|
|
 |
 |
Inside Higher Education
The Rose-Colored
Glasses Come Off
Doug Lederman and Rick Seltzer
July 28, 2017
The reality of higher education’s financial challenges is sinking in
among college and university business officers.
Now the question is what they’re doing about it -- and whether they’re
willing to do enough.
Chief business officers increasingly agree that higher education is in
the midst of a financial crisis, according to the 2017 Inside Higher Ed
Survey of College and University Business Officers. Some are also
starting to lose faith in the idea that they can overcome revenue
shortfalls using the often-cited strategy of increasing enrollment.
Many respondents were open or supportive of the idea of consolidating
programs or academic operations with other institutions. Yet survey
results reflected a greater skepticism about their likelihood of
actually merging with other colleges or universities in the near
future. Business officers were also generally leery of addressing their
budget issues in ways that would require them to ask faculty members to
change. So although business officers are increasingly recognizing the
financial threats they face, experts wondered whether they are being
realistic about the kind of strategies they will have to pursue to
chart a course forward.
This is the seventh year Inside Higher Ed has surveyed college and
university business officers. Gallup conducted the survey, receiving
responses from 409 chief business officers from May 2 to June 11.
Respondents included 217 business officers from public institutions,
184 from private institutions and eight from for-profit institutions.
Results were statistically weighted based on public or private status,
four-year or two-year degree offerings, student enrollment and
geographical region in order to produce results representative of
business officers nationally.
The emerging picture is decidedly less optimistic than that of previous
years. This year, 71 percent of chief business officers agreed with the
statement that media reports saying higher education is in the midst of
a financial crisis are accurate. That is up from 63 percent in 2016 and
56 percent in 2015.
Chief business officers at public and private nonprofit institutions
varied only slightly in their assessment. At public universities, 68
percent of chief business officers agreed reports of higher education
in a financial crisis are accurate, compared to 74 percent of chief
business officers at private nonprofit institutions.
The portion of chief business officers who believe their own
institutions will be financially stable in the coming decade also
dropped significantly. Just 56 percent of survey respondents agreed or
strongly agreed that their institutions will be financially stable over
the next five years, down from 64 percent a year ago. Less than half,
48 percent, agreed or strongly agreed their institutions will be
financially stable over the next 10 years, down from 54 percent a year
ago.
It should be noted, though, that belief in institutions’ future
stability has varied significantly in recent years -- the assessment
this year was not as dire as it was two years ago. In 2015, only 42
percent of chief business officers said they were confident their
institutions would be financially stable in the coming decade.
Chief business officers largely think new spending will have to come
from reallocating money instead of increasing net revenue. Almost
two-thirds of respondents, 64 percent, strongly agreed or agreed that
new sources of spending in the coming year will have to come from
reallocation. The result is roughly on par with results in 2016 and
2015.
Growing or Cutting Next Year?
Business officers are still interested in raising more revenue. When
they were asked about strategies to compensate for insufficient revenue
in the 2017-18 academic year, many chief business officers indicated
they would be trying to bring in more money.
Just over 7 in 10 -- 71 percent -- agreed that their institutions would
seek to increase overall enrollment. Nearly a quarter, 23 percent, said
they would try to lower the tuition discount rate, a move that would
have the effect of increasing net tuition revenue.
Those results are most noteworthy for how much they have changed from
the past. The portion of chief business officers agreeing their
institutions will try to increase overall enrollment dropped by 16
percentage points from 2016. The portion saying they will try to lower
the tuition discount rate fell by 13 percentage points.
More About the Survey
Inside Higher Ed’s 2017 Survey of College and University Business
Officers was conducted in conjunction with Gallup. A copy of the report
can be downloaded here.
Inside Higher Ed regularly surveys key higher ed professionals on a
range of topics.
Doug Lederman and several CBOs will be presenting the survey's results
Monday at the annual meeting of the National Association of College and
University Business Officers in Minneapolis.
On Tuesday, Aug. 8 at 2 p.m. Eastern, Inside Higher Ed Editors Scott
Jaschik and Doug Lederman will present a free webinar on the results
and take your questions. Sign up here.
The Inside Higher Ed survey of presidents was made possible in part by
advertising from First American Education Finance, Laserfiche, Oracle,
Workday and Workiva.
“It’s facing reality that the students aren’t there, and they’re just
not getting the growth,” said Lucie Lapovsky, a higher education
financial and governance consultant. Colleges and universities have
struggled among declines in enrollments and projections of fewer
students across the country in coming years.
“Chief business officers are seeing how very difficult it is to resize
the institution,” Lapovsky said. “Even if they maintain enrollment,
their net revenue has, if they’re lucky, stayed the same. That means
they need to cut back on expenses.”
Survey respondents showed increasing interest in some strategies to cut
spending. Half agreed their institutions would eliminate
underperforming academic programs in the coming year, up 7 percentage
points from 2016. About a third, 31 percent, said they would be
promoting early retirement for administrators and staff, up 14
percentage points from 2016. And 44 percent agreed they will be
reducing administrative positions, up 9 percentage points from 2016.
The finding of increased interest in cutting expenses is consistent
with the experience of Andrew Laws, managing director at Huron
Consulting Group. A period of “cost reduction fatigue” set in about
three to four years after cost cutting around the Great Recession, he
said in an email. The fatigue appears to be ending.
“We really saw that begin to change in 2016, and we are seeing two to
three times the amount of cost-reduction work this year than we have
done in recent history,” he said.
The percentage of respondents who agreed they would promote early
retirement for faculty members jumped 11 percentage points year over
year, to 38 percent. Yet when it came to other strategies for cutting
from or minimizing faculty spending, business officers showed little to
no new interest in comparison to the past.
About a third, 35 percent, agreed their institutions would increase
teaching loads for full-time faculty members. Also, 33 percent agreed
they would shift undergraduate teaching to part-time or non-tenured
faculty members. Only 27 percent said they would be shifting more
undergraduate teaching to senior faculty members, and just 18 percent
said they would be revising tenure policies. Those findings are largely
unchanged from last year.
That’s notable because spending on personnel represents the largest
expense for colleges and universities, in most cases 75 percent or
higher.
Some of the lack of interest in spending strategies related to the
faculty could be because faculty spending has already been squeezed.
Adjuncts have already replaced many full-time faculty positions.
Institutional structures and shared governance can make it hard to
change faculty teaching requirements.
Faculty members believe they are valuable for their research abilities
and often negotiate to lower their teaching load, even if they are not
at top-tier research institutions, Lapovsky said. That may or may not
be the case, depending on the institution and situation. But in some
cases, rather than being asked to change their ways, full-time faculty
members are simply phased out over time.
“What I’m seeing if you look at the data are faculty positions not
being re-filled,” Lapovsky said. “The full-time tenure and tenure-track
faculty are being allowed, for the most part, to keep their relatively
low teaching load. But as there’s attrition, they’re replaced by
adjuncts.”
Institutions facing financial crunches often struggle to find a
workable way to address costs while trying to meet what they see as
changing student demands. Mills College, a women’s liberal arts college
in Oakland, Calif., is in the midst of a financially motivated
retooling that includes significant cost-cutting. Faculty layoffs,
staff layoffs and program eliminations are under way as administrators
work to close an operating budget gap that was projected at about $9
million for the upcoming year.
The process has been difficult. Faculty members protested after they
learned of plans to cut tenured faculty positions. Many also questioned
the process involved, in which Mills declared a financial emergency
rather than financial exigency, which is the more widely recognized
pathway for institutions laying off tenured professors during a
financial crisis. Faculty members from outside Mills have joined in the
criticism, in June asking the college to abandon plans to close its
philosophy department.
Mills leaders have maintained that they have little choice but to make
broad changes. The country's population of rising high school students
who will soon become college freshmen is not large enough for every
institution to grow its enrollment of 18- to 22-year-olds, said
Elizabeth Hillman, the college’s president.
“The idea that everybody is going to grow out of this challenge does
not ring true with what the data is telling us,” she said.
“It's very hard,” Hillman said. “It's painful for the faculty itself,
and it's painful for the people who have learned so much from the
faculty.”
Asked in the survey about other strategies for handling revenue
shortfalls in the coming year, 6 percent of chief business officers
agreed they would outsource more academic programs. And 39 percent
agreed they would shift more instruction from a classroom-based model
to a web-based model. Only 20 percent said they would cut spending for
intercollegiate athletic programs, although that was up from 11 percent
planning to do so in last year's survey.
Meanwhile, 27 percent agreed their institutions would outsource more
administrative services, 46 percent said they would explore
collaboration opportunities for administrative services with other
institutions, and 63 percent said they would explore collaboration
opportunities for academic programs with other institutions.
Many business officers still expressed plans to pursue other
revenue-raising strategies. A full 68 percent said their institutions
would launch new revenue-generating academic programs in the coming
year, and 40 percent said they would be enrolling more full-pay
students. Both of those results are largely in line with last year’s
survey.
Colleges and universities will always have to find a balance between
cuts and investing in new programs for the future. But against the
backdrop of increasing financial uncertainty, enrollment challenges and
high competition between institutions, worries persist that higher ed
leaders have not been thinking drastically enough.
"As enrollment's going down, we have excess space," Lapovsky said. "If
we were any other industry, we would merge, go out of business,
whatever. And we're not doing that."
No Merger Mania
Closures of numerous for-profit and some private nonprofit colleges,
and talk of mergers in several public university systems, could create
the impression that many institutions are clamoring to combine,
collaborate or consolidate in the future.
The survey of chief business officers suggests that’s not the case.
One in eight CBOs said that senior administrators at their institutions
had “serious internal discussions in the last year” about merging with
another college or university. The proportion was 15 percent for
private nonprofit institutions (21 percent for private doctoral or
master’s universities) and 9 percent at public institutions (15 percent
at public doctoral universities).
About a quarter of financial officers (24 percent) said their
institutions had had serious discussions about consolidating programs
or operations with another institution, including 29 percent at public
master’s and baccalaureate universities and community colleges.
CBOs overwhelmingly dismissed the likelihood that their college or
university would merge with another in the next three years, with 89
percent of public college officers and 93 percent of private nonprofit
ones saying a merger was “not likely at all” (73 and 65 percent,
respectively) or “not too likely.” (More business officers, about a
third, said their institution was very or somewhat likely to share
back-office administrative functions or combine academic programs with
another institution in the next three years.)
The picture changed somewhat when CBOs were asked what their
institutions should do, however. Thirteen percent of public university
business leaders and 17 percent of private nonprofit ones said they
believed their institution should merge with another college, and
majorities (54 and 58 percent, respectively) said they should share
administrative functions or combine academic programs.
Asked which units at their institutions they thought would benefit most
from merger or consolidation, more than 6 in 10 business officers
nationally said information technology services, other back-office
functions, and academic program offerings. About half said human
resources.
More CBOs identified faculty opposition as a significant impediment to
merger or consolidation (51 percent) than any other factor, followed by
geography (46 percent) and a desire to maintain the status quo (45
percent). Only 28 percent identified lack of financial necessity as a
barrier.
Several experts on the financing of higher education said they were not
surprised that most CBOs were not enthused about merging.
While some mergers are actual strategic combinations of (relative)
equals – say the recent marriages of Berklee School of Music and Boston
Conservatory, and of Philadelphia and Thomas Jefferson Universities –
many are takeovers in which one institution recedes and largely
disappears over time.
“I think the whole notion of merger is just so complicated to wrap
their brains around,” said Michael Thomas, president of the New England
Board of Higher Education and author of a 2015 TIAA Institute paper
about collaboration, merger and strategic alliances. “In most cases
you’ve got to be facing somewhat desperate circumstances to pursue that
with great, great vigor unless you’re one of those institutions with a
real vision,” he said.
That public university business officers were less inclined to merge
rang true with Patrick Kelly of the National Center for Higher
Education Management Systems, which recently avoided suggesting a
merger in its review of the Pennsylvania State System of Higher
Education, where some of the 14 campuses are ailing financially amid a
declining college-age population and remote geographic locations.
"We believed we should start with the governance structure, because we
felt the institutions needed to be freed up to do more nimble things,"
Kelly said, citing the Pennsylvania system's unusually heavily
unionized environment. "We acknowledged that if you don't right the
ship, though, [closures] are likely to happen."
Closing public institutions is exceedingly difficult given the
interests of legislators, the fact that the institutions are often
among the biggest employers and the primary postsecondary options in
their regions. The University System of Georgia remains an outlier in
its aggressive consolidation of institutions.
"Unless a governing board steps in, you'd have to have this kind of
decision made by an administration, and they don't want to lose their
jobs, Kelly said.
Given the barriers, he said he expected more states to consider sharing
services or academic programs at their regional institutions than
closing the institutions outright. But to have a meaningful financial
impact, even such decisions are likely to require "closing programs in
which faculty are involved," and that can be extremely difficult, he
said.
"It's awfully easy to open a program, and awfully hard to close one,"
he said.
Fred Rogers, vice president and treasurer at Minnesota's Carleton
College, said that his college's experience had sown doubts about the
likely financial savings to be derived from merging campus functions,
let alone entire institutions.
Seeded by a major grant from the Andrew W. Mellon Foundation, Carleton
and nearby St. Olaf College have spent several years exploring ways to
work together toward a "more collaborative future."
The campuses have achieved a number of successes. They've developed a
shared environmental health safety office that has broadened both
institutions' resources in that realm beyond what they'd have been able
to do individually, and a shared card catalog between their libraries.
"It's cheaper to do that once rather than twice, and we save money on
that," Rogers said.
But when it comes to core functions like payroll, information
technology, and the like, "nobody's really willing to close down a
function on their campus for a shared function," and on small campuses,
he said, it's rare that closing a unit here or there saves meaningful
money.
"It's rare, I think, that closing something creates a better outcome,"
Rogers said. "Desperation may make it necessary for some people or some
institutions, but short of that I'm not sure it's usually better."
Transparency in Budgeting
When money is tight, tensions over budget decisions – and how they are
made – tend to rise. Inside Higher Ed's pages are filled with articles
about disagreements (like the Mills situation described above) over
institutional choices to close budget gaps, which frequently lead to
questions about whether campus constituent groups have been adequately
involved and consulted.
This year's survey asked an expanded set of questions about how
institutions construct and approve their budgets and who is included in
those discussions and decisions.
Nearly 6 in 10 business officers (57 percent) agreed that greater
transparency in campus decision-making results in better decisions
(that's actually down slightly from 2016, when 62 percent said so).
Business officers overwhelmingly graded their own institutions
positively on how transparent they are: 33 percent said excellent, 45
percent good. Public doctoral institutions were less likely to give
themselves excellent marks (11 percent), while 9 percent of CBOs at
public master's and baccalaureate institutions rated themselves "poor."
Asked with which campus constituents they shared "extensive
information" about the institution's financial health, almost all
business officers listed the full governing board (97 percent) and
faculty leaders (92 percent). Seventy percent said they shared
extensive information with the entire faculty and the entire staff; the
numbers were highest at community colleges and lowest at public
doctoral institutions.
Far fewer said they made such materials available to the student
government (48 percent), put them publicly online (45 percent), or
shared with alumni (25 percent) or all students (24 percent). Private
institutions, not surprisingly, were far less likely to make them
public.
Providing information may be one thing, but far fewer institutions
involve multiple constituencies in the budget-making process. Large
majorities of CBOs said they involve faculty leaders (86 percent) and
the full governing board (80 percent) in the process of developing
budget proposals, but the numbers dropped off sharply after that, with
just 25 percent saying they involve the full faculty (40 percent at
community colleges) or the entire staff (31 percent).
Why is that? Clues can be found in the answers of CBOs to questions
about the value of the faculty role. About 45 percent of business
officials said faculty members play a "meaningful role" (the definition
was left up to them) in institution-wide budget decisions. And 56
percent said faculty approval is required for new revenue-producing
strategies such as online or certificate programs.
Just 17 percent, strongly agreed that faculty members should play a
meaningful role in campuswide budget decisions; 39 percent agreed and
15 percent disagreed or strongly disagreed. Only 3 percent of CBOs at
public doctoral institutions strongly agreed, and 20 percent at private
baccalaureate colleges. And only 15 percent strongly agreed and 27
percent agreed that faculty approval for new revenue strategies should
be required.
That lack of interest in faculty involvement appears to stem from the
CBOs' confidence in faculty understanding of finances. Fewer than a
third of business officers (32 percent) agreed or strongly agreed that
faculty members "understand the financial challenges my institution
faces when they participate in college-wide budget discussions" (36
percent disagreed or strongly disagreed), and 40 percent said
professors "provide valuable insights" when they participate in such
discussions. Thirty-six percent agreed that faculty members have
supported efforts to address campus budget problems.
Those numbers stand in stark contract to the CBOs' views about other
campus constituents. Seventy-seven percent of business officers said
trustees "are aware of and understand the financial challenges
confronting my institution," and 85 percent said the same about senior
administrators. Two-thirds said the chief academic officer on their
campus was a "productive partner" in creating a financially sustainable
business model.
Ron Mahurin, vice president for strategy and planning at Stamats and a
former provost at several small independent colleges, said it was
understandable that many business officers felt as if faculty members
were uninformed or unhelpful in budget making – but that they may have
only themselves to blame.
"At a lot of places there's a history of information either being
hidden or just not being in the culture to share it, and it can take a
lot of work to bring people up to speed in the translation" of budget
material, Mahurin said.
"Sometimes what seems to faculty like a lack of transparency can be
that the data aren't in-depth enough, but sometimes they don't have
enough knowledge to interpret the data," he added. "I think a lot of
places are trying to be more transparent, but there's an iterative
nature process that has to go on, to understand what's going to work
best in a certain faculty and governance culture."
Gary Rhoades, a scholar of higher education at the University of
Arizona and former president of the American Association of University
Professors, said he was disappointed that barely half of business
officers believe that faculty members should be involved in
college-wide budgeting. "That flies in the face of what we know about
effective organizations," he said.
Rhoades said he wondered how most CBOs interpreted the word
"meaningful" in the phrase "meaningful involvement."
"On some campuses, it's clearly 'we'll let you know right before we do
something,' or we can develop proposals together," he said. "Clearly
most faculty members understand they're not going to be the final
decision makers, but I don't think it's unreasonable for them to want
to be part of developing proposals, not just responding to them as a
fait accompli."
Robert Nelsen has remade the budgeting process since he became
president of California State University at Sacramento two years ago.
When he began there, he said, things were so siloed that even cabinet
members didn't see the budgets of each other's departments.
Now the Faculty Senate, the University Staff Assembly and the student
government are involved in budget meetings and asked to present their
priorities, and the administration holds town hall meetings in the fall
at which "we go through and show exactly what we’ve spent, what the
budget is," he said.
"Aha moments" occurred when faculty members realized that well over 80
percent of the university's budget went to salaries and when
duplicative efforts in multiple departments are revealed.
"I can’t lead if I don’t have trust. When you lay out the numbers and
are transparent, you build trust," he said. "I needed that trust with
faculty members. When I came to the university, we needed to improve
graduation rates dramatically, and that meant doing something new. No
one is going to do something new just because a new president says we
need to. They'll do it because they trust you. And that has to be
gained."
Everette Freeman became president of Community College of Denver in
2013, and his institution, too, has greatly broadened the involvement
of faculty members and other groups in budget- and priority-setting.
The entire budget is made publicly available, and the institution's
chief budget officer holds a series of brown-bag lunches to explain how
the budget works. Faculty members have also been prominently involved
in a program prioritization effort that has proposed reductions.
"It's uncomfortable to change how you do things, because adding steps
of engagement or collaboration alters people's traditional roles,"
Freeman said. "But when recommendations come out of committees that are
representative, and you've had lots of people involved, that makes our
decisions far more robust and far better."
Retention for Financial Stability
Improving retention is another strategy that can be linked directly to
institutional finances. Student success efforts can increase degree
attainment. They can also keep a college’s or university’s enrollment
stable, which in turn anchors their financial standing.
Colleges and universities invest in a range of student retention
efforts, surveyed chief business officers reported. Most popular among
the initiatives were clearly designed pathways for students to follow
in order to earn specific degrees. A wide majority of chief business
offices, 83 percent, said their institutions invested in clearly
designed pathways for degrees. The level was significantly higher among
chief business officers at public institutions, 88 percent, than it was
among officers at private nonprofit institutions, 78 percent.
Among other retention initiatives at institutions, academic coaching
was reported by business officers at 78 percent of all institutions.
Training to help faculty members become better teachers was reported by
officers at 74 percent, and peer mentoring was reported by officers at
66 percent of institutions. Technology-enabled advising was reported by
business officers at 58 percent of institutions.
Public institutions were more likely than private institutions to offer
programs in all cases except for peer mentoring. Technology-enabled
advising revealed the largest gap between public and private
institutions. While 70 percent of public college business officers
reported their institutions offered technology-enabled advising, only
46 percent of private nonprofit college business officers said the same.
Almost all business officers, 86 percent, said the investments their
institutions made in student success had been done with the clear
expectation that higher student retention and degree completion would
improve financial stability. There was little split between business
officers at public institutions and private nonprofit institutions
responding to this question.
Slightly more than a third of chief business officers, 38 percent, said
their institutions have seen a return on student success program
investments. Another 12 percent said their institutions had not seen a
return on such investments. That leaves a substantial 51 percent saying
it is too soon to know if investments have paid off.
Breaking down the results by type of institution showed a notable
outlier: 71 percent of chief business officers at public doctoral
institutions said their universities have seen a return on investments
in student success programs.
Federal Policy Looms Large
This year’s survey of chief business officers asked about four policies
that could change under President Trump as his nascent administration
addresses higher education. Business officers proved to be most
concerned about the idea of cuts to federal student aid funding.
Eight in 10 chief business officers said cutbacks in federal student
aid funds would affect their colleges’ financial situations a great
deal. Another 14 percent said such cutbacks would affect their
colleges’ financial situations a moderate amount. The results varied
little by institution type.
About half of business officers, 54 percent, said immigration policies
that could deter international students from attending U.S. colleges
would affect their institutions’ financial situation either greatly or
moderately. Those at public doctoral universities indicated they were
more exposed, however, with 92 percent saying immigration policies
would affect their institutions’ financial situations moderately or
greatly.
Public doctoral university chief business officers were also more
concerned than their peers about the possibility of cutbacks in federal
research grant funding and reductions in federal research overhead
rates. A full 100 percent of officers at public doctoral research
universities said reductions in federal research overhead rates would
affect their institutions’ financial situations a great deal or a
moderate amount, compared to 29 percent of business officers across all
institution types. And 96 percent of public doctoral business officers
said cutbacks in funds for federal research grants would affect their
colleges’ financial situations, compared to 31 percent of officers
across all types of institution.
Debt Levels, Endowments and Other Topics
A handful of other key findings from the survey:
Seventy-three percent of chief business officers described their
institutions’ debt levels as appropriate, compared to 12 percent who
believe they have too much debt and 15 percent who said they should add
debt.
Business officers at private institutions were more likely to say their
colleges carried too much debt than were those at public institutions,
largely because more business officers at private doctoral or master’s
colleges think their institutions have too much debt. Overall, business
officers at public and private colleges were still about equally likely
to say their institutions’ debt levels were appropriate.
More than half of chief business officers, 52 percent, strongly
disagreed or disagreed with the idea that debt service has a
significant impact on their institutions’ tuition rates or spending
levels. Only 24 percent strongly agreed or agreed.
On average, business officers said 4.3 percent of their institutions’
operating budgets are dedicated to debt service. Private institutions
had a higher average, 4.7 percent, than public institutions, 3.7
percent.
About a third of chief business officers reported that endowment income
contributes meaningfully to their institutions’ annual budget -- half
of those at private nonprofit colleges and just 14 percent of those at
public colleges.
Most business officers at colleges where endowment income contributes
meaningfully to annual budgets expect to keep payout rates steady over
the next year, 71 percent. Only 3 percent said they expected to raise
payout rates, and 27 percent expected to lower them.
|
|
|
|
