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NYU spends its way to the top; Money: Flying in the face of academic tradition, New York University puts its funds to work on prestige professors, scholarships and buildings.


NEW YORK -- Strip away tradition, ivy-covered walls, fancy laboratories, gray-muzzled scholars, and what's left at the foundation of all great universities is the same thing: money.

That's the stuff that made Harvard, Yale and Princeton great. It's what Stanford spent lavishly in the '60s to build a world-class faculty and its reputation.

And it is the stuff that in a relatively short time has transformed New York University from a mediocre commuter school into one of the United States' premier private universities.

NYU is emblematic of a resurging interest in urban education nationwide that has come with falling crime rates and a shift in what students expect from college.

Unlike competitors that squirrel away money in endowments and live off the interest, NYU has taken the $2 billion it has raised in private donations since the late 1970s and gone on a Manhattan-style spending spree. It has spent about 85 percent of the money it has raised, and put only 15 percent in its endowment.

In its aggressive spending, NYU has enticed top-notch professors from Ivy League and other elite institutions with lucrative offers -- often including subsidized apartments in expensive Manhattan neighborhoods. It has tossed about scholarships to attract ultra-bright students. It has cobbled together a new urban campus in artsy Greenwich Village.

"We've simply done in 20 years what it took other universities 150 years to do," says L. Jay Oliva, NYU's president. "There's no way to get excellence, other than buying your way into it."

Other academics watch with a mixture of envy and astonishment as NYU has broken all the conventions that keep university money managers a tight-fisted bunch.

NYU has upped the ante for other universities' leaders, who rejoice at their ever-growing nest eggs as they tell faculty members to scrounge for their research dollars and students to pay ever-spiraling tuition.

Pointing to NYU's success, professors and other academics argue that universities ought to spend more today rather than save for tomorrow. Does Harvard really need a $14 billion endowment? Does Yale need $7 billion? Do Princeton or Stanford need $6 billion?

Universities slavishly follow rules to spend only a fixed percentage of their endowments -- usually 3.5 percent to 5.5 percent -- based on the endowment's earnings. The biggest endowments often provide less than 5 percent of the $1 billion-plus a year needed to run a major university.

Henry Hansmann, a Yale law professor, believes that the hoarding diverts universities from their core mission of educating students and making research breakthroughs.

"They can contribute more to society by building a great university than they can by building a great endowment," he says. "Yet it's as if universities were set up to maintain a steady growth investment fund and run an educational institution on the side."

Administrators at other colleges are critical of NYU's free-spending practices. They say that NYU largely missed the bull market of the 1990s by managing its relatively small endowment too conservatively. And they often bring up the folk tale of the grasshopper and the ant. NYU is foolishly consuming everything now, while they are industriously saving for leaner times, the critics say.

Hansmann and his allies argue that administrators are wrongly making a fetish of the size of their universities' endowments.

"Saving is worthwhile only if you have a better use for the money in the future than you do now. I'm not sure NYU would be a better university if it saved more money instead of hiring better faculty, luring better students and building more buildings," Hansmann says.

By all accounts, NYU's approach has brought great success.

A record 30,750 students applied this year to join next fall's freshman class. With only 3,450 freshman seats, NYU has become one of the most popular and highly selective institutions in the country. It charges nearly as much as the Ivies, too: $23,456 in tuition, with total cost of attendance -- including room, board and books -- estimated at $33,582 annually.

To some degree, though, NYU has made its own luck.

Instead of walling itself off from its surroundings as many universities do, NYU spread into the community. It gambled by building high-rise dorms in neighborhoods that were so shaky they made administrators nervous.

But the infusion of thousands of college students stabilized the area, says NYU Dean David Finney. "A bunch of shops and buildings that were vacant were suddenly rented. Restaurants, movie theaters and other business began to move in."

Some students complain that the Village has lost its edge -- a complaint that delights security-conscious administrators.

NYU's transformation is all the more remarkable given that the school teetered on the brink of bankruptcy in the '70s. It couldn't meet payroll. It laid off junior faculty, nudged older ones into early retirement. It closed its engineering school and sold its main undergraduate campus in the Bronx to the City University of New York.

The near-death experience seemed to free university leaders from the fiscal constraints that dominate most campuses, says Oliva, who was dean of the University Heights campus when it was sold.

NYU embarked on a $1 billion fund-raising campaign in 1984 and reached its goal earlier than predicted because donors were enthusiastic about their gifts' helping rebuild the university.

As it has spent its way to the top, the university has carefully selected its academic niche, building excellence in some fields, and conspicuously not in others.

It has generally avoided dishing out the obscene piles of cash needed to be competitive in the top tier in the experimental sciences: biology, physics, chemistry. Instead, it has made its mark in the arts, humanities and some select areas in the social sciences and hard sciences.

It has built a renowned law school. It has well-regarded centers in mathematics, computer science and neuroscience, which studies the workings of the brain. It has a highly ranked school of performing arts, as well as departments of philosophy, English, French, Italian, comparative literature, anthropology, sociology and economics.

Jonathan Cole, provost and chief academic officer at Columbia, pays NYU perhaps the highest compliment for someone from the uptown Ivy League institution: "NYU is creeping into the group of institutions that are competing for talent. Occasionally we find ourselves in competition with NYU."

More than he cares to admit, says Stanley O. Ikenberry, president of the American Council on Education, the trade group of the biggest U.S. research universities.

"Every day NYU goes out to see how it can eat Columbia's lunch and vice versa," Ikenberry says. "They are both stronger for it."

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