New York's Attorney General Wants to Know Why This College Isn't Free Anymore

Cooper Union started charging tuition two years ago amid allegations of financial mismanagement, and now the school is having to defend its actions in court.

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Apr 6 2015, 8:00pm

Cooper Union in Manhattan. Photo via Flickr user edenpictures

For over 150 years, Cooper Union in Manhattan's East Village existed as something of an enigma. The renowned art, architecture, and engineering college was located in one of the country's most expensive cities, yet even as students of neighboring private universities saw their tuition bills blow past 50 grand a year, Cooper Union remained free.

That all changed two years ago, when Cooper Union's board of trustees made moves to start charging tuition to incoming undergraduate students for the first time. Overnight, the school went from free to costing nearly $40,000 a year—kicking off student-led protests that continue to flare to this day.

Some current and former students argue that Cooper Union has grown corrupt and is ruled by a board more concerned with pleasing its own members—who often hail from the city's powerful real estate interests and Wall Street—than advancing their own education. These critics say the school is governed by a group of businessmen who are both nepotistic and externally unaccountable—and who didn't have to charge tuition, but did so anyway in order to pocket profits for their friends and themselves.

The accusations of foul play gained a sheen of legitimacy late last month when news broke that New York State Attorney General Eric Schneiderman's office had launched a probe into the financial decisions made by the Cooper Union board. The investigation could shed light on what went wrong—and whether there's a future for not-for-profit higher education in our modern gilded age.

The Cooper Union for the Advancement of Art and Science was established by millionaire philanthropist Peter Cooper in 1859. At the time, Cooper argued with his good friend, Andrew Carnegie, over the values of higher education and how it should be paid for. Cooper believed college should be a beacon of public education—free, and for the masses—while Carnegie, true to his capitalist philosophy, thought quality should be bought, not just given away. Cooper started Cooper Union and Carnegie founded Carnegie-Mellon in Pittsburgh.

To keep his dream alive, Cooper bought real estate all over Manhattan, and the college's endowment was bolstered by a never-ending stream of rent checks. These properties included the land beneath the Chrysler Building, which the school owns under special privileges of tax exemption due to its nonprofit status, as well as buildings along Astor Place, near the university. In a sense, Cooper was a real estate visionary who realized that if you own enough property in Manhattan, it's pretty easy to make money.

For over a century, this worked: The endowment was replenished by income from the properties, and the school was able to pay students' fees. But in recent years, that balancing act fell to pieces. Debts soared, and the trustees sought to improve Cooper Union's portfolio via common Wall Street protocols: downsizing, and investment in trustees' hedge funds. As Felix Salmon described in his in-depth analysis of the Cooper Union troubles for Reuters, this backfired.

"With more than $100 million in hedge fund investments in 2008, Cooper was paying more than $2 million a year in hedge fund management fees alone, never mind performance fees," Salmon wrote. "That's the kind of money the college desperately needs for operational expenses."

Cooper Union had to become something it never was, basically overnight: a business

For a while, Cooper Union kept itself afloat by leasing out its properties, even if they were going for below market price—a strategy, Salmon wrote, that was "clearly unsustainable." The most recent example was the $97 million, 99-year-long lease of 51 Astor Place, a Cooper Union–owned property that was auctioned off at a discount tomillionaire developer Edward Minskoff, who students say happened to be a friend of the board of trustees. The developer found it difficult to immediately start construction and find tenants—both of which were necessary to pay Cooper the rent it desperately needed. But according to a petition filed by the Committee to Save Cooper Union, Minskoff was granted consecutive delays on rent commitments by the school. Now the black monolith that was erected on Cooper Union's property houses more classes for St. John's University students than it does for Cooper kids.

The Cooper Union charter mandates that the board of trustees be personally responsible for closing the school's deficits. That might explain the sales and investments—these were seen as viable options for the board to save face, albeit temporary ones. But it doesn't explain why the board took out a $175 million loan in 2006 to build the New Academic Building, a towering glass complex smack dab in the middle of Cooper Square.

The New Academic Building at 41 Cooper Square. Photo via Flickr user Theodore Ferringer

In order to finance the loan, the Cooper Union board submitted something called a cy pres petition to New York State, which allowed the trustees to bypass the charter's rules and borrow money from MetLife against its property underneath the Chrysler Building. At the time, the school was publicly hailed for masterfully handling its portfolio, even if the petition suggested the school was facing a "grave financial crisis" and that a tuition-free future looked bleak.

"Someone had to understand that they were taking out a loan that they could not possibly cover," Victoria Sobel, a 24-year-old graduate affiliated with the activist group Free Cooper Union, told me. "It was an imminently bad decision, and when they made that, we all said, 'That can't be right.'"

The $175 million loan is yet another item that the AG's office is investigating, according to the Wall Street Journal, as it was first presented by the board as a means of expanding the school's brand and principles. The New Academic Building was supposed to elevate Cooper Union, not plummet it into near-bankruptcy. But in the end, the board decided it had to charge tuition to pay back the loan.

"There would always be a justification," Casey Gollan, another Free Cooper Union member who graduated in 2013, told me. "Charging for tuition was how we would pay for the $175 million loan, which was supposed to be good for the school. Now, taking out a $55 million bridge loan was how we would pay for charging for tuition."

Why would you have to take out another loan to charge students money? As Free Cooper Union member and alum Joey Riley sees it, Cooper Union had to become something it never was, basically overnight: a business, one that now costs $ 39,600 a year to the incoming undergraduate class of 2019. It had to create a financial aid office, a registrar, a bursar, and dedicate resources to build the infrastructure of this new corporate model. That stuff costs a lot of money.

"Before, teachers would sit around in rooms and debate who should be accepted into the school, and what should be taught," Riley said. "Now, the admissions office uses an algorithm to decide what the best price sensitivity is for students to want to go here."

In defending the school, Justin Harmon, the school's VP for communications, shared with me the latest "The State of the Cooper Union" report from mid March. In it, the administration details why the decision to charge tuition was made, as well as the benefits of the new revenue stream. "Without a disruptive intervention, the financial model I inherited was not sustainable, with escalating deficits projected into the future," current school President Jamshed Bharucha wrote.

"For the record, we have engaged in regular briefings with the AG's office since realizing that the Cooper Union's financial circumstances would likely require us to change its financial model," Harmon wrote in an email. "We initiated contact with the office again after the lawsuit was filed, so as to be available to answer any questions the allegations in the lawsuit might raise. We are cooperating fully and providing as much information and perspective as we can."

The lawsuit Harmon is referring to—the Committee to Save Cooper Union v. Cooper Union—may have provided the spark for the probe. The case, filed by a student and a professor in Manhattan Supreme Court last August, seeks to uncover why, exactly, charging tuition was necessary. (Faculty members from the Committee to Save Cooper Union would not comment for this story, because the lawsuit is still being fought in court.)

When I met Gollan, Riley and Sobel at an East Village diner, they handed me a large stack of papers, including a lengthy transcription of the court proceedings from the Committee to Save Cooper Union's lawsuit.

"It's like I keep asking myself, 'How much darker can this get?'" Gollan said. "And then I get proven wrong again and again. Now the people asking 'What's going on?' is the state of New York. Who knows what the AG will dig up."

The documents included a report from a working group that detailed numerous means by which the university might have avoided charging tuition. The group was formed by three trustees after the initial occupation of the President's office by students two years ago, but its findings were deflected by the board. The report included inquiries into the real estate assets of Cooper Union, specifically that of the Chrysler Building, the school's crown jewel.

Students also like to point out former President George Campbell Jr. was one of the highest-paid university executives in the country— he earned over $650,000 (including a $175,000 bonus) in 2009, just as the school began suggesting it had no money. (Campbell, who opposed the decision to charge students, stepped down as president in 2011 and has since moved on to another not-for-profit school on Long Island.)

A counter-report prepared by the Committee to Save Cooper Union, "The Real State of the Cooper Union," claims that it's unclear when the school will start turning a profit. President Bharucha predicts new revenues to reach $12 million by 2019, but Free Cooper Union activists say it could take years to achieve any measure of sustainability. That brings us back to the point of the AG's probe, which is focused on finding out why, even with the decision to charge, the school's finances still seem to be such a mess.

In an unofficial board meeting transcript leaked in 2012, students like Sobel, Riley, and Gollan were described by the trustees as being "influenced by the Occupy movement" and pissed off by the Wall Street barons who bankrupted the global financial market. "I think these students are very frustrated because they don't really have a handle," one trustee remarked, "And they're being influenced by some people who do have a handle, but who see political gain in this."

In that same meeting, another trustee, Peter Cafiero—who once wrote a scathing email to student protesters saying that they didn't have "the most basic knowledge of how to make their case, what their case is, or the realities of the world"—warned of future intervention by the AG's office. The board of Cooper Union clearly wanted nothing to do with Attorney General Schneiderman.

"They could basically make our lives hell by going through every dime spent on everything here," Cafiero said at the time. The statement is in stark contrast with what Justin Harmon, the spokesman for Cooper Union, told me: that the school looks forward to complying with the probe.

Peter Buckley, a humanities professor at Cooper since 1985 and the VP of the faculty union, told me he wasn't particularly surprised by the AG's probe. To him, it was a long time coming, as he believes the board itself had to expect legal blowback of sorts with the risky decisions they made—especially President Bharucha, who Buckley thinks resembles Andrew Carnegie, Cooper's old rival.

"It's not just a change in policy; it's a change in ideology," Buckley said. "Most faculty knew that the reason Bharucha wanted to charge was because he couldn't defend the existing tuition scholarships. He thinks education is a private good, and you should pay for it. By making education a quantifiable advantage, the board couldn't have expected that it wouldn't have an impact on the atmosphere of this school."

Using an analogy that he concedes to be "inept, but I'll stand by it," Buckley said the campus now feels a lot like the last days of the Vichy government in France, the puppet regime installed after the Nazis invaded the country during World War II. "There's this sense around campus of a desperation to get things done before it all falls apart," he said. "Something's going to happen."

When I spoke to Cooper Union students, both past and current, it sounded as if they were documenting a war fought on the streets of the East Village. Hadar Cohen, a senior-year engineering student, described the incoming freshmen as "post-occupation," and said she was hopeful that the new students would be "ready to fight." But for her generation, the upperclassmen who witnessed this whole saga took place, the AG's probe has reopened a new battlefront. Just last week, the board backed away from implementing credit caps a backlash from both students and faculty, who argued that the move was profit-driven.

"It's this reality that you've been sold that is completely unreal."

"After the decision to charge, there was this weird energy on campus," Cohen told me. "A sense of powerlessness; it definitely felt like the administration was taking advantage of us because we were young. We had did as much as we could, and we had lost hope about the future."

"But now," she continued. "There's this boost of energy with the AG's probe. Like, we enabled this to happen, and now the higher powers are getting involved. Things are finally going in a positive direction."

Since the decision to start charging tuition, the board has tried to appease its students, including efforts to diversify its own membership. A student representative has been appointed, even though the board shot down the idea of an Associates Committee, which would've been made up of faculty and professors as a check on the Executive Committee's actions.

Sobel, for one, feels betrayed by her alma mater, and finds it harder each passing day to dedicate time to the cause. Even though the tuition charges went into effect after she graduated, she feels the principles by which Peter Cooper built the school have been bought and sold.

"It's a financial scandal but a cultural problem," she told me. "Universities have to grow, have to be pro-expansion. But if you get through all of that, there's a layer of growth that is just incomprehensible here. It's this exceptionalism that has plagued schools everywhere, and it's just ridiculous. It's like you graduate into this plateau, and you find out everything you were told was essentially false.

"It's this reality that you've been sold that is completely unreal."

Follow John Surico on Twitter.

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