Financial Implications in Higher Education

Unless working directly with the finances of an institution, does anyone actually know and understand the complexities of a University budget? Revenue streams from where? What about a centralized versus decentralized campus? And certainly the public/private distinction matters…doesn’t it? What about when there’s some sort of a budget crisis like many states dealt with during the recession circa 2008 or what the State of Illinois is dealing with now where it’s nearly 2016 and there is still an impasse between the governor and legislature regarding the approval of a state budget?

The short of it, it’s complicated.

Let’s take a peak first at the state of Illinois.  As alluded to, there has yet to be a state budget passed for fiscal year 2016, so what does that mean?  In fiscal year 2015, nearly 12% (figure A) of the University of Illinois’ 5.6 billion income came from the state; presumably the University of Illinois (Urbana-Champaign, Springfield, and Chicago) is missing out on some $500 million dollars over the course of the year.

For the University of Illinois, leadership has said ‘we’re ok, we can weather this storm’ but in a much more eloquent way.  Certainly a large campus (over 71,000 across all three campuses) has its devices to overcome this or other budget crises, at least in the short term. But, what about smaller institutions? Or regional institutions? Privates? Take Eastern Illinois University, just a mere 55 miles from the University of Illinois’s Urbana-Champaign campus; as recent as November 4^th, the University President, David Glassman had to quell rumors about the campus closing in the spring, saying “This is not true.” A similar but longer term concern in Wisconsin is Governor Scott Walker’s cutting of $250 million from the University of Wisconsin’s budget. This is not an impasse, but instead $250 million removed from the budget outright, that the University will have creatively overcome or risk losing jobs and programs among other issues.

For many institutions, budget concerns go simply beyond state funding. Private institutions, which are largely funded by tuition and fees have to maintain high enrollment, or risking closing their doors. Defiance College in Defiance, Ohio has not hit its goals for enrollment and tuition revenue since 2011.  In a Chronicle of Higher Education Survey of small colleges and midsize public institutions, some 144 institutions missed their goals for first year enrollment and tuition revenue. These institutions have to grapple with difficult decisions. These decisions involve cutting or actually investing more money into marketing, enrollment management, and retention programs to hopefully get more students to come to the institution and then stay for all four years.

Other budget considerations involve the financial approach; is the campus centralized or decentralized? A centralized budget involves the budget being set from upper level administration, which often time facilitates greater congruence between where money is going and institution priorities. A decentralized budget empower department heads to create their own budgets and determine their own priorities. Other considerations? How does the cost of health benefits impact higher education? How do you attract the most talented students, faculty when the financial squeeze is on?

Knowing the complicated nature of revenue, budget forecasting, and the potential of a crisis occurring, what can someone do when thinking about or making budgetary decisions? According to Dr. George S. McClellan, Vice President for Student Affairs and Enrollment at Indiana University-Purdue University Fort Wayne, he says to “use several years’ worth of data (no less than three, no more than five) when forecasting revenues or expenses. You can look at the trends, give some thought to what might be different (if anything) in the year ahead, and make adjustments accordingly.” He goes on to say “be conservative when it comes to both revenue and expense forecasts. Shade your prediction for revenue to the low side and for expenses to the high side.”

References:

Carlson, S. (2015). Missing the Mark on Enrollment and Revenue: No Easy Fix. The Chronicle of Higher Education. Retrieved from http://chronicle.com/article/Missing-the-Mark-on-Enrollment/233898

Hibel, A. & McClellan, G. (2015). Budgets in Higher Education—The Keys to Successfully Financial Management. HigherEdJobs. Retrieved from https://www.higheredjobs.com/higheredcareers/interviews.cfm?ID=445

Strauss, V. (2015). Gov. Scott Walker Savages Wisconsin Public Education in New Budget. The Washington Post. Retrieved from https://www.washingtonpost.com/news/answer-sheet/wp/2015/07/13/gov-scott-walker-savages-wisconsin-public-education-in-new-budget/.

Thomason, A. (2015). Eastern Illinois U. Insists, Again, that it Will Not Close in the Spring. The Chronicle of Higher Education. Retrieved from http://chronicle.com/blogs/ticker/eastern-illinois-u-insists-again-that-it-will-not-close-in-the-spring/106375

University of Illinois (2014). Budget Summary Operations FY2015. Retriever from https://www.obfs.uillinois.edu/common/pages/DisplayFile.aspx?itemId=99447

Jeff Yacup is an Assistant Director in the Illinois Leadership Center.  You can contact Jeff at jtyacup@illinois.edu.