11/10/2013 04:04 pm ET Updated Jan 23, 2014

Cutting Law Schools

Law schools must cut. Enrollment is down. The drop has no end in sight. It might be temporary; it might be permanent. Even if it is the former rather than the latter, there is much more to come: two-year JD programs, limited licenses, and various demands for reform.

Most law schools already have cut their enrollment. Unless the law school's dean has made a Faustian bargain, the cut to enrollment calls for a cut to the budget.

Many law schools are facing a structural deficit. It is important to explain what that means.

A deficit is a negative balance at the end of a given time period, typically a fiscal year (which may or may not correspond to a calendar year or to an academic year). The expenditures exceed the revenues.

An enterprise might run a one-time deficit because of an extraordinary expense. Say part of a building burns down in a particular year. It has to be rebuilt.

For an independent law school, such as UC Hastings, covering an extraordinary expense necessitates spending from the reserves that have been accumulated for just such a purpose. For the majority of law schools that are embedded within a larger university structure, it is possible the central administration will offer a temporary subsidy to make up for the loss.

A one-time deficit is not desirable, but it is not likely to be fatal. "One-time" is a crucial adjective. There is no reason to expect that another building will burn down the next year.

A structural deficit is something else altogether. It is inherent. Suppose the school has a payroll that is oversized relative to the money coming in. Human resources are what law schools buy; there is little raw material, as would be purchased by a manufacturing venture.

Unlike a building burning down, which one hopes occurs rarely, it is a certainty that employees will wish to be paid regularly. If the payroll cannot be met one year, and nothing is done to change the situation (either laying off some employees or reducing compensation for all employees or deploying some combination of measures), the deficit will repeat itself the following year. This will continue until the reserves are depleted or the outside source of funding is exhausted. The institution then is insolvent.

When any leader in higher education announces that there is a problem of this nature, there is a temptation to infer that the leader is the problem. If only the wrongdoeers were identified, all would be well. The administration must be incompetent, dishonest, or both.

Or sometimes observers assume that there is a hidden surplus in the system. They suppose that a thorough search will turn up excess that could take care of everything if it were eliminated. Yet one person's waste is another person's livelihood.

The extent of the crisis for legal education, however, cannot be denied. It is quite possible that in this application cycle, law schools--not any specific law school, but all accredited law schools taken together--will see a fifty percent reduction in the applicant pool since the recession set in. There have been thirteen consecutive LSAT sittings with fewer takers.

"Crisis" is the right term. Industries rarely see such negative change.

Law schools have been insulated from economic trends. They actually have been somewhat countercyclical, so an uptick in the economy might not help matters. (This description of the situation doesn't even take into account the tuition discounting that must be applied to attract the best students.)

With potential revenue at such a low point, expenditures must be brought into line. The alternative is bankruptcy.

People always hope to address the revenue side. There two common suggestions.

The first is to build out non-JD programs. LLM programs have multiplied. Over the past generation, LLM programs have enrolled primarily foreign students or the handful of Americans who took law degrees outside of the country. More recently, it also has included LLM programs for Americans looking to specialize or add prestige to their pedigree: what once was restricted to the specialty of tax has proliferated to various other fields. In an instant, it has begun to encompass non-professional degrees for individuals in cognate fields who could use legal skills to continue advancing in their current occupations.

The second is to raise more money from private sources. Even institutions that once depended on state subsidies for the bulk of their income have set up advancement operations. They chase their alumni for gifts and submit applications to foundations for grants.

These tactics are necessary and commendable. They can compensate for modest shortfalls, but they cannot cover up basic inadequacies with the business model.

Unless a law school wishes to transform itself out of the training of lawyers, its core will remain the JD program; it is wishful thinking to wager otherwise.

Non-JD students are not available in sufficient quantities, and they do not substitute on a one-to-one basis for JD students in monetary terms. They are at best a two-for-one proposition; speaking of them in that sense only exposes the troubling tendency to treat them as if they were a financial necessity and little more. If they are not similar in quality to the JD students, taking them in trades one set of worries for another.

Fundraising potential is routinely overestimated. An institution with thousands of alumni who have not been accustomed to giving will not become an institution with thousands of donors without a better pitch than its own imperilment. Contributions follow success. There are lawyers who appreciate what their teachers enabled them to do, but, contrary to what legal training might suggest, it is not generally possible to persuade someone they ought to feel generous.

Thus we come to this. Law schools must cut. I embrace radical transparency in making that declaration. What we see when we pull back the curtains is not necessarily pretty. The great and powerful Wizard of Oz asked us not to pay attention to the little man back there.

The challenge for us legal educators is to continue inspiring people to care about the law: students, benefactors, the bench and the bar, even the public at large. Inspiration will require innovation. It's time to step out from behind the curtains.