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New Approach to Cuts

September 14, 2011

When the recession hit in 2009 and colleges and universities saw many sources of funds contract, they did reasonably well making cuts to services that did not touch the academic core of the university, according to the latest annual report by the Delta Project on Postsecondary Education Costs, Productivity, and Accountability.

While revenues declined in most sectors of higher education in the 2009 fiscal year, the report found, most institutions managed to increase what they spent on instruction by making reductions in other areas and not imposing across-the-board cuts -- a departure from how colleges and universities have usually handled economic difficulty in the past.

The Delta Project’s report, now in its third year, attempts to provide a broad picture of the revenue that colleges take in and how they spend it. In addition to finding that colleges and universities protected the academic core, this year's report found that community colleges were the hardest-hit during the first year of the recession; that tuition increases at public universities were not enough to cover decreases in state funding; and that all types of institutions did a better job graduating more students and getting them to graduation with fewer extra course hours. In aggregate, the report paints a picture of colleges and universities approaching budget cuts in a fundamentally different way than they did in previous recessions.

“Administration took the lion’s share of the hit,” said Jane Wellman, the project’s executive director. “I think it indicates that [colleges and universities] were being more strategic. That stands to reason, because the word was out that we were in a recession and that it was going to be long and deep. People knew that and they were getting ready for the long haul.”

Because spending lags other forms of institutional data by about a year, the information presented in the report runs only through 2009, the first year the recession resulted in extensive budget cuts for most public colleges and universities (in some cases softened by federal stimulus funds) and investment losses for many private institutions. Since 2009, state lawmakers have continued to cut public university budgets while investment returns have stabilized. It will be a while before data exist to show whether institutions have continued to approach budget cuts in a similar manner, though several institutions and higher education organizations said they have seen more emphasis on cuts to university functions outside of teaching and research.

“If anything, I think they’ve gotten more strategic in how they’re making cuts,” said Christine Keller, director of research for the Association of Public and Land-grant Universities, which represents 221 public universities and surveyed those institutions about how they reacted to budget cuts in 2009 and 2010. “In fact one of the institutions, in the comments, told us, ‘We’re not tinkering around the edges anymore, waiting for funding to be restored. We’re taking an in-depth look at how we operate and where we can save money.’“

According to the Delta report, public four-year institutions actually increased spending in areas such as instruction and student services, though not by as much as they had in previous years. Public research universities freed up that money by deferring maintenance and holding down administrative salaries, and public master’s institutions cut research, public service and institutional support such as senior and fiscal administration, information technology, and logistical services such as purchasing and public safety.

Private nonprofit research universities were not as affected by the recession as their public counterparts, and in general spent about 2 percent more in all areas, the report states. Private master’s and baccalaureate institutions, like their public counterparts, increased spending on instruction by reducing maintenance and operations spending.

Washington State University was one of the institutions that adopted a more strategic budget-cutting plan in 2009, said Darin Watkins, executive director of external communications for the university. Watkins said that through the second half of 2008 and the start of 2009, state lawmakers asked the university for a series of cuts. The university responded in more “traditional” ways, such as cutting advertising and travel and freezing salaries and hiring in all areas. But at a certain point, Watkins said, administrators realized they needed to start approaching the cuts differently. “We had to start to rethink the way we went about the business of educating students,” he said.

Since then, the university has taken a series of steps to consolidate administrative units, eliminate certain programs, and increase the number of direct reports to each supervisor. The university also raised tuition to offset losses in state revenue. Since the recession began, the university's state appropriations have been cut about 50 percent, Watkins said.

Similar to Washington State's approach, a number of public and private institutions brought in management consultants such as Bain & Company to evaluate and make recommendations on their administrative structure and costs. These recommendations called for consolidating certain services such as information technology, human resources, and procurement, and flattening institutions' bureaucratic structures -- steps that were not taken during other budget cuts.

Numerous institutions increased tuition during the downturn, though in all sectors except private research universities, tuition increases simply went to offset losses in other forms of revenue.

In many cases that was not enough. While public research universities lost an average of $750 per student in state funding, they increased tuition only an average of $369 per student. The pattern held true for both public master’s institutions and community colleges. Wellman said this helps explain why institutions still have to make cuts despite increased tuition, a practice lawmakers have criticized. “If you want to show parents where their money’s going, their money’s going into a big hole,” Wellman said.

A long-term trend noted in the report is the convergence of state appropriations and net tuition revenue. At public research universities in 1999, net tuition accounted for $5,353 per student while state appropriations amounted to $10,370. In 2009, tuition accounted for $8,030 and state appropriations accounted for $8,868. Since the end of the period covered by the Delta Project report, a number of institutions have announced that tuition is now a larger source of revenue than appropriations. The University of California said in August that tuition revenue would surpass state appropriations as a share of the budget for the first time this academic year.

Community colleges were hit harder than all other categories of institutions, the Delta Project's report found. Not only did the sector see absolute reductions in revenues per student of 3.4 percent despite increased tuition, it also saw enrollments grow. Wellman said the new numbers from 2009, while they are dramatic, continue a long-term trend. Since 1999, the first year of data for the report, community colleges have seen the highest increases in enrollment while seeing almost no increase in spending per student. In the same time period, private research universities increased spending per student about $7,500.

"Community colleges are really falling farther and farther behind," Wellman said.

While the report lays out a grim picture of college and university finances, it does note some bright spots, notably increased degree productivity. Since 1999, institutions across all sectors have increased their ratio of degrees granted as compared to enrollments. Students have also decreased the number of courses they are taking before earning degrees, with the largest declines at public research and master's universities. The averages at those institutions were still 153 and 160 hours, respectively.

This increased productivity is not necessarily correlated with a lower cost-per-degree ratio at public research universities and private institutions, though the ratio increased at a slower rate in 2009 than it had in previous years. Public master's institutions saw a decline in cost-per-degree for the first time in 2009. Community colleges have seen a general decrease in cost-per-degree since 1999.

Community colleges’ success has come from offering non-degree credentials, which are cheaper to produce, the report notes. "I think it shows that institutions are paying attention to the policy environment," Wellman said. "Policy makers realize the need to get more people into college and have them leave with a high value degree or certificate."

 

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