What is the university’s financial sustainability challenge?
The cumulative deficit for the past two years amounted to $73 million. If no action is taken, LAU will face an operating deficit of more than $50 million per year.
Even with all current efforts to reduce the deficit, realistically the university will still face a gap that the endowment will need to bridge.
What is the university’s educational standards challenge?
The university must strive to retain its human capital:
- The faculty, largely composed of PhDs from western universities – US, Canada, Australia and the UK.
- The support staff, who sustain the academic and campus operations, service the students and advance the university.
Currently, the university faces an average attrition rate (resignations and/or retirement) of 15%, in spite of its efforts to retain its human capital through retention incentives.
So far, this has had no significant impact on the university’s quality standards, as key positions have been replaced with full- or part-time hiring. However, the university will have to double down its retention efforts to sustain the same level of educational standards.
How has the university been able to sustain its finances?
The university has been able to weather the storms through friends, donors, major aid such as USAID and MEPI-TL programs, and through its savings (endowment) which last year covered $52 million of the deficit.
What is the endowment?
The endowment consists of savings that the university has accumulated through decades of fundraising, reinvestments and operational budget surpluses.
It is meant to sustain the university in times of financial difficulty and allow it to invest in educational strategic plans that drive its advancement.
Some of the endowment’s returns on investments are either “restricted” in use (according to the wishes of the original donors), non-liquid assets or long-term investments.
Why are these deficits unsustainable?
The returns on the endowment are unpredictable and depend on the performance of the investments. The university has no control over the amount of returns it can retrieve, so it has to be prudent and conservative.
Several major aid programs are approaching the end of their lifecycle and new programs will take some time to fully materialize, as is usual with these types of contracts.
The number of other fundraising sources has decreased as many donors and friends of LAU have been negatively impacted by the crises in Lebanon and are no longer able to help in the same way.
What happens if we take from the principal of the endowment?
The endowment could get diluted within a matter of a few years, and the university will then face a real risk of closure or compromising its standards.