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Cash Cows
September 20, 2009 - 10:47pm

It's a commonplace of for-profit management that units can be characterized in one of three ways: rising stars, cash cows, and dogs. The savvy manager is supposed to feed the stars, milk the cows, and shoot the dogs.

Nonprofit higher ed doesn't work quite the same way. In financial terms, Nursing is a dog with fleas. We lose thousands of dollars per student, and we can't even make a serious dent in that with volume. But we support it, because it's central to our community service mission and our students usually find jobs. (It's less true this year than in the past, but the Boomers aren't getting any younger, so I like the long-term prospects.) The same is true of capital-intensive majors with clinical placements (radiography, respiratory therapy) and niche programs with lots of required classes with tiny enrollments (engineering).

(Before the inevitable "but the local for-profit offers Nursing!" objection, I'll just note that we charge community college tuition. Let us quintuple our tuition, and yeah, we could break even. But that's not why we're here.)

We stay afloat through a series of internal cross-subsidies. By turning a profit on Psychology, we can absorb heavy losses in Nursing. We milk the cows precisely so we don't have to shoot the dogs.

(For the record, and contrary to what most of the academic blogosphere seems to believe, English isn't a cash cow. It pretty much breaks even. The smaller class sizes offset the lack of equipment costs. The social sciences are where we really clean up, since those are chalk-and-talk classes with much larger sizes. Naturally, with different course caps in different places, your mileage may vary.)

Some parts of the college can only be accounted for as cost centers, since they don't bring in direct revenue, but we have to keep them anyway. The library is like that. We don't charge a separate library fee, but it incurs its own non-trivial personnel and materials costs. Those have to come from somewhere.

As the fiscal crisis has started to feel like the new normal, and as we've become more transparent as a way of dealing with it, some of the folks in the cash cow areas are getting crabby. They're getting exploited, as they see it, and the entire enterprise is built on their backs. It's time for justice!

Well, no. At least, not by that definition of 'justice.'

Colleges have always -- always -- had internal cross-subsidies. That isn't new, and it isn't bad. The only way to try new programs, run expensive programs, and support libraries and financial aid offices and disabilities offices and electric bills is to cross-subsidize. The optimal degree of cross-subsidy is debatable, and there are times when it goes too far one way or the other. (On my campus, that's prompting a discussion of more aggressive lab fees.) But the existence of the concept is neither avoidable nor, frankly, objectionable.

As online courses become more widespread, I could imagine some traditional four-year colleges losing some of their cash cows to community colleges. This could be a serious issue for the four-year schools, and I'd be surprised if they didn't try to head it off with the usual transfer-blocking. But the force of economic gravity is strong.

(At Proprietary U, the entire 'academics' area was considered a single cost unit. The only 'profit center' in their accounting was Admissions. Internal power and salaries reflected that. It was never clear to me what Admissions was supposed to 'sell' in the absence of actual programs, but that was how they did it.)

To me, part of the point of a non-profit is precisely that it doesn't necessarily base every decision on revenues. Ultimately, it has a budget that it needs to meet, but optimizing the budget for the sake of optimizing the budget is missing the point. The point is to fulfill its mission as best it can, within very real constraints. Even when that leads to some parts of the college largely subsidizing others, it's still different from straightforward business management. We shoot very few dogs.

 

 

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