How Colleges Are Keeping Up With Business Changes

Different strategies take stage at the National Association of College and University Business Officers' annual meeting.

July 19, 2016

MONTREAL -- College and universities' coping mechanisms are on full display this week as business officers fight a mix of financial pressures ranging from budget crunches to tuition discounting run amok to high levels of debt blocking necessary construction.

Strategies to tackle the problems are on display at the National Association of College and University Business Officers' annual meeting here. The multiday conference comes as business officers increasingly believe that higher education is in a financial crisis, according to a new Inside Higher Ed survey. But they also feel better than they have in previous years about their own institutions' futures.

That dichotomy is apparent in Montreal, where many sessions talk about the myriad challenges business offices face -- and the way institutions are tackling them.

Presidents' Hard Choices

The NACUBO meeting is filled with talk about strains and struggles, but usually in the abstract. At one session, two presidents discussed their institutions' travails and how they approached them while keeping faithful to their missions. Much of the focus was on hard decisions they had to make.

Lynn Pasquerella, who just finished a six-year stint at Mount Holyoke College and assumed the presidency of the Association of American Colleges and Universities, said the Massachusetts women's college was facing a structural deficit in the double-digit millions when she arrived in 2010. All of the recommendations for colleges like hers at the time, she said, were to go coed, create preprofessional programs and go into urban areas. "We had no graduate programs, no online courses and a rigid liberal arts curriculum in terms of its requirements," including a two-year language requirement, she said.

Mount Holyoke faithful didn't want to change many of those fundamental things, but others were not sustainable, Pasquerella said. Faculty members at the time were eligible for a yearlong sabbatical after every six semesters, or three years. So while most of Mount Holyoke's (wealthier) peers were spending under a million dollars a year on replacing professors on sabbatical, Mount Holyoke was spending $4 million.

So among the changes that Pasquerella and her team put in place were to extend to four years from three the period at which instructors qualified for a sabbatical. Faculty members were not happy, but in exchange, Mount Holyoke dropped the formal teaching load from 4.5 to four courses a year.

Other changes were controversial, too. While retaining the college's liberal arts focus was essential, Pasquerella sought to "open up" its curriculum, eliminating a program in Russian studies and adding one in data science. While some faculty members accused the college of "eviscerating the liberal arts and sciences and promoting the corporatization of higher ed," the president was able to counter that the decision was "faculty driven."

While consolidating the college's five residence-hall-located dining rooms into one central hall drew howls from students who would no longer be able to eat in their pajamas, data showed that students had already begun increasingly eating in the campus center. "The reality didn't at all match the rhetoric," she said.

Brian Johnson is another leader charged with bringing change to an institution with a storied history and tightly held traditions.

As the fifth president of Tuskegee University since 2010, Johnson in two years has eliminated free tuition for relatives of employees ("we had about 220 students walking around who were there for free"), increased the student activity fee from $50 to $500 a semester -- "more equivalent to the kinds of resources we were providing" -- and instituted online offerings that produced north of $900,000 in revenue this year.

Transparency about the data behind these decisions and the reasons for them have helped build support for sometimes hard-to-swallow changes, but more will be necessary, Johnson said.

"These have not helped us to turn the corner yet," Johnson said, "but we're getting there."

Public-Private Partnerships

Traditional sources of construction funds are in question as some state universities have drawn heavily on their bonding capacity and are receiving little in the way of new public money for major projects. Many private institutions likewise find themselves searching for cash to fuel development, looking for ways to pull off increasingly complex construction projects without overtaxing their resources.

Enter public-private partnerships, or P3s. Broadly, the arrangements have the private sector contributing capital and expertise -- often in the form of construction and property management services -- in order to develop, operate and maintain infrastructure for publicly owned land. P3s are growing increasingly common around the world, but their market is just building in the U.S. higher education space, said Kevin Wayer, international director and co-president of the public institutions group of real estate giant JLL, on Monday.

Wayer led a session on universities leveraging private dollars to drive their own building and development. Representatives from two of California's public institutions discussed their efforts to find new ways to fuel necessary building. But the session wasn't all about public universities -- Drexel University's senior vice president of corporate relations and economic development talked about his institution's Schuylkill Yards project, an effort to develop between 10 and 14 acres into a campus gateway project with between eight and 16 million square feet of mixed-use space -- from office to laboratory to retail. The project could take up to 25 years.

Drexel could probably have driven the development on its own, said that vice president, Keith Orris. But it would have taken longer while forcing the university to tie up its bonding resources and rely on its own expertise. Drexel is partnering with the Brandywine Realty Trust on the project.

“Most of us don't have multibillion-dollar endowments,” Orris said. “These projects are so big and so important to our institutions that we definitely need the expertise that the market, the private sector, gives us.”

While Drexel's efforts in Philadelphia could be slotted into the category of urban redevelopment, the University of California, Merced, has a different set of challenges on its hands. The newest institution in the University of California system is developing a second phase of its campus, currently envisioned at 1.2 million square feet, said Dan Feitelberg, vice chancellor for planning and budget. That comes as the university wants to roughly double enrollment to 10,000 full-time equivalents.

One focus was building what the university could maintain in the future, Feitelberg said. It followed a procurement process under a public-private partnership model. 

“UC Merced is growing up in a different funding environment for public higher education than other campuses have in the past,” Feitelberg said. (The two preceding paragraphs have been updated to correct a quote that was incorrectly attributed to Feitelberg. The quote has been replaced.)

California State University Channel Islands, meanwhile, was faced with bond debt that made further development difficult, said John Gormley, campus architect and senior director of planning, design and construction. So it's moving to sell residential projects and then expanding space for faculty and staff members. It is receiving a lump sum payment and annual payments under 80-year ground leases.

State systems can be risk averse and hesitant to do anything but deliver capital projects under the model they know, meaning the relatively new P3s can be hard to push through, Gormley said. Meanwhile, some have criticized the arrangements because they can have institutions paying private companies for decades merely to use the facilities they wanted to build.

But the university representatives said benefits of the arrangements include experience, expertise and access to capital.

“We're giving up the full financial return,” Gormley said. “But that also assumes we were going to be able to go out and get the money to build that. We were not going to be able to get that.”

Boosting Enrollment

It's no secret that many colleges and universities would like to improve their books by boosting enrollment -- increasing enrollment was a top strategy named by chief business officers in the recent Inside Higher Ed survey.

How, exactly, they can boost enrollment was the topic of another NACUBO session. Business officers explained strategies in scholarships, development, international connections, experience programs and regional campuses.

The University of Utah worked to revamp its scholarship program with the aim of attracting and keeping different types of students. It wanted to attract top students, keep classes affordable and give students incentive to move toward graduation, said Cathy Anderson, associate vice president of budget and planning. The University of Rochester built a new College Town project, developing a brownfield next to campus to make it more attractive to students, said Holly Crawford, senior vice president for administration and finance at the university.

Wheelock College, a small college in Boston, offers a range of international programs to stretch its reach and attract higher-paying international students. It sends its faculty overseas to teach and brings foreign students to its campus. One of its programs, a language-immersion program, opens the door for students to matriculate at Wheelock or move to another U.S. university that may have been their original first choice, said Anne Marie Martorana, vice president and chief financial officer.

Michael Papadakis, deputy chief financial officer, treasurer and vice president of financial services and innovation at Ohio State University, talked about two strategies. First, Ohio State has a second-year experience program geared toward keeping students on campus as sophomores under the idea they will be more engaged and likely to move toward graduation. It offers students a $2,000 stipend for university-approved programs like study abroad or community service, although it required building more beds.

Ohio State also relies on its other campuses spread around the state and a community college partnership. Those regional campuses have taken on more importance as the flagship Columbus campus has become more selective, Papadakis said. Students can start at regional campuses and transfer to Columbus to finish their degrees. Those campuses, priced lower than Columbus, can save students money while also acting as feeders for Columbus transfers. And they help the university with the optics of being a selective institution that is still a land-grant university many expect to admit high levels of in-state students.

The different strategies came at a time when higher education demand has become more tepid, said Kenneth Rodgers, director of public finance ratings at S&P Global Ratings (formerly Standard & Poor's).

“Each institution recognized a need,” he said.

Faculty Salaries

The University of Montevallo in Alabama tackled a complex and potentially charged issue head-on recently: adjustments to faculty salaries.

The small public university found itself at or near the bottom for faculty salaries in Alabama in 2011 and 2012. Salaries had increased little if at all in recent history. To compound matters, Montevallo took a 25 percent state funding decrease since 2008 -- $6.1 million for an institution with an annual budget of approximately $62 million.

Montevallo had avoided furloughs in tough times, increased adjunct pay and kept up with other benefits. But it still decided it was time to do a salary study with the goal of making it to competitive nine-month salaries, said Provost and Vice President for Academic Affairs Suzanne Ozment.

“Our salaries were so low that we felt we had to get to market before we could do any other kinds of adjustments,” she said.

Factors considered were years of service, discipline and salaries in the same field at other peer institutions. The effort eventually turned into a large data-crunching exercise.

Ultimately, 90 percent of faculty members qualified for a market adjustment. Those adjustments were made over two years starting in 2014 with a price tag of $756,336. Adding in some changes brought about by standardizing benefits and stipends for chairmanships brought the total investment to $1.14 million, with the largest individual increase being $22,213 -- to a faculty member in the college of business.

Administrators were very clear about who was getting how much. They said transparency in their process was important and that they shared as much data as possible -- including the data used to determine compensation levels elsewhere in the market.

The result is a significant improvement in the way faculty feel about their salary levels, administrators said. Some tensions still remain -- such as those who balk at high compensation for business faculty. But that seems to be more about existing fault lines than new ones.

“It is just a market reality,” Ozment said. “It honestly has not created any more tension than we already had between the college of business and some of the humanities faculty. The people who were really, really upset about that had been for a long time.”

As for the financial ramifications, administrators said the backing of trustees was key. Those trustees were on board because they wanted to offer competitive salaries. The university also had saved some money from retirements and operating budget cuts during the financial crisis. And it prioritized the salary adjustments, factoring it in when considering tuition.

“We knew something needed to be done,” said DeAnna Smith, vice president for business affairs and treasurer. “We knew if we didn't we were going to lose the good faculty we had.”

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