Workforce increases put some colleges, universities in financial crisis
By Roy Ockert Jr.
March 25, 2014
For years leaders of public higher education have complained about the decreasing support from government and used that trend to justify hikes in student tuition and fees. The numbers prove their point.
For example, an examination of spending per full-time equivalent student per year at the public master’s institutions (which includes most of the state’s 4-year universities) shows that average government share dropped from $5,466 in 2005 to $5,080 per FTE in 2010. Meanwhile, those five institutions raised tuition from $3,495 to $4,097, thus making up the difference with a few dollars to spare.
The numbers were similar for the public bachelor’s institutions (Southern Arkansas, Arkansas-Pine Bluff and Arkansas-Fort Smith), according to the Delta Cost Project.
The public research institutions (Arkansas-Fayetteville and Arkansas-Little Rock) fared better, increasing their government subsidies by $455 per FTE, while also raising tuition at about the same rate as the other universities.
Nevertheless, larger universities especially are coming under fire for what’s fueling their increased spending. The Delta numbers show an overall 12 percent increase in spending per FTE for the research institutions, higher than the national average of 8 percent. However, instruction as a share of the cost did not change on either the state or national level.
The money is going elsewhere, and that’s a concern, especially for students and their parents, who have seen a 160 percent increase in tuitions since 1990.
An issue brief published in February by the Delta Cost Project, an arm of the nonpartisan, nonprofit American Institutes for Research, says that between 2000 and 2012 the workforce for public and private colleges and universities grew by 28 percent, more than double the rate of the previous decade. In part, that’s because of rising enrollments.
But the evidence shows that most of the job growth came from the creation of administrative positions such as staff for admissions, human resources and financial aid offices — people who handle the business of higher education.
“Across all educational sectors, wage and salary expenditures for student services
(per FTE staff) were the fastest growing salary expense in many types of
institutions between 2002 and 2012,” the brief said.
At the same time, the brief said, most institutions made up for much of the increased need in instructional staff by hiring part-time faculty, graduate assistants and non-tenure track faculty.
The New England Center for Investigative Reporting said in a February story that nationally there are now two nonacademic employees for every one full-time tenure-track faculty member The ratio is even higher (2.5 to 1) at private colleges and universities.
Bain and Company, a business management consulting firm, published an issue paper in 2012, that contended many colleges and universities were facing a liquidity crisis. The company examined the financial statements of institutions across the country and found that many of those were significantly weaker than they had been just a few years previously.
“Institutions have more liabilities, higher debt service and increasing expense without the revenue or the cash reserves to back them up,” the authors of “The Financially Sustainable University” said.
One of those found to be “at risk of slipping into unsustainable financial condition” was the state’s flagship UA-Fayetteville. Despite a fairly strong endowment of $37,331 per FTE the UofA’s expense ratio climbed by 5 percent between 2006 and 2010 and its equity ratio dropped by 5 percent.
UALR, also classified as a research institution, had a similar drop in equity but had reduced its expense ratio by 8 percent. Other public institutions in Arkansas examined by Bain were found to be financially sound.
The Bain paper noted that in the past colleges and universities dealt with cash flow problems by passing on the costs to students and their families, increasing tuition and room and board or by adding new fees. That strategy began to fail, though, as the recession left families with stagnant incomes, reduced home equity, smaller savings accounts and less job security. They began to rebel against higher college bills, one way or another.
Bain found one of the root causes to be the escalating costs for administrative support.
“Boards of trustees and presidents need to put their collective foot down on the growth of support and administrative costs,” the issue paper said. “Those costs have grown faster than the cost of instruction across most campuses. In no other industry would overhead costs be allowed to grow at this rate — executives would lose their jobs.”
To the contrary, some universities have responded by hiring more administrators.
UA-Fayetteville had been dealing with a campus crisis after a spurt of undisciplined hiring in its Division of University Advancement, resulting in a revenue shortfall of more than $4 million over two years. The university fired those responsible and used cash reserves to cover the deficits, but the division is still running a budget deficit.
The University of North Carolina-Chapel Hill commissioned a Bain study and found $58 million in savings by trimming multiple layers of management on campus. More than half their supervisors had been managing one to three people.
Better business management would benefit most colleges and universities.
Roy Ockert is editor emeritus of The Jonesboro Sun. He may be reached by e-mail at royo@suddenlink.net.