Tough Times, New Approaches for Financial Models
Sessions in this track presented the latest in endowment management, liquidity, revenue diversification, strategic analysis, and growth opportunities.
Generating New Funds
Federal support for colleges and universities is expected to fall sharply in the near future. Dennis Gephardt of Moody's Investor Service, speaking in the session "Growing Revenues in the Face of Federal Funding Cuts," suggested that even the most highly rated institutions will have only small increases in funding, while the lower-rated schools are projected to have revenue declines. Presenters from Temple University and George Washington University illustrated new approaches colleges and universities are using to grow their revenues despite federal cutbacks.
Temple University, Philadelphia, has launched an initiative that allows individual campus departments to carry over any surpluses in their budgets. Anthony Wagner, executive director of financial affairs, notes that Temple's continuing enrollment growth has allowed the school to control tuition and other student-based revenue streams.
George Washington University, Washington, D.C., has been "growing revenue through innovation," according to David Green, executive director of the business management and analysis group. The school's Innovation Task Force has annually identified up to $60 million in cost savings that can be put back into academic services to students. The university is also developing real estate investments to generate new funds.
Even with these innovations, both schools note the challenges that lie ahead, particularly prospects for lower growth in tuition and fee revenue. Alternative revenue planning will have to continue to evolve.
Understanding State Funding Cuts
The session titled "The Changing Financial Model of Public Universities" focused on how public institutions are dealing with declining state appropriations, increased demand for access from the public, and increased student financial aid in what is one of the most-regulated industries.
David Strauss, Art and Science Group principal, warned that declining state appropriations to higher education is not a short-term phenomenon, and historically, when state appropriations have dropped after a recession, those funds don't come back. Consequently, higher education administrators should now be asking themselves: What revenue streams are available and what will the marketplace support? Strauss showed the results of modeling public institutions and the effects of raising sticker price by a certain percent on yield and enrollment.
Panelist Elson Floyd, president of Washington State University, Pullman, pointed out that "we [higher education] have a significant credibility issue" with the public right now. Noted were the return on investment of education and how higher education makes decisions about money. "We do not have a culture of eliminating things," he said, and that perhaps it is time to consider consolidating programs and reducing course offerings where it makes sense.
John Cavanaugh, chancellor of the Pennsylvania State System, remarked that "it all comes back to: what is it we do, why it is we do what we do, and how we do what we do." More specifically, "How we do what we do is distinctive from others who look like us." Cavanaugh emphasized that higher education hasn't figured out what the cost drivers are and that we need to understand financial models.
Net revenue hasn't changed for some public institutions in 20 years. Meanwhile, students and families are subsidizing dollars the state used to provide. Lastly, Cavanaugh believes that when higher education talks about state cuts, it is a disservice to describe them as a percentage change. It would be better, he said, to cite the actual dollars lost, to help the public more clearly picture the loss.
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