Clifford Ando: The University of Chicago is crucial to Chicago. But unsustainable spending threatens its prestige.

Chicago Tribune

09-03-2025

The University of Chicago occupies a storied place in the history of American higher education. It was once among the wealthiest of private universities; it remains among the largest private employers in the city of Chicago. Its financial weakness should interest all Chicagoans; its departures from academic values, and the failures of its leadership structure, should be studied by everyone interested in higher education.
The publication of the University of Chicago's 2022 financial statements sounded alarms about its extraordinary indebtedness. My own writing since then has sketched out some of the consequences of its fiscal crisis for operations and provided a history of the budget plans and projections that its leadership has supplied to its trustees and, by extension, to the ratings agencies. The 2024 statement is now out. What does it reveal about the university's direction?
In short, every year under President Paul Alivisatos, who took office Sept. 1, 2021, the university's deficit has been worse: $63.6 million in 2022, $201.7 million in 2023 and $288.4 million in 2024. But the accounting masks the scale of the problem. The more diagnostic measure of cash used in operating activities tells an even bleaker story: $355.8 million in 2022, $486.7 million in 2023 and $504.1 million in 2024. In three years, the new administration has burned through nearly $1.35 billion. To sustain spending on that level, the university has borrowed on an extraordinary scale. Indeed, the cost of servicing its debt is now more than 85% of its revenue from undergraduate tuition. Notably, its tuition is among the highest in the land.
Three external parties should step up: the ratings agencies, which should downgrade our debt; students and the parents of students, who are paying for a very different education than the one we're selling; and donors, who should pay attention to how the university manages its endowment.
My argument rests on detailed consideration of three areas of action in which leadership has failed to adhere to its own stated ideals.
A simple way to illustrate these areas of action and their relationship to one another is to focus on the meeting of the university's board of trustees in 2017, under then-President Robert J. Zimmer. In that year, the university's leaders acknowledged that they had promised a balanced budget by 2018 (when net cash used in operating expenses was in fact negative $197.8 million) and now promised a balanced budget by 2020 — when net cash used in operating expenses was in fact negative $292.4 million.
That was the largest cash loss of the Zimmer presidency. And yet, even accounting for inflation, 2023 and 2024 were the worst years of this century by far.
Also in March 2017, the university radically changed the composition of its instructional staff. In 2006, around 29% of undergraduate classes had been taught by nonresearch teaching staff. From zero classes taught by unionized lecturers in 2018, the university added 1,032 such classes by 2020. The result is that nonresearch teaching staff taught 45% of undergraduate classes in 2020, more than the 38% taught by tenure-stream faculty.
Put another way, the university's 2009 strategic plan observed that the university had approximately 1,200 tenure-track faculty in 1972. By 2009, student numbers had grown from 9,000 to 15,000, but that faculty was in fact smaller. The strategic plan proposed to improve this situation — but wild overspending on new ventures intervened. According to the university's website, it now has 18,504 students, but only 1,119 tenure-track faculty. The need for instructional labor generated by the enlarged student body has instead been met by hiring vast numbers of 'other academic appointees': low-paid persons who are not evaluated on the basis of research.
The undergraduates who have matriculated in the new, expanded college are not being given the same education as their peers only a few years ago. Is today's education, provided increasingly by a different category of employee, different? Better? Or worse? The simple answer is that the university cannot afford any other practice. Undergraduates and their parents need to ask for answers.
Donors, too, should take notice. The university's handling of its assets has received scrutiny mostly for its divestment of real estate in response to a liquidity crisis in the mid-teens. But beneath the surface, the university has been drawing on its assets in ways that violate the trustees' own guidelines and has been extending uses of the endowment that were supposed to be temporary, all because it cannot bring its expenses under control.
The university has a rule to determine payout from the endowment: 'between 4.5% and 5.5% of a 12-quarter moving average of the fair value of endowment investments lagged by one year,' the 2024 financial statement reads. The objective is to vary in response to market conditions and aim for 'a 5.0% average payout over time.' To meet the extraordinary demands of irresponsible operational expenses, the trustees have set the payout at nearly 5.5% every year since 2011 — diminishing future purchasing power to pay for a heedless present.
There is more. In 2008, the university announced a special 'strategic initiatives fund,' designating $500 million from the appreciated value of John D. Rockefeller's original gift for this purpose. This separate fund was approved for a higher endowment payout for strategic initiatives. Several large unrestricted gifts since that time have been added to this fund. The university has been spending long term from this fund at a level not permitted under the university's 'TRIP payout formula' — so far as I can tell, simply because it cannot afford not to.
Similarly, in 2009, the university commenced a limited-term plan to pay for alumni relations and development (ARD) through a special payout of endowment funds, on the grounds that spending down appreciated value was appropriate during a capital campaign that would itself raise funds. Paying a portion of the operating costs of ARD through a special payout of the endowment has proved indispensable to a university that is already spending half a billion more than it makes, and the limited-term special use of endowment continues years after it was supposed to end — totaling more than $500 million that I can document, including $28.8 million in 2024 alone.
By these and other means, since 2009, the trustees of the University of Chicago have drawn from the endowment in excess of their own guidelines, even as leadership has burned so much cash that financial rather than academic considerations now drive vast areas of university policy. For what? Certainly one result is that the university has vastly less elasticity to meet the changing landscape of federal funding than nearly any of its peers.
Ratings agencies should note our inability to fund operational expenses without drawing down our assets and taking on extraordinary amounts of debt. Students and parents should demand a pedagogical rather than financial justification for the education they are receiving. Donors need to ask, 'Will the value of my gift be protected in perpetuity?'
Beware talk of 'values.' Demand the data.
Clifford Ando is the Robert O. Anderson Distinguished Service Professor in the departments of Classics and History at the University of Chicago and a professor in the Department of Ancient Studies at Stellenbosch University.