One of the great myths about American higher education is that all colleges are wealthy. If most Americans have an mental image of a college, it’s often a bucolic bricks-and-mortar residential facility separated by rolling green lawns, entered through an impressive if forbidding-looking gate, and populated by attractive students who drive fancy cars.
What they can’t see past the stately columns or newest facility highlighted by energetic tour guides is the level of deferred campus maintenance. They fail to comprehend the amount of debt or the inability for a college to sustain its existing campus footprint. They don’t see is that the average discount – the percentage of total gross tuition and fee revenue institutions give back to students as grant-based financial aid – is now 50 cents on the dollar at most colleges. And they seldom appreciate how reasonable staff and faculty compensation, including health and retiree benefits, the impact of technology, and the rising cost of government regulations and reports constrain most college operating and capital budgets.
On one level, a college is a business. But at the same time, it’s a heavily regulated business that produces – in business terms – a product that requires significant inputs of labor, capital, and technology.
College Revenue Streams Are Drying Up
The problem is that college and university sources of revenue are drying up. Consumers are voting with their feet as over half choose public- or locally-supported options like community colleges, for-profit providers, or certificate programs. The sticker price that “sticks” in the minds of these consumers is the widely-reported $70,000 annual price tag at the most selective colleges and universities.
At most colleges, it’s no longer possible to match revenue to expenses by setting tuition prices to meet annual operating needs.
College Endowments Are Not Magical Money Trees
But what about tapping into the endowment? In the minds of consumers and many public officials, an endowment is a kind of imaginary money tree from which additional needs are met.
The reality is that few colleges or universities have large enough endowments to produce significant revenue. In 2015, the National Association of College and University Business Officers (NACUBO) and the Common Fund reported that the 94 institutions with endowments of $1 billion or higher control 75 percent of all endowments nationwide. If colleges typically draw down five percent on a rolling quarterly average, the amount available to most of the remaining 3,900 institutions surveyed is negligible at best.
The other potential sources of revenue are auxiliary services, like residential housing or athletics, or debt. Revenue from auxiliary services are essentially flat, with many colleges using residential housing to support their academic programs. Only one in eight colleges have sports programs that break even. And debt – often used indiscriminately and for the wrong reasons – is a particularly worrisome source of support. Many colleges are at the end of their debt capacity or find the amount capped by trustee action.
Fundraising Campaigns Aren’t Financial Panaceas
What is left is revenue from fundraising. Colleges will sometimes tie a presidential search to the reputation of prospective candidates as potential fundraisers. But the cold facts are that there may only be about 50 colleges and universities in America where fundraising is anything more than running in place.
The problem is that fundraising has become seen as a panacea to cure all ills that plays out like every college is a major research university with a significant, mature fundraising machine in place. To create momentum and garner visibility, most colleges favor a comprehensive campaign. Under this approach, colleges throw almost everything into the mix, including their annual fund, deferred gifts, and any specially cultivated donations. The college establishes targeted goals in specific categories. The president makes periodic reports at campaign events. The college offers updated reports within a specified time frame about how well the institution is doing to reach its stated goal.
Campaigns are expensive, and at times, counterproductive to the immediate goals that a college needs to meet. To assess the success of a comprehensive campaign, multiply the “all in” amount raised annually before the campaign started by the number of years of the campaign. When this number is subtracted from the announced comprehensive campaign goal, how much is needed to reach the announced campaign goal?
Does it really make sense for colleges to play like the big boys when what they are actually doing is re-characterizing money that they are already raising without the costs associated with a full-fledged campaign?
Targeted, Micro Campaigns are Alternatives to Comprehensive Campaigns
For colleges and universities that do not have the money, staff, and alumni and donor base to run a full-scale, multi-year comprehensive campaign, there may be better, more targeted approach. These institutions should consider putting most of their work into cultivating – that is, growing — the annual fund and deferred gifts.
To the extent that a college seeks the optics of a successful campaign, its leadership should think about micro-campaigns that address specific, identified, and fundable campus needs. College stakeholders can touch and feel these advances. The effect is the same, absent the bragging rights to an inflated comprehensive campaign goal.
One size – or approach – does not fit every college. Success in fundraising relies upon common sense and a clear understanding of what’s possible given the scale and resources available.