In many respects, what a college or university business officer (CBO) thinks about the health of higher education says more about the vitality and sustainability of America’s colleges and universities than the opinions of any other group surveyed. The reasoning is simple: The business officers know where the money comes from and where it goes on a college campus.
In this respect, the new findings released in the “2017 Inside Higher Ed Survey of College and University Business Officers” are sobering.
Stated starkly, most CBO’s recognize that American higher education is in the midst of a financial crisis that is different and arguably more persistent than the higher education challenges caused by the Great Recession.
Let me be clear. It’s not that the sky is falling. And it’s not that America’s colleges cannot find ways to adapt to changing impacts that detrimentally affect their bottom line. Many would say that they have administrative, programmatic, and institution-wide strategic tools that can help weather the coming storm.
But there is a sense that these options are narrowing, that traditional approaches like belt-tightening may not work fully to offset revenue declines, and that the operating models developed in the last century may not translate to adapting to the pressures building on colleges in 2017.
Inside Higher Ed (IHE) surveyed 409 chief business officers from public, private and for-profit institutions. They weighted their results statistically to produce findings that represented the view of their colleagues nationally.
Higher Ed Budget Officers Less Optimistic About Financial Health
IHE’s Doug Lederman and Rick Seltzer suggested that the sunnier opinions shaping findings of earlier survey years had darkened somewhat. They reported:
“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.” This represents an increase from 63 percent in 2016 and 56 percent in 2015.
What’s even more amazing is that only 56 percent of those surveyed agreed or strongly agreed that their institutions will be financially stable over the next five years, declining to 48 percent if the timeline extends 10 years.
Tuition, Fees Are Not Strong Sources of Future Revenue
So, how will spending needs be met in future years? Most chief business officers argue that new revenue will not be found either from comprehensive fee increases, including tuition, or from increases in net tuition revenue.
Lederman and Seltzer reported: “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.”
Is Reallocation of Budget Funds “New” Spending?
The alternative strategy is to reallocate money from within the annual operating and capital budgets. Consistent now over three years, almost two-thirds of the respondents indicated that reallocation was the best source of new spending.
Lederman and Seltzer point out, however, that these findings differ dramatically 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 that they will try to lower the tuition discount rate fell 13 percentage points.”
Arguably, reallocating money and redirecting it to other spending priorities is an efficient use of existing revenue, providing an opportunity to create new efficiencies, new investment strategies, needed program review, and potential economies of scale. It also answers questions about whether higher education institutions take their stewardship responsibilities seriously. And it is sensitive to political and consumer demands.
There are some problems, however, with this approach. College operating budgets carry significant fixed costs, especially in areas such as labor, facilities, and technology. They disproportionately employ white-collar workers who command higher salaries. Indeed, the compensation piece of the operating budget may approach up to 80 percent of this budget at some institutions.
After fixed costs, one of the overlooked facts about higher education is that there is very little discretionary money left. Indeed, many colleges squeezed much of the obvious discretion to handle shortfalls in the Great Recession. There isn’t much easy money left on the table.
Reallocation of Compensation Budget Pits Administration Against Faculty, Staff
Reallocation therefore implies some effort to address revenue shifting from fixed costs. The largest source might be compensation, setting administrators and trustees against faculty and staff. It’s worrisome, especially since the options on where to allocate revenue from have narrowed so dramatically.
There may be alternatives, especially if American colleges are willing to reimagine how they handle enrollment, the performance of underutilized assets like real estate, and their willingness to engage in broad partnerships that extend beyond the college gates. Need, rather than long-term planning, will likely motivate the higher education institutions that move first. But they could quickly become a model for others to follow.
It will be interesting to see if the most at-risk schools become the most nimble, leading higher education in a direction that others who have the luxury of time must ultimately follow.