How Colleges Tend to Lose Their Financial Way

I can guess what Wheelock, Sweet Briar, Marygrove, Acquinas, and Holy Cross Colleges have in common because my university is in the midst of it’s own financial crisis of our own making.

The Wall Street Journal describes the dire situation of those institutions in “Some Cash-Strapped Private Colleges Cut Programs, Sell Assets.” The fact that we weren’t referenced means everything is relative.

Here’s how colleges and universities tend to lose their financial way—alumni of modest means + small endowments + rising skepticism regarding the value of a college degree + changing demographics/declining enrollment + steadily increasing tuition discounting + rising healthcare costs + steadily increasing deferred maintenance + the selling of assets + overwhelmed/fallible administrators + futile budgeting practices + inattentive faculty + uninformed alumni.

Here’s a second, simpler equation. Proposed faculty cuts prompt vulnerable faculty to focus on their livelihood much more than the university’s long-term viability = hopelessly misguided social media campaigns and contentious October and November Faculty Assembly meetings.

Some context from the WSJ article:

• The percentage of finance chiefs at private, nonprofit colleges who agreed or strongly agreed that their institutions will be financially stable or sustainable over the next five years fell to 51% this spring, down from 65% the prior year, according to polls by Inside Higher Education and Gallup.

• More than one-third of colleges with full-time enrollments below 3,000 students had operating deficits in fiscal 2016, according to a Moody’s report, up from 20% in fiscal 2013.

• . . . there were nearly two dozen higher-education mergers and acquisitions from 2010 to 2017, nearly twice as many as in the 2000s, according to a tally by Parthenon-EY, a consulting firm.

The fiscal crisis equation in more detail.

Alumni of modest means and small endowments. My college, like the aforementioned ones most likely, does an excellent job of preparing nurses, teachers, and social workers who make middle class money, but don’t have much to give back to their alma mater after adjusting for student debt payments and expensive housing in Western Washington. We don’t prepare nearly as many technology entrepreneurs, investment bankers, or corporate chieftains; as a result, our endowment is $83m. Our spending rate on that is 4.75%, so our endowment takes care of about $4m of our annual $100m in expenses. Across town, the University of Puget Sound’s endowment is over $315m, meaning they have a $15m head start on their reduced expenses given their smaller student body and faculty. Step one in fomenting fiscal crisis, bet your collective lives on a steady stream of tuition dollars.

Rising skepticism regarding the value of a college degree. When it came to employment, twentieth century college graduates had a leg up on their non-degree holding peers. Now that employers have a lot more degree holders to choose among, they are focused mostly on the tangible skills people bring to their teams. Families know that a college degree guarantees far less economic security than it did a couple of decades ago. Consequently, they fret about their “ROI” or return on investment. Meanwhile, lots of people start college, but don’t finish.

Changing demographics/declining enrollment. The number of eighteen year olds in the U.S. peaked 5-7 years ago. Since then, that age cohort has steadily shrunk. Trump and Kim Jong-un have nothing on Deans of Admission in competing markets. Eight years ago, our enrollment peaked at 3,700+. At the time, we had approximately 375 faculty. Today, our enrollment is 3,100 and we have approximately 375 faculty. That is our financial crisis in two sentences.

Steadily increasing tuition discounting. Last year, at my university, if everyone paid full freight, we would’ve brought in $114m in tuition and I would’ve received a salary increase. However, minus the $51m we awarded in financial aid, we netted $63m, meaning the average family paid 55% of the advertised price. Although an economist faculty friend who is a lot smarter than me on this subject isn’t worried about the tuition discount rate, I have to believe our steadily increasing discount rate will become untenable at some point.

Rising healthcare costs. Our university pays a lot towards our very good health insurance. Being a large group, we’ve avoided the exorbitant increases in premiums and related costs that most individuals have seen in recent decades, still though, providing affordable, high quality health care is going to prove increasingly difficult going forward.

Steadily increasing deferred maintenance. I serve on our university’s Capital Improvements Committee. Our charge is to fix and/or improve things in a timely manner. Last year, the projects on our campus-wide “To Do” list totaled $3m, most of which had already been deferred. Really sexy stuff like repairing leaky roofs and replacing aging boilers. We had $1.1m to spend. We used that to complete four or five of our twenty plus repairs/improvements.

The selling of assets. In our case, a longstanding public radio station. For $7m. Much to the disappointment of most current and former students and friends of the university. The President, who recently “resigned”, botched the sale. He wasn’t nearly transparent enough about the planned sale and somehow didn’t anticipate the blowback.

Overwhelmed/fallible administrators. At a Program Leaders meeting last fall, a few PowerPoint slides made our financial crisis crystal clear—showing the same size faculty despite 600+ fewer students. Also showing our student to faculty ratio slipping from 15:1 to less than 12:1. Schools with 12:1 ratios tend to have endowments that dwarf ours. Then the President got up and started talking about “contingency funds”, that the problem was simply retention, and that we were fine because the VP of Finance had the forethought to purchase some bonds at a favorable rate. I raised my hand and said, “I don’t understand. There doesn’t seem to be any sense of urgency.” I repeated my assessment near the end of the meeting which prompted the brand new Provost to lean into my row at the end and say, “I need to talk to you right now.” Shit, what did I do? She said, “Thank you for saying what I’ve been thinking the last few weeks.” We talked about the disconnect, bonding through shared frustration. The former President, a Ph.D. in English, relied too heavily on the previous Provost and a few VPs to manage our finances. He was among the last to realize serious faculty cuts were necessary. Related to that, administrators sometimes demonstrate their fallibility by making poor financial decisions. A decade ago, one of ours convinced others it would be a great idea to move our small/medium sized on-campus bookstore into a shiny new, several times larger building, a few blocks from campus. Recent analysis revealed the shiny new off-campus bookstore ended up being three to four times larger than all of our similar sized, peer institutions’ bookstores. Consequently, it was a huge hole in our bucket for years. Now it sits empty. Also, Provosts over the last decade said “yes” to new positions way more often than they should have given declining enrollment. A lot of academic administrators are better academics than businesspeople.

Futile budgeting practices. Socialism worked for the early Christians and variations of it seemingly work well for Scandinavian countries; but for modern universities, not so much. My university has one large revenue bucket which means if my Education Department colleagues and I double the size of our programs and thereby double our revenue, zero dollars are returned to us. The end result is that there’s no incentive to grow. It’s so craycray, my current strategy is to plead for a 90% tax, asking for 10% of any increase in revenue to be returned to us to use however my colleagues and I decide. A related flaw is that we can’t carry over any savings from one fiscal year to another. So a few years ago, in late June, everyone suddenly got iPads and wireless keyboards whether they needed them or not. Mine has been collecting dust ever since. Why? Because we would’ve lost some saved technology mullah had we not quickly spent it by the end of the fiscal year. The end result is there’s zero reason to not request a replacement for a retiring colleague. Fixes to these problems have been discussed longer than Bernie Sanders has been alive. “Responsibility or Lute-Centered Management” is right around the corner. Everyone is certain of it. I think a Mariner playoff run, a unified Korea, and fully autonomous cars all come first.

Inattentive faculty. I weigh 168 pounds. 163 after this morning’s long/hard ride, 173 after pigging out on a rest day. I weigh myself every night. All I care about is that the first two numbers are “16”. 169.9 is cool. When the second digit is a “7”, I eat a little less the next day. Obsessive, definitely, but it takes all of 10 seconds and works for me. The point being I don’t just assume that because I’m slender today, I will be tomorrow and for the foreseeable future. I monitor my weight every damn day. Who is monitoring the university’s finances? The VP of Finance and the Controller and the Provost and maybe two to three other faculty on the Budget Advisory Committee. That’s five to six people among 600+ faculty, administrators, and staff. Ninety nine percent of people assumed all was well enough until a Special Joint Committee  was charged with recommending reductions in force among tenure-track and tenured faculty. Somehow, many more of my faculty colleagues and I have to share in the monitoring of the university’s finances. Delegating it has proven disastrous.

Uninformed alumni. Among many other cuts, the Special Joint Committee has called for the elimination of Classics and the 2.7 faculty who teach it. One of the 2.7 has vented on Facebook, encouraging current and former friends of the program to agitate to save it, which would require the elimination of 2.7 other Humanities faculty positions, which he acknowledged is “shitty”. One sympathizer wrote:

“Classics? You mean a department that draws on the rich cultural history of people before us, of the rich thought of writers, philosophers, artists and historians who helped give rise to our own socio-political beliefs? Nah..who needs that? Can’t get a good corporate job with classics.”

Others are attempting to quickly raise money to save the program. Admirable for sure, but inevitably too little, too late. And it’s painfully ironic how devoid the Classics social media campaign participants are of historical context. None of the participants show any feel for The Equation. They make it sound like people just don’t appreciate the Classics professors’ expertise. And those professors seemingly think that if they just explain Classics relative importance again, the program might be saved.

Postscript. In the midst of struggle, change, loss, and real sadness, there is hope. Following the President’s “resignation”; and Provost Brown’s heartrending passing; the Board has assembled a truly excellent leadership team. Also, everyone now understands that difficult decisions have to be made quickly so there is a sense of urgency. And like me, most people have confidence in our leadership to thoughtfully make the sacrifices necessary for us to not just survive, but thrive, albeit in different form, for another 125 years.

 

 

One thought on “How Colleges Tend to Lose Their Financial Way

  1. Pingback: This Week’s Links – Timothy Siburg

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