Bard's Bet

During four decades as president of Bard College, Leon Botstein has hauled in hundreds of millions of dollars to save the institution from near-collapse and turned it into an expansive global brand.

The college is known for innovative arts programs, far-flung campuses and Botstein's eloquence. But financial analysts raise questions about the future. Bard has enough cash on hand to cover two weeks of operations, $185 million in debt (about the same as its operating budget) and an unusual dependence on donations and lines of credit.

Moody’s Investors Service recently downgraded Bard’s bond rating three notches, a sign of what the firm sees as long-term risks. Its analysts also raised delicate but larger questions about Bard’s future without Botstein, who said he's not going anywhere, and his longtime chief financial officer.

Bard, located about 100 miles outside of Manhattan, is unusual among colleges. It operates its undergraduate program largely without an endowment and plows much of its money – from donors and tuition – into educational and cultural offerings in five states and five countries.

Botstein, who has led Bard since 1975, dismissed Moody’s criticism and called questions about Bard’s finances a “terrible distraction.”

“When you have bond raters peering over your life’s work, it’s like hanging a painting in front of semi-blind people,” he said. “You could be in real trouble.”

Botstein – a world class fund-raiser and Renaissance man – has expanded Bard and its mission. There’s a top-notch conservatory building, college campuses in Eastern Europe and on the West Bank and partnerships with public school systems in New York and New Orleans.

These are expensive projects, often with little revenue generating potential. But Botstein would rather spend what money he has on education than squirrel it away, unused. He said Bard is an “educational cause” rather than “some retirement portfolio’s safe pension investment.”

The Bard cause attracts money from titans of industry like George Soros and late Wall Street figures Leon Levy and Richard Fisher. Some large donors, like Soros, have no previous ties to Bard.

“Clearly they have very, very strong donor support and that is what has sustained these operations over time,” said Susan Fitzgerald, a senior vice president at Moody’s. “However, they don’t really have anything from a balance sheet perspective to fall back on.”

By Moody’s calculations, 43 percent of Bard’s operating budget last year came from donations, a potentially volatile source of revenue. At the same time, the college keeps very little cash on hand. At the end of October, it only had enough money sitting around to cover 14 days of operations, although college officials say they have good relationships with banks and a fund they can tap in an emergency.

Paul Efron, a former partner and advisory director at Goldman Sachs, had no ties to Bard before he joined its board. But Bard’s wide-reaching mission prompted him to join.

Efron, a former chairman of the Pomona College Board of Trustees, said the Bard board is conscious of fiscal issues cited by Moody’s but backs Botstein’s effort to use education as a force for good in society. “The board’s responsibility is to balance those things and to make sure we can be a successful institution and that’s what we discuss, where to draw the lines between fiscal strength and mission,” Efron said. “The two are conflict because the mission is expensive, but look at where Bard was 20, 30 years ago versus where Bard is now. It’s hard to say it hasn’t accomplished a tremendous amount.”

But Moody’s wonders what will happen without Botstein or his longtime CFO, Dimitri Papadimitriou.

The downgrade report said Bard’s “lack of succession planning” could be challenging for Bard, given Botstein’s close relationships with trustees and donors.

“How much is tied to the president rather than the strength of the underlying college is a question,” Fitzgerald said.

In a sign of how tight Botstein is with wealthy donors, some donors to Bard also ask the college to pass money along to the American Symphony Orchestra, where Botstein is the music director.  “So a lot of funds that come into Bard College are designated for the purposes of the American Symphony Orchestra,” Papadimitriou said.

At times, Bard advances the symphony money based on donations that are expected to come in, he said. Papadimitriou said trustees had signed off on this longstanding arrangement. The college also pays the symphony about $300,000 a year for performing on the campus. Botstein said he doesn’t receive compensation for those performances.

Botstein and Papadimitriou dismissed Moody’s concerns about succession planning.

“First of all, it’s a dumb question, because no institution has a succession plan,” Botstein said. He said when prominent institutions like Harvard University lose a president, the board conducts a search instead of just appointing someone. (Of course, those colleges tend to rely more on donors who are alumni and whose ties to the institution thus are more likely to outlast any presidency.) And Botstein, 67, said he plans to be president of Bard for another decade.

Moreover, Papadimitriou said, lower-level administrators could run Bard if he or Botstein were hit by a truck.

Botstein said he has intentionally been giving these deputies more autonomy. “My importance to the running of the institution is every day less,” he said.

Moody’s analyst Jenny Lin Maloney agreed, in part.

“In terms of the president’s long tenure there, it appears as if the board itself is stronger in terms of sustaining that kind of donor support,” she said.

Kent John Chabotar, the president of Guilford College in North Carolina and a former vice president of finance at Bowdoin College in Maine, said he also wonders what happens to Bard if Botstein is no longer on the scene. “We know for a fact the debt will continue. Will the gifts?” Chabotar said.

Botstein said he has other able fund-raisers.

“I’m not the only salesman on the force,” he said. “We have a brand.”

Botstein said he understands the risks of being too reliant on one man. He notes that John Bard, the founder of Bard, died with all his money gone, while Matthew Vassar, the founder of Vassar College, died with his wealth intact. Now Vassar has an $800 million endowment and Bard does not.

“That historical lesson was not lost on me,” Botstein said.

But other institutions with large endowments are complacent, Botstein said, and they aren’t spending the money they have on students, which is, after all, the point. He said Moody’s has “no understanding of the industry or the enterprise of higher education” and that his plan for Bard, while unusual, can last.

“Education institutions shouldn’t be measured by Moody’s ratings,” he said. “The highest-rated institution might provide the worst education.”

And, while he slams Moody’s, he also praises it.

“I welcome the Moody’s report because it is a clarion call to our donors to provide us an endowment,” Botstein said. While he thinks large endowments are not ideal, he thinks Bard could still be Bard with a relatively small one – say, $300 million. Bard already has a $200 million endowment, but it’s almost entirely restricted for graduate programs, though Bard officials also suggest it could be tapped in the case of a cash flow emergency.

Moody’s doesn’t disagree that Bard’s model has worked. But analysts there worry it’s become riskier.

“They have increased their reputation, they have increased their student demand, they have very strong donor support,” Fitzgerald said. “We are just concerned about the risk of the model as it continues to expand with thin liquidity and the need for liquidity management.”

Bard has longstanding ties with KeyBank and JPMorgan, which provide the college with credit. But in the 2013 budget year, Bard had to delay a payment to KeyBank because a $7 million pledge from a donor came in later than expected.

According to Moody’s calculations, Bard’s reliance on donations increased significantly in recent years along with its expansion. In 2009, gifts amounted to 33 percent of Bard’s total income by Moody’s calculation. In 2013, 43 percent of Bard’s income came from gifts. At the same time, student tuition is covering a smaller share of the cost of educating each student. In 2013, it cost about $65,000 to educate a Bard student, Moody’s said, but the college only collected about $25,000 in tuition from each student.

Papadimitriou, like Bostein, doesn’t think the Moody’s frame fits Bard -- or that the ratings service has any business being judgmental.

“I understand they have to do this given the fact that they were burned with whatever they did with the securitization process and created the financial and global crisis,” Papadimitriou said.