In a Daily Beast exclusive, a top Brandeis official opens up about the university’s financial collapse—including a potential $79 million deficit. The stark choice: Fire more than half of the faculty or sell the Rose art collection.

Brandeis University, which claims Irving Howe, Thomas Friedman, Christie Hefner and Walt Mossberg among its alums—and trustees such as Michael Steinhardt, Vartan Gregorian, and John Rosenwald—has incurred the wrath of the art world for deciding to shut down its Rose Art Museum and sell off its famed collection, which was valued at $350 million in 2007.

Other museums have sold off works before but never a whole collection. And selling into a down market struck some people as irresponsible.

No one could understand why, with what was said to be a $10 million operating deficit over five years, the university’s trustees would take such a drastic step. Even the museum’s director went on attack, saying the Rose, which according to the university’s own website “houses what is widely recognized as the finest collection of modern and contemporary art in New England,” not only pays its own way but contributes to the university’s funds. The collection, largely donated over the years, includes seminal works by Willem de Kooning, Jasper Johns, Roy Lichtenstein, Morris Louis, Matthew Barney, Cindy Sherman, and Richard Serra, among others.

But in an exclusive interview, Peter French, Brandeis’s chief operating officer, explained that the university’s situation is far more dire than it appeared in news accounts, which extrapolated the $10 million figure from published documents. He objected to the word “bankrupt,” but what would you call an institution with a projected deficit of $79 million over the next six years, a tapped-out reserve fund, a shrunken endowment and “quite a number” of big donors hit hard by the Madoff scandal?

Brandeis has already cut expenses and staff this year and last, and raised tuition and fees. French said the alternative now was either a drastic shrinking of the university or selling the art. Faced with the prospect of closing 40 percent of the university’s buildings, reducing staff by an additional 30 percent, or firing 200 of its 360 faculty members—any of which, French said, would drastically change the university’s mission and essentially cripple it—“We’d rather use Rose.”

Before finalizing the decision, French explained, the university made an emergency appeal to donors, only to confront the Madoff losses. Earlier this month, Brandeis President Jehuda Reinharz noted in a fund-raising letter that Madoff’s victims included many “staunch and generous” donors to the school. Among the biggest donors are the philanthropist Carl Shapiro and his wife, Ruth; their family foundation lost an estimated $545 million in Madoff’s alleged Ponzi scheme, according to The Boston Globe.

Making matters worse, French added, the university is in the middle of a huge capital campaign that has raised $820 million of its $1.2 billion goal. Most of that went to operating programs or is earmarked to construct new buildings, which are “fully funded” and will continue going up, despite the downturn. Only about $240 million of the campaign funds went to the endowment, which is down to $530 million, from more than $712 million last June, and is projected to drop a bit more this year.

But by Massachusetts law, French said, Brandeis can only spend gains, not capital, from the endowment—and it will be some time before there are any of those. Brandeis’s reserve fund, which is included in the endowment for management purposes, is projected to run out in about 18 months.

Borrowing money was out of the question, French explained; Brandeis already has $256 million in debt, and as he put it, “If we take out more debt, what would service it?”

None of this matters to the art world, where Brandeis is being attacked. The Association of College and University Museums and Galleries, and the much more important Association of Art Museum Directors (whose members include the Metropolitan Museum and the Museum of Modern Art), issued statements of shock, deploring the proposed sale.

No one can think of a precedent. Other museums have sold off works before—sometimes getting into trouble with the law, with museum associations, and with donors—but never a whole collection. And selling into a down market struck some people as irresponsible.

Meanwhile, Michael Rush, the Rose’s director—who was not told of the impending closure before the trustees’ vote—has started a war with his employer. “I'm encouraging everybody to take every step they want to take,” he told Tyler Green, an art blogger. “There are any number of things going on right now. There are Facebook groups, a ‘Save the Rose’ website. And we have several lawyers on the [museum] board who are absolutely looking into legal issues.” As is the Massachusetts Attorney General’s office, which plans to investigate whether selling the works violates any of the donors’ wills or agreements with the university.

Trustees must have known they would elicit such condemnation, but as one told me, not for attribution, “the board had no choice.”

Judith H. Dobrzynski, formerly a reporter and a senior editor at The New York Times and at Business Week, as well as a senior executive at CNBC, is a writer based in New York.