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Friday, November 16, 2012

Reforming Legal Education's Finances: How to Decide

The last question for our series on reforming legal education's finances is: should the faculty be responsible for implementing a cost-cutting plan or is that best left to administration?  This question assumes that some cost-cutting needs to happen, and that may not be obvious.  Many believe that law schools should have slowed the growth of tuition rates even when the applicant pool was significantly larger.  So who should be making decisions about tuition, class size, and salaries?  Should it be the faculty, the law school administration, the university, or some combination of these institutional players?

I don't think there's an obvious answer.  Faculty may rely on the law school administration to oversee budgets, enrollment figures, and salaries while profs attend to teaching, research, and service.  But part of service is faculty governance, and there is a tradition and norm of robust faculty governance at most institutions.  Thus, faculty may feel it is their preogative and responsibility to set overall financial and pedagogical goals for the school.  The nuts and bolts may be delegated to faculty-staff committees, such as admissions and budget committees.  Assuming such committees exist, how much oversight for their work should the faculty as a whole provide?  And what authority should a budget committee have?  Can it look at salaries?  Can it set tuition?  Tuition and enrollment may be dictated by the university, either formally or informally.  If the university sets the ultimate numbers and provides the law school's budget, how much should faculty and deans push for reforms that the university hasn't asked for?

I make the proviso here that schools have a variety of different governance structures.  But with this caveat noted, I'd ask for your thoughts on the ways in which schools should address these issues.  Should faculty take a proactive role in shaping tuition, enrollment, and budget issues?  Or are these tough decisions best left to law school and/or university leaders?

Posted by Matt Bodie on November 16, 2012 at 09:50 AM in Life of Law Schools | Permalink


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One point I forgot:-

15. Was the parent school miking the law school as a cash cow with incipient mastitis - because when the law school ceases to contribute net revenue to central fund ... and there is no medium sign of a return to a contribution, expect the main school to be ruthless at cutting the cash drain that used to be a cash cow. Just as ruthless as most diary farmers with a dry old cow.

Posted by: MacK | Nov 17, 2012 4:22:02 PM

In reading this discussion I was completely bemused by the fact that "legal academics" managed to engage it without ever doing what any practicing lawyer would suggest - start by looking at the tenure agreements. This is pretty basic practical lawyering, and that in a whole week not one of the Prawfs gave it a try is very revealing.

Now had you dusted off the tenure agreement you would have discovered that the tenure agreement has a set of rules about employment and since faculty salaries are the main cost in a law school, the tenure agreement (whatever they call it at your school) is the single most important issue in cost cutting. Almost all tenure agreements share the same salient details. They make it very hard to cut faculty salaries. They require that non-tenured (i.e., junior faculty) be cut before tenured and then operate on a last-in-first-out or seniority basis, which means that the older faculty cannot be cut until the junior faculty have been cut. In addition they usually have provisions that mean that as long as a senior professor can claim to teach the junior's subject (and you are not that specialised) they get to stay and the junior gets to go. By the way this also means that the more senior more expensive professors get to keep their pay and perquisites while the juniors lose their jobs.

But you say - we are collegial, the senior prawfs will take one for the team. In 20+ years of legal practice I have yet to see that happen ... and given the joyful screwing of law students for the last decade or two if a junior prawf thinks the senior faculty and tenured deans and ex-deans will give up a dime for them, they are delusional. In reality there is only one easy way to cut academic costs - close the department. It gets around the pesky tenure contract - this by the way is what so many colleges did with their dental schools a while back. So the hard reality is that the way costs will fall into line is that many law schools will close and the rest will hope that inflation will monetize tuition to realistic levels (so expect no real pay rises for the next two decades.)

If you are a prawf the best thing to ask is whether your law school is going to close or cut bodies heavily. Here are some factors that would suggest that your school is vulnerable:

1. Stand alone law schools will usually close later unless they are "for profit" because the Dean and faculty would be voting for unemployment. Schools that are part of bigger schools are more vulnerable because the host institution can usually make the decision rather than the law school. Layoffs will happen faster though at a stand-alone though.

2. Can a parent school realize value by repurposing or selling facilities - so is the law school on or contiguous to a campus or the main campus? or is it in a nice downtown building? or is it in the middle of nowhere? 

3. Cash-flow, cash-in-hand - look at the schools accounts (they will be available somewhere.) How much cash does the school have in hand at the end of each financial year. Most law schools have positive cash-flows twice a year, when the tuition is paid and go cash-flow negative after. If the school is borrowing in late summer and in December that indicates that there is a growing problem, tuition is not covering cost.

4. Law school endowment as opposed to main school: the school will try to “blow through” its endowment before closing, but look at the form of the endowment. Sometimes it is in non-liquid assets, say shares that are held in a trust instrument that means the donor gets to vote them and they cannot be sold – the school gets the income, or property with rent rolls.

5. Were there 2012 and 2011 tuition hikes: in the current environment a sign of financial desperation.

6. Low reputation and low ranking
- speaks for itself

7. Lower ranking than parent college or university - does the law school lower the larger school’s prestige

8. For profit school - if the trend is to be short-medium term loss making investors will "pull the plug

9. Controversy – has the school been subject to one of the scam-suits. Even if it won, it lost – the reputational damage that resulted from “but so what if we are liars” defense is enormous

10. Recency - it has not been around long enough to build up wealth alumni and powerful friends 

11. Low ranking private with higher ranking schools in same metro
- remember this is not just competition, it is about how a school closes. Another school in the same metro gives somewhere to transfer rising 2Ls and 3Ls.

12. Public in a state with multiple public law schools and low ranking than the other schools this is a big one. In a state with multiple schools an easy solution is to close one or two and take the rising 2L and 3L and have them transfer to the retained state school. An example – Rutgers Camden

13. Have a number of high profile professors jumped to other more stable schools recently, are they making those vague "would there be an opening at your school" calls, conversations and e-mails (or even hints) from faculty at that school. This is usually sign that a law firm is collapsing, partners start calling around, I expect professors will be do the same.

14. How disgruntled are your recent alumni – if many are publicly complaining that is very bad.

Posted by: MacK | Nov 17, 2012 12:47:45 PM

Budgets are complicated things, and folks who want to try to manage them have to spend significant amounts of time learning about all the moving parts. Unless professors want to spend time learning those intricacies and mastering the various interrelationships, I think that having the faculty decide budget issues is a bad idea. Shared governance is good, but "shared" doesn't mean that everything is up for faculty deliberation.

Posted by: Nancy Rapoport | Nov 16, 2012 9:23:37 PM

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