened Are Cornell’s Finances?

Although Cornell’s budget is almost in balance, unexpected events could easily tip Cornell into the fiscal ditch. For example, the COVID pandemic cost Cornell tuition, room, and board for students who had already started the Spring 2020 semester. Cornell had to pay $3 million to settle a class-action lawsuit. The following semester, an unknown number of students took a leave of absence, and Cornell faced COVID testing and social distancing costs to take care of those who returned for hybrid classes. Major budget cuts were needed to adjust to COVID impacts.

Similarly, Cornell faces at least two other class-action antitrust lawsuits over the details of how it awards financial aid. Not to mention Cornell’s legal fees for the appeals of denying a Physics Professor tenure based on an unsubstantiated claim of sexual assault. Cornell does not separately report its legal budget, but Cornell has retained outside law firms for these cases as well as handling the September UAW strike and the ongoing negotiations with the Cornell Graduate Students United. Cornell is also defending against claims of antisemitism.

Non-profit charities throughout the U.S. benefit from tax-exempt status, particularly freedom from paying real property taxes on buildings used for exempt purposes.  So, Cornell does pay $5.4 million annually in taxes on East Hill Plaza, Cornell Business and Technology Park, and other Cornell property unrelated to education. The Ithaca Teachers Association claims that Cornell “owes” taxes on its educational properties and seeks a voluntary payment of $10 million, although their argument could be made for even more.

Cornell alumni and friends have consistently donated each year for facilities, endowments, and to offset current expenses. Cornell’s 2024-25 budget calls for $208 million in gifts to cover current expenses this year. If something happens to turn off donors, and the gifts do not arrive as projected, Cornell could face a serious budget shortfall.

Two examples of sudden changes that affect donations would be if the Trump Administration suspended Cornell’s tax-exempt status or if Congress reduced the ability of donors to have tax benefits when they make such gifts.

In terms of federal research grants, Cornell marks up each grant to recover up to a 64% overhead factor that is approved by federal auditors.  If the Trump Administration were to demand that the overhead factor be reduced, Cornell’s ability to construct, maintain, and renovate research labs would vanish. Yet, Cornell has borrowed billions in a bet that research overhead funding will continue.

On December 20, when Congress came within hours of a federal shutdown, Cornell issued a statement that promised, “Across all campuses, we are well prepared for the impact of a short-term shutdown.” Yet, how well prepared is Cornell for a long-term reduction or termination of federal funding?

High Endowments and Low Debts

In general, the more revenue Cornell gets from its endowment and the less interest Cornell pays to lenders for the money it has borrowed, the greater the stability of Cornell’s finances as it faces many uncertainties and challenges.

Cornell’s finances can be compared to those of the other members of the Ivy League. The following table lists the total endowment size, the total debt, and the percentage of the annual budget that is covered by the annual endowment payout. 

Although each school has billions invested in endowment accounts to support specific functions, schools also borrow billions mostly to finance building construction. This debt takes the form of bank loans or bonds. In general, the more debt a school has, the more vulnerable it is to future interest rate hikes. However, the table does not reflect the terms of the debt and what revenue streams are committed to funding it. 

The endowment per student is a better measure than total endowment, and as frequently noted, Cornell has the lowest endowment per student in the Ivy League – Cornell ranked 71st in endowment per student among U.S. and Canadian colleges and universities surveyed in the 2023 NACUBO-TIAA Study of Endowments.

The endowment payout as a percentage of the total budget in the leftmost column is the best measure of a school’s financial freedom.  Frankly, Dartmouth and Harvard have so much endowment payout that they could continue operating even if they lost all state or federal funding or if their alumni halted all annual giving. 

RELATED: Cornell’s Endowment Earns Middle-of-the-Pack Returns

Different elite universities are struggling with the same challenges.  Brown University has announced a “$46 million structural deficit” in its 2024-25 budget, which may grow to $90 million in 2025-26. In response, Brown will hold faculty headcount growth to 1% and cap the current size of the non-academic staff. Brown will reduce the number of new Ph.D. students accepted and increase enrollment in master’s degree programs.

The University of Chicago deficit hit $288 million in 2024-25, but is being reduced to $221 million in its current budget process. The improvement is attributed to increased donations and the enrollment of “350 more master’s students”.

The True Goal: Stay Competitive

Rather than enumerate all of the risks of Cornell mis-steering during this transition, Cornell’s goals are worth repeating at this point. Financial decisions should reflect Cornell’s core values.  First, Cornell can promote a community of belonging by minimizing tuition increases while expanding undergraduate financial aid. It can promote purposeful discovery, by keeping faculty salaries competitive and funding cross-discipline collaborations. Finally, Cornell can make long-term investments to promote sustainability. It can do all of that without colliding with the Trump Administration or caving into the demands of the Ithaca Teachers Association or the Coalition for Mutual Liberation.

Cornell has begun its budget process for 2025-26, which will be presented at the January Trustee meeting. Meanwhile, the Trump Administration is beginning to unveil its package of proposedreforms with the goal of creating 100 days of intense initial action. Congress is expected to enact many substantive policy changes in its next budget reconciliation bill.  Whatever actions result will alter the investment climate for Cornell’s endowment. This should prove to be one of the most challenging budget cycles in recent Cornell history.