Faculty buyouts and the fascinating world of law school finances

This is the first in a series of posts.

Over the past few months, it’s been revealed that several law schools are trying to buy out the contracts of significant numbers of their tenured faculty, and it’s likely that quite a few more are doing so on the down low. The terms of these buyouts naturally vary by institution, but after having looked into this at a number of schools I can say that a fairly standard package is something like two years of salary in return for an immediate resignation (this sum is sometimes paid all at once, but more commonly it’s disbursed over two to five years).

From a game theoretical perspective, rational maximizers of their utility at law schools that are under some sort of fiscal stress — a category that is coming to include the large majority of schools — will no doubt make a number of calculations.

First, senior faculty who were mulling imminent retirement before the wave of buyouts struck are now perversely incentivized not to quit, since it “makes sense” for them to try to wait out their employer until it offers a golden handshake.

Second, some people are no doubt considering the possibilities of double dipping, by retiring from a their current faculty and then taking a job at another school (of course the spread of the fiscal crisis across legal academia is making it harder to pull off this particular move).

Third, some faculty are now consulting employment lawyers, since attempts to procure putatively voluntary buyouts can end up violating age discrimination laws.

I’ll have more to say about these factors in another post, but here I’m going to offer a glimpse into the remarkably diverse world of the finances of contemporary American law schools.

You can learn a lot about the fiscal structure of a law school by dividing the school’s total effective tuition by its total full time faculty. Calculating total effective tuition within a tolerable degree of accuracy isn’t very difficult, given the information schools now must reveal in the ABA 509 disclosures. The 509 forms now require schools to disclose what percentage of their JD students get discounts on sticker tuition, and what the median, 75th percentile, and 25th percentile discount is. In addition, the ABA is now publishing data on how many non-JD students each school enrolls in post-JD (LLM) and post-BA (these are the various new “masters of law” degrees) programs.

The 509 forms also list current totals of full-time faculty, including administrators and visitors. Using these data, I’ve calculated the total tuition revenue per full-time faculty member for 40 schools. The results are startling to say the least.

For example, here are the numbers for Yale Law School and the New England School of Law respectively (all figures are for the 2012-13 academic year):

Yale

Sticker tuition revenue: $14.3 million
Discounted tuition revenue: $10.6 million
Non-JD tuition revenue: $2.0 million
Total tuition revenue: $26.9 million
Total tuition revenue per full-time faculty member: $283,157

New England

Full time sticker tuition revenue: $16.26 million
Full-time discounted tuition revenue: $11.33 million
Part-time sticker tuition revenue: $6.77 million
Part-time discounted tuition revenue: $1.8 million
Non-JD tuition revenue: 0
Total tuition revenue: $36.16 million
Total tuition revenue per full-time faculty member: $1,063,529

Needless to say YLS is not attempting to operate on the penurious sums generated by the school’s $54,650 annual tuition: it also gets about $40,000,000 per year in expendable revenue from the law school’s approximately one billion dollar endowment. This sum increases the school’s effective operating revenue per full time faculty member to nearly $700,000, which according to my understanding of basic free market principles means that the quality of education being provided to law students in New Haven is 64.9% as good as that bequeathed upon students at the Boston institution helmed by the legendary John O’Brien. (Remarkably, generating more than one million dollars per year in tuition per full time faculty member in 2012-13 wasn’t enough to keep O’Brien from threatening last fall to summarily fire faculty if 35% to 40% of the current faculty didn’t accept buyouts).

Much more to come . . .