One of the central themes of the new book – How to Run a College: A Practical Guide for Trustees, Faculty, Administrators, and Policymakers — that my co-author, Dr. W. Joseph King, and I touch upon repeatedly is that American colleges and universities operate with an unsustainable financial model.
Comprehensive Fees No Longer Cover Operating Expenses
It is no longer possible to match expenses with incoming revenue by setting a college’s annual comprehensive fee (tuition, room, board, and fees) to meet its obligations. That approach began to weaken when colleges started to discount their tuition, with discounts at a good number of schools now over 70 percent of the tuition sticker price.
Consumers confuse and often conflate sticker price and cost and are unwilling to pay a number that they do not fully understand. Additionally, much of the housing fee now directly supports the academic program, as fully depreciated, aging residence halls become desperately needed cash cows.
Non-Tuition Sources of Revenue are Limited, Unreliable
Fundraising provides limited short-term relief, except for what can be raised largely through the annual fund. And at most public and private colleges and universities, the drawdown from meager endowments cannot provide a steady cash base upon which to run the enterprise.
Further, at all but a handful of research universities, government grants and contracts do not substantially support an increasingly vulnerable house of cards.
After creating whatever efficiencies exist in discretionary spending, most higher education institutions are at a loss in their search for new revenue.
Rushing to offer more adult, continuing education and online programs is a risky business plan.
Real Estate May Be a College’s Most Valuable Asset
At many colleges and universities, the most valuable asset they may hold is the real estate on which the campus sits. In Boston, the merger between Wheelock College and Boston University (which resulted in the closure of Wheelock) and the takeover by UMass of Mount Ida College were notable for the value of their real estate.
While there may not be a single calamitous “day the dinosaurs died” moment, these examples suggest, at a minimum, that real estate can often be an undervalued asset, especially in mergers, acquisitions, and closings.
There’s an open question as we move further into the 21st century on whether colleges and universities must own all of their real estate.
Is it possible, for example, that a college’s stakeholders, legal team, accountants, and student life staff could work together to negotiate the sale of residence facilities while still maintaining a metric-driven control over its student life programs?
Fundamentally, it means shifting how senior administrators evaluate staff – especially student life staff. Is it the number of beds served or the quality of the programs offered – supported by metrics like retention and graduation rates – that determines the importance and effectiveness of a student life program?
Should it stop with residence halls? Likely not, particularly if shared athletic, conference, and performance facilities could be co-developed with the taxing jurisdictions in which they are operated.
In the last century, higher education was an accepted public good because it saved taxpayers money and therefore qualified for tax exemption. No one thought much about that tax exemption until cash-strapped cities and towns moved to tax colleges or demand payment-in-lieu-of taxes (PILOTs).
In this century, it is likely that an institution will need to show additionally that it performs a tangible public good. Most tax payers do not appreciate that colleges often compensate taxing jurisdictions for police and fire support. They would understand better perhaps if colleges and universities used their position as economic engines in their region to improve common use facilities and support economic and commercial development.
Better Partnerships Benefit Both Colleges and Communities
Since curb appeal figures prominently in any institution’s marketing, enrollment, alumni, development, and branding efforts, it makes sense to support the neighborhood beyond the college walls. It’s time, in fact, to demolish these walls to integrate each college into its region.
But colleges and universities are not in the business of urban planning and are only now thinking more broadly about how to work through community real estate partnerships. The problem is that administrators, whose knowledge in a complex collegiate governance and management environment may run broad but not deep, don’t always know where to begin.
Higher Ed P3 Resource Center has Wealth of Public-Private Partnership Information
The best source available seems to be the new Higher Ed P3 (public/private partnership) Resource Center sponsored by the advisory and program management firm, Brailsford & Dunlavey (www.p3resourcecenter.com). It’s easily accessed on the web and contains a series of thoughtful “P3 101” articles, articles written by professionals in the field, original research, videos, and infographics that lay out the fundamentals of how and even whether to launch a strategic partnership with government and private developers. That’s important because making a series of bad first moves likely forecasts a failed relationship from which a college or university might not recover.
Colleges and universities that understand the value of an underperforming asset like their real estate should first grasp how to manage the question of why consider using real estate to further an institution’s goals.
Facilities staffs, however well intended, typically do not have the in-house expertise to move this agenda. Colleges are very conservative places and should be keenly aware of what they do not know. It takes a village of committed college stakeholders to rev up the economic engine that a college represents when its resources are used efficiently.
As we note in How to Run a College, those colleges and universities that become more sustainable will do so because they were careful but agile stewards of their resources. Cutting through campus inertia, it is time to build a future that relies less on tuition and debt.