Caught Off Guard -- But Why?

Economic downturns are part of a painful and predictable reality for universities, but -- perhaps purposely -- few have long-term strategic plans to deal with budget cuts.

June 24, 2008

When the bottom fell out, where were the disaster plans?

As the economy took a dive in the first half of this year, and states started slashing budgets, higher education leaders were often left scrambling. Unsure where to cut their budgets on short notice, university officials turned to predictable -- though not always strategic -- solutions:

Vacant positions went unfilled.

Tuition hikes were approved.

Enrollments were frozen.

The latest economic downturn, which has left a host of state universities grappling with major shortfalls, is part of an ongoing cycle of ups and downs that have a familiar feel in higher education. And yet, precious few institutions plan -- at least publicly -- for how to deal strategically with such budget deficits when they inevitably arrive.

“We get this deer in the headlights reaction at universities when the budget comes down,” said Travis Reindl, who heads a national initiative aimed at making college more affordable and accessible. “It’s a reactive as opposed to a proactive approach to this.”

Reindl, program director of Jobs for the Future, says institutions should begin discussing and drafting plans to deal with cuts well before they happen. Just as university leaders lay out agendas for bold and expensive new initiatives, so too should they have a plan for where they would take a budget hit.

“They should be having those kinds of discussions even when the budget is way up,” Reindl said.

While such planning sounds smart enough, there are potential pitfalls. For obvious reasons, university leaders are loath to advertise where they’d stick the knife if called upon to cut.

“From a planning perspective, there probably is some wisdom to it,” said Jim Applegate, vice president for academic affairs at the Kentucky Council on Postsecondary Education. “But to lay that out and make it too public might be to invite it.”

Such was the fear for officials at Florida State University, who only recently revealed that they’d been squirreling away cash for several years in anticipation of the housing market going bust. Larry Abele, provost at FSU, said there was great concern that the university could be punished for its prudence. If lawmakers learned FSU had a $90 million reserve, they might have made their own plans for those dollars.

“I promise you we were terrified early on,” Abele said. “You know the politics of Florida are just insane.”

Just as Abele had feared, lawmakers caught wind of the university’s strategy, and they wanted answers at the highest levels of government. Gov. Charlie Crist actually called Florida State leaders in for a meeting several months ago, asking questions about the university’s reserves.

“We said ‘we are protecting our students, and we don’t want to be punished for it,’ ” Abele recalls.

FSU was able to keep its reserves intact, but the university is still looking at bleak years ahead. Florida State took a $31 million cut for the upcoming 2009 fiscal year, in which the State University System’s funding was reduced by 6 percent, or about $130 million. As a result, FSU will eliminate more than 200 faculty and staff positions.

State officials are signaling even more cuts within the 2009 fiscal year that begins July 1. And despite FSU’s advanced planning, Abele bluntly concedes that “if things don’t turn around by 2010-2011, we are screwed.”

Protection From Backlash

The concerns Florida State officials harbored about unveiling their secret money-saving plan illustrate just how difficult it is to establish trust among all the stake holders in higher education.

“If you don’t have the commitment, I could hardly blame college presidents for not setting aside rainy day funds in good times,” said Joni Finney, vice president of the National Center for Public Policy in Higher Education. “Then in the bad times the state knows you have this money, [and] they’ll cut you more. I think it is a risky strategy for public universities to do that.”

In Kentucky, a clearly stated policy on state priorities appears to have been what saved universities from more dramatic cuts. Democratic Gov. Steve Beshear had initially proposed a 12 percent funding decrease, but lobbyists and university leaders cited an 11-year-old Kentucky statute as a key reason for sparing higher education. The Postsecondary Education Improvement Act sets a number of specific goals, among them to push the University of Kentucky into top-20 status among public universities by 2020.

“All of this was laid out in statute, passed by the Legislature, signed by the governor,” Applegate said. “So it is in fact Kentucky’s agenda because it’s in law.”

Kentucky’s universities were ultimately given a 3 percent cut for 2009, on top of the 3 percent decrease they endured in 2008. The cuts, while less than expected, are still forcing layoffs and tuition hikes that range from 5 percent to 9 percent across the system. A much-touted statewide scholarship program is also being scaled back.

Higher education leaders in California are hopeful that, as in Kentucky, the state’s cuts will be less than initially expected. California State University and the University of California were slated for a $312 million cut in Republican Gov. Arnold Schwarzenegger’s original budget. Lawmakers, however, are now working with a budget that lessens the blow to $215 million.

California’s budget is still being hammered out, and it’s unclear whether universities will be able to hold onto the gains they’ve made over the course of the session, according to Richard West, California State University’s executive vice chancellor and chief financial officer. The debate may ultimately come down to whether a tax increase can be passed to offset a budget shortfall of as much as $20 billion, West said.

“It’s the usual debate in California,” he said. “We’ve just begun a long summer, I’m sure.”

Big-Ticket Projects, Even in Lean Years

Even as California grapples with declining resources, universities have bankrolled expensive new projects. The University of California at Irvine, for instance, will open its new law school in the fall. The school was approved in 2006, despite the California Postsecondary Education Commission’s assertion that there was no need for one.

In New York, the Legislature’s recently approved budget includes more than $50 million to build three new law schools, the Associated Press reported. The expenditures got the green light, even as the State University of New York initiated cuts as high as 6 percent in the budgets of some of its 64 campuses.

And in Florida, where universities are now slashing budgets, lawmakers have approved a total of three new medical schools between 2001 and 2006.

The approval of costly new programs, even in lean times, is nothing new for higher education. The tendency is perhaps indicative of lawmakers’ desires to fund something new and exciting, rather than invest in infrastructure projects or deferred maintenance.

Finney, a professor of practice at the University of Pennsylvania's Graduate School of Education, referenced California’s approval of a law school at Irvine as an example of skewed funding priorities in a state without a clear plan.

“Absent a broader agenda, I could see how the ‘new’ is more interesting than a set of priorities,” she said in an e-mail.

In Maryland, however, there has apparently been buy-in to a plan aimed at cutting costs to control tuition and deal with potential budget shortfalls. Since the launch of the Effectiveness and Efficiency Initiative three years ago, the state’s universities have documented $80 million in savings, according to William E. (Brit) Kirwan, chancellor of the system. Over the same time, state revenues haven’t dropped as some might have feared they would. To the contrary, state funding has increased by some 30 percent, Kirwan said.

“In my wildest dreams I did not expect the kind of positive response we got,” he said. “My sense is there’s kind of hunger out there for higher education to be more cost conscious, and we don’t enjoy that reputation with a lot of people.”


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