institutionalfinance

Report Projects Impact of Possible New Recession on Public Institutions

If another recession hits, many public colleges and universities are likely to increase tuition to raise revenue as they are squeezed by drops in state and local funding, according to a new report from New America.

The think tank released a paper Wednesday predicting how a theoretical future recession would affect higher education finances. It examined historical data on state appropriations, local appropriations, tuition revenue and enrollment levels from the past 15 years. New America then modeled each state’s likely outcomes in the event of recessions of differing severity.

Only a few states were projected to hold per-student tuition below the current national average of $6,006 in the event of a recession before 2022: California, Florida, Nevada and Wyoming. Meanwhile, Nevada, New York and Texas were among those found to be most likely to maintain tuition levels, lower tuition or receive increased state appropriations, even in the event of a future recession. Colorado, Delaware, Michigan and Minnesota were found to be likely to increase tuition significantly and receive state funding cuts.

The report’s authors noted that using past outcomes to predict the future is imprecise.

“States with high disinvestment and large tuition increases in previous recessions could easily reverse course should their priorities change,” they wrote.

The paper also calls for avoiding scenarios that negatively impact students by changing the way state higher education is financed. It suggests a requirement that state and local governments maintain per-student funding levels in order to receive federal aid and that a new state-federal partnership could be developed that would provide new federal funding for states agreeing to meet conditions like holding down tuition and raising state appropriations.

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Tuition Revenue Growth Projected for Private Colleges

Private colleges and universities are expected to post higher net tuition revenue growth than their public counterparts in the 2017 fiscal year, according to a new report released Tuesday by Moody’s Investors Service.

Private institutions’ median net tuition revenue is projected to grow by 2.5 percent, Moody’s found in an annual survey of higher education institutions it rates. That’s up from 2 percent in the 2016 fiscal year. Going forward, Moody’s expects private institutions to post annual net tuition revenue growth in the 2 percent to 3 percent range as institutions focus on affordability and face a competitive environment.

Public universities, meanwhile, are expected to experience slower growth in net tuition revenue -- median growth is projected at 2 percent for the 2017 fiscal year, down from 3 percent. The drop comes as many policy makers are limiting tuition and tuition increases for in-state undergraduate students. Median annual net tuition revenue growth among public institutions has fallen sharply from 8 percent in the 2012 fiscal year.

Overall, three-quarters of public and private universities anticipate year-over-year net tuition revenue rising in the 2017 fiscal year.

Large comprehensive universities are outpacing their moderately sized and small competitors in tuition revenue growth, Moody’s said. Large institutions are able to rely on their strong brands and diverse courses while often posting lower discount rates. Meanwhile, almost 40 percent of small private colleges anticipate net tuition revenue declines in fiscal year 2017.

Revenue growth will be affected by freshman tuition discount rates, which are expected to rise slightly year over year. The median first-year tuition discount rate at private universities has risen to a projected 47 percent for the 2017 fiscal year, up three percentage points from 2013. Roughly half of small and moderately sized private universities are forecasting first-year discount rates higher than 50 percent, while only 8 percent of comprehensive private universities are doing the same.

More than 60 percent of universities expected increased enrollment year over year in the fall of 2016, Moody’s said. Rising postbaccalaureate and graduate enrollment contribute to growth in the Northeast, while high school demographics are leading to enrollment growth in the South. Many universities in the Midwest project enrollment declines as the regional 18- to 24-year-old population lags, however.

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New NSF data show which universities are up and which down in total R&D expenditures

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Within NSF’s rankings of top 25 institutions in R&D expenditures, 14 institutions are up at least one spot, while six are down at least a notch.

International education a $20 billion industry for Australia

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International education experts believe the country may benefit even more from political and economic changes in Britain and the United States.

International Enrollment 'Potentially Volatile' Revenue Stream

International enrollment is an uncertain revenue stream for U.S. colleges and universities as Donald Trump prepares to take over as president of the United States, according to a report Moody’s Investors Service released last week.

Between 8 percent and 10 percent of total net tuition revenue in the United States comes from international students, the report estimated. International students only make up about 5 percent of U.S. higher education enrollment, but they pay more in tuition than domestic students.

Immigration proposals like those Trump has discussed, including proposals affecting employees with H-1B visas, could change international student demand significantly by hurting their postcollege job prospects in the U.S., Moody’s said. Universities that recently entered the international student market and those with less well-known brands globally would be most affected.

“In a climate where domestic students are extremely price sensitive and tuition increases have become a political hot topic, growth in international students provides a financial buffer against constrained tuition revenue growth,” the report said. “However, policy shifts can quickly change the landscape for international student demand, making this a potentially volatile revenue stream.”

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Universities' Unfunded Pensions Exceed Debt

Unfunded pension liabilities are higher than capital-related debt at the country’s public universities, according to a report Moody’s Investors Service issued Friday.

Moody’s said adjusted net pension liabilities will represent more than 60 percent of total adjusted debt by the end of the 2017 fiscal year. Unfunded pension liabilities totaled more than $183 billion across the sector after two straight years of investment returns below actuarial assumptions and after contributions to funds have remained weak.

Currently, pension expenses are just 3 percent of universities’ reported expenses, Moody’s said. But it anticipated pension expenses rising along with liabilities, putting more pressure on university finances. Moody’s also predicted that some states will shift pension burdens onto universities by lowering allocations to pay for other operating expenses. Certain states that currently make some or all employer pension contributions on behalf of universities are at risk. Moody’s pointed to Illinois and New Jersey as having substantial unfunded pension liabilities and budget imbalances, while Oklahoma and West Virginia are under budget pressure because of low energy prices.

Recent history in Illinois and New Jersey shows state operating support being consumed by higher levels of funding for retirement benefits.

Public universities have lower net pension liabilities relative to their size than some large local governments, however. They also have cash and investments that would be able to cushion a sudden need to boost pension funding.

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Harvard Agrees to Increase Pay for Janitors

Harvard University has averted a strike by its janitors by agreeing to give them a 12.5 percent raise over the course of a four-year contract, The Boston Globe reported. The agreement came after a lengthy negotiating session, with the threat of a strike pending. The union is affiliated with Service Employees International Union. The deal -- which still must be ratified -- also calls for increases in the percentage of janitors who have full-time jobs. Currently that percentage is 70 percent.

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Trump win leaves cloudy financial outlook for colleges

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Federal funding is a top item to watch, along with enrollments and fund-raising.

San Jacinto Drops 4 Teams

San Jacinto College, a community college in Texas, announced Monday that it is dropping four intercollegiate athletic teams: men’s and women’s basketball, women’s volleyball, and men’s soccer. The college will keep its baseball and softball teams.

College officials cited the expenses associated with the eliminated teams, which involve about 150 students. Annual spending is about $2.6 million, and athletics facilities currently require about $25 million in renovations.

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The nation's electoral divisions highlight questions about the role of public universities (essay)

Today’s presidential election will not fix the broken relationship between Democrats and voters who did not finish college. In the aftermath, will there be anything that universities can do to help with this?

The New York Times recently published a piece about electoral divisions, “Go Midwest, Young Hipster,” that starts with the fact that Republicans get far more representation for their votes than do Democrats. In Ohio, for example, Republicans translated a 51 percent statehouse voting majority into a 75 percent majority of legislators, which gives the party’s slight majority a near fiat power over legislation.

But Alec MacGillis, the article’s author, argues that this problem cannot be handled by reforming the creation of electoral districts. Republicans are great gerrymanderers, it's true, but the underlying problem is that Democrats clump together in blue states and in giant blue cities where most of their votes are superfluous.

The title suggests his solution: Democrats have to move back to the depopulating red states and counties from which they sprang. Unfortunately for this idea, all the people he interviews who could do that -- the native Ohioans who have professional careers in Washington or Los Angeles -- say no way in hell. Wild horses couldn’t drag them out of the land of surplus blue voters and their urban overload of interesting jobs and “creative class” culture.

MacGillis’s piece moves a step beyond the vision of Barack Obama, who reportedly will devote some of his postpresidential career to reducing Republican gerrymandering. There’s only so much that better redistricting can do after The Big Sort has segregated the population in large part by whether or not one graduated from college.

And yet the same is true about the voluntary return that MacGillis advocates. His red-state escapees tell him they won’t do it, so the whole project is doomed from the start.

What locks in the doom is the entire patronizing framework in which MacGillis sees Ohio as place in need of creative class enlightenment -- and in which the social role of public universities is to help people escape their region rather than develop it.

College folks often write about noncollege people as though they were backwoods barbarians who need the civilizing influence of collegiate urbanites. Terms like “red states” and “Midwest” stand for the country’s primitive places. Many analysts apply the same cultural deficiency theory to working-class whites that others have applied to black and brown people. In the case of Charles Murray, it’s the same analyst doing it. Instead of the white man’s burden, MacGillis creates a college man’s burden to return to the red-state jungle to help the natives who didn’t have the brains to escape. You can imagine how the natives feel about that kind of help.

This tradition was codified in Thomas Frank’s influential book, What’s the Matter With Kansas (Henry Holt and Company, 2004), which, for all its strengths, was wrong to say that pro-Republican whites couldn’t see their self-interest and vote for it. Even Michael Moore’s attempt to embrace working-class Trump voters teetered into treating them as abuse victims who can’t think straight (around the halfway point in his interview with Megyn Kelly on Fox News). Presenting red-state dwellers as the nation’s regressives is an ethical, strategic and factual blunder of major proportions.

Neglecting the University’s Core Mission

There’s also a blunder on the politics of knowledge. For several decades, the Democrats have helped underdevelop the industrial belt by heralding the coming of a knowledge economy in which all American “routine production workers,” in Robert Reich’s Clinton-era formulation, were doomed to permanent decline. Wealth creation would henceforth flow from the brainwork of “symbolic analysts.”

The Clintons were fountainheads of this vision of nonuniversity people as the new vanishing Americans. They threw people bones like job retraining programs but didn’t tell them they had anything still to contribute. The Clinton Democrats philosophically abandoned the New Deal and Great Society programs of public works for everyday people, helped to criminalize much of the deindustrialized black working class through such policies as harsher sentencing minimums and disparities in drug sentencing, and refused the large-scale economic redevelopment (coupled with penalties for offshoring jobs) that only the federal government could perform.

Barack Obama has been a chip off the old block. Thus working-class people are still mad at the establishment Democrats and have been willing to listen to Bernie Sanders as well as to Donald Trump. Our college-graduate condescension may yet keep Hillary Clinton out of the White House or, assuming she gets in, keep her from getting anything done.

Here we arrive at the other huge problem: Which side is the public university on? MacGillis offers a standard casting of college as a circus cannon for human capital that fires its cannonball-graduates over their local region into the big cities that can make use of them. That neglects the core mission of public colleges and universities in enabling regional development. Since the Morrill Act in 1862, public colleges have had the public-good obligation of taking nonelite local people and helping them be what they and their community have wanted them to be: better farmers, or machinists, or doctors, or surveyors, or teachers, or politicians, or whatever their needs and desires actually are.

The political principle has been that colleges and universities offer the democratic capabilities on which regional progress depends. At the top of my own list are deep cross-racial experience and comfort with indirect causality. (Donald Trump’s noir power rests on the ability of many people to believe in one-step solutions to complex problems, like “I’ll be reducing taxes tremendously … That’s going to be a job creator like we haven’t seen since Ronald Reagan.”) These are just two examples of the many public-good capabilities that develop a region rather than use it as a launching pad to upper-class life elsewhere.

Democrats have been faced with a choice between stressing the public-good or the private-good benefits of public colleges and universities. They have mostly picked door No. 2 and have been as eager as Republicans to stress the wage benefits of graduation and the pecuniary payoff of the whole college operation. In this way, Democrats have played an important role in cutting public funding and raising public college tuition. They have also cooperated in increasing nonresident enrollment at state-supported institutions.

That has played into Republican hands. If college is mainly a private good, then families who don’t attend have no reason to pay taxes for it. If university research is about making money, then private investors rather than government should pay for it. In reality, private market benefits are about one-third of the total benefits of higher education. Democrats in politics and academe have abetted the great ignoring of public-good benefits, and enabled gross public underinvestment.

Remobilizing the People’s Support

Public universities are going to recover only if they rebuild their popular base. That will involve direct contributions to regional development that go beyond the usual touting of tech start-ups (which go to the same handful of cities and employ almost no one). They will need to do two things at once.

First, the less-selective public institutions that most American students attend -- places like the University of Wisconsin at Eau Claire or the University of North Carolina at Greensboro -- will need budgetary reinvestment so they can match the level of learning that occurs at wealthier campuses. Lower-income or first-generation students need conceptual intensity and complexity at least as much as affluent students at a flagship majoring in history on their way to an Ivy League law school.

Second, public universities will need to make the college a meaningful presence in the lives of noncollege people. They are doing this one by one -- Clark University’s involvement in local education is an example. In the decades in which community relations has become a low-status activity, Republican propaganda has convinced most nongraduates that universities are hotbeds of people who look down on them and are probably trying to get rid of their jobs (logging, coal, trucking, smokestack manufacturing). This reputation can be fixed with more systematic effort.

Regional colleges will need to demand state refunding for the project of bringing all the local folks to college who want to be there, at whatever age, coupled with contributing more visibly to local social and cultural (and not just economic) development. Elite public universities will need to shift their focus from wealthy donors to regular people, who have very different priorities. The fixation on fund-raising has raised money for many important programs, but it has also narrowed the university’s own vision of its public contributions and cut it off from its popular base.

A few of weeks ago, I outlined emerging international trends that American universities should use to remobilize their popular base. The same forces are at work here, and they could serve as the university’s special power.

The public university needs a broader popular base for its own survival. But this would also help the country. Rather than tacitly casting the red states, counties and precincts as cultural backwaters, universities would mobilize local red-state insights and Midwestern cultural strengths to reduce the mutual alienation between them and the self-designated creative zones. My bet is that colleges that define their missions as general development, rooted in respect for people of all educational levels, will no longer be targeted by voters as ivory towers serving blue-state elites.

Christopher Newfield teaches literature and American Studies at University of California, Santa Barbara, and is the author of The Great Mistake: How We Wrecked Public Universities and How We Can Fix Them, just published by Johns Hopkins University Press.

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University of Wisconsin at Eau Claire
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