Budget Building 101

Balancing a college budget can be formidable and even disheartening task, especially when the ante goes up and the dollars, well, they’re often level at best. It can be just as challenging a task explaining the numbers to those who aren’t familiar with some of the realities or vocabularies of college finances. The problem is, that group can include parents, students, lawmakers and even faculty members.

The Associated Colleges of the Midwest thinks it can help bridge that gulf. With a $250,000 grant from the Andrew W. Mellon Foundation, the group launched the Institute on College Futures (ICF) two years ago as a way to talk finance with faculty of its member colleges.

The four-year project aims to build faculty members' knowledge of the economic challenges facing liberal arts schools during a three-day conference each summer. Ideally, the institute will spur conversation between professors and administrators on the campuses of the consortium’s 14 colleges, which include liberal arts institutions in four Midwestern states and Colorado.

Organizers of the institute are careful to point out that they don't think professors are ignorant of budget issues, and that they know the faculty cares about how and why colleges spend money. But there aren't a lot of places where they can go to get that information, said Christopher Welna, president of the consortium.  

The idea, he said, isn’t to spell out the answers for faculty, but to identify the parameters within which small, private liberal arts colleges are operating.

“One of the things we’re careful not to do is say, ‘There are no choices,’” Welna said.

Think of it as College Financing 101 -- which, in fact, is the title of one of the sessions. The syllabus covers topics such as market competition for students, people’s tendency to link quality and price, how tuition discount rates work and the effects of a recurring expense -- like salary raises -- versus one-time capital improvements.

Professor Stacy Cordery is chairwoman of the history department at Monmouth College and curator of its archives. She agreed to attend the institute only because she felt she ought to be good campus citizen. And she expected to hate it. Numbers and budgets aren’t her thing. Maybe it was those low expectations, but Cordery said she was blown away by the program.

“I went from zero to 60 miles an hour in two days,” she said. “[From] knowing nothing to feeling like I could talk about these issues.”

Now, for example, she understands what the tuition discount rate is and why the rate is set where it is. (For those readers who haven’t attended the institute, that’s how much a college reduces its sticker tuition price with institutional grants and scholarships.)

The institute is headlined by four executive administrators from different colleges within ACM. The consortium considered bringing in star power from an elite, well-known college. But the organizers wanted faculty to be able to see their own campuses within the presentation.

They also recruited presidents from two different colleges to participate. There’s the 1,300-student Beloit College, with a sticker price of $49,970, and the 2,200-student Colorado College, where the total price runs $59,745 and the endowment is five times that of Beloit’s. With that range represented, Welna said, participants are less likely to cast off information as unrealistic for their own campuses. The two other presenters are the dean of faculty from Lake Forest College and the vice president of finance from Macalester College.

The institute begins with a macro view of the state of higher education. It then describes how colleges compete against each other with merit-aid awards. If two colleges are recruiting the same student, it’s in the best interest of both to offer a scholarship, and an arms race has started, Beloit President Scott Bierman explains in his presentation.

The focus then narrows to the components of an average college budget, and eventually to breakout sessions where faculty from each campus can work on individual issues. Participants are supposed to create a presentation to share at a faculty meeting on their campus.

“I was afraid that I would be the historian in the hole who doesn’t pick her head up out of her classes,” Cordery said of sharing her experience at a meeting. “As it turns out, a large number of us were unaware of all these issues affecting the tuition that Monmouth sets.”

Brian Williams, vice president and director of faculty development and grant programs at ACM, previously worked in college advancement before he joined the consortium. In the face of financial pressures, faculty and staff often suggested that fund-raising just a little more would be the solution.

One of the eye-opening tools of the institute is a budget spreadsheet where faculty from each college can plug in different hypothetical situations to see how it affects the bottom line.

Fund-raising, it turns out, is a drop in the bucket of a complex system that’s dominated by tuition on the revenue side and employee compensation on the expense side, according to the presentation Michael Orr, Lake Forest's dean of faculty, has given at the institute. If those two budget lines don't match, most colleges are going to run into a deficit. (Note: This paragraph has been updated to clarify that compensation includes faculty and staff.)

“The math doesn’t lie,” Williams said.

Knox College faculty learned a similar lesson. The college has continually struggled with finances. Biology professor Stuart Allison has lived through three salary freezes in the past 15 years. Faculty -- Allison included -- would often say, why can’t the college just enroll more students?

But, as Allison discovered, that only keeps the budget at bay for a few years. Then, the red deficit line starts creeping up again.

“It’s quite sobering to see there isn’t just a single fix out there, or if there was a single fix, it’d have to be done at such a rate that it isn’t realistic,” he said.

Like any other campus, unpopular budget decisions at Knox, such as temporarily cutting retirement benefits, have brewed tension between the administration and faculty, Allison said. In that respect, he expects some faculty will view the institute with skepticism. But there’s always a level of mystery about how a college arrives at its budget numbers, Allison said. And the institute does help to pull back the veil.

Feedback from the institute has been largely positive so far, Welna said. As for measuring its effectiveness, that will be determined by the level of shared governance and input on budgeting on each campus.

Welna hopes the institute empowers faculty by making them more knowledgeable, not only so that they’re in a better position to talk through these issues with administrators, but also so they can explain them to the wider public.

“Concerns about the cost of college are everywhere,” he said. “You say you’re a college professor, and it’s the first thing you’re asked.”

Below is a highlight video of one of the presentations. Go to the ACM Web site to see more.