What Makes a University Financially Sound?

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Clarissa

July 31, 2012

The Chronicle of Higher Ed recently reported the results of an analysis by Bain & Company of the financial health of public and private nonprofit institutions of higher education. The financial situation of thirty-three percent of all schools was deemed unsustainable. Another 28 percent were ranked as being on the verge of descending into an unsustainable financial position.

My university, however, was ranked by both Bain and Moody’s as being financially sound and in the highest category of financial health. And all this happened through the heavily problematic years of the recession.

I just want to point out that a university that:

doesn’t adjunctify like crazy;
hires crowds of new talented PhDs during the recession;
doesn’t forget to invest in infrastructure;
places a high premium on research;
provides good working conditions, a clear road to tenure, and regular salary raises;
promotes constant innovation
creates opportunities to transform adjunct positions into tenure tracks for talented adjuncts

ends up being a picture of financial health.

So if somebody tells you that destroying tenure-track positions, bringing in crowds of adjuncts, never investing a dime in renovations of buildings, stamping out research as useless is done for the sake of an institution’s fiscal responsibility, please do me a favor and laugh in their face. This is a recipe for a debt-ridden, miserable university, not a prosperous, flourishing one.

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13 responses to “What Makes a University Financially Sound?”

Fie upon this quiet life

July 31, 2012

Where do you teach — magical wonderland? Your institution sounds great — no, amazing. I wish the rest of American colleges and universities would do the same. I wonder sometimes how often financial decisions at universities are based on fear and ignorance. It’s a shame, really.

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1. bloggerclarissa
  
  July 31, 2012
  
  I’m trying to keep the blog hidden from my students, so I can’t name the place. 🙂 But we are a state school on the border between Illinois and Missouri.
  
  In every year that the recession lasted, we hired 40+ new PhDs. And almost no adjuncts, postdocs, or instructors. How great is that?
  
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charlesrowley

July 31, 2012

Clarissa’s recipe for success is sound. But it is only half the story. Budgets matter crucially for sustainability. Two budgets are relevant. The first is the funding available directly to the university: student fees, outside donations, research overheads, state subsidies. If outlays exceed that revenue, then the university is on the path to ruin.
The second budget is that of the state. The state usually subsidizes its universities signinficantly – more than half the total budget. In addition, it covers pension commitments for all past and existing faculty. If the state has difficulties in balancing its budget it has to make spending cuts. If those cuts impact on universities, then they may be placed in economic peril.

I seem to recollect that the State of Illinois has significantly under-funded its state employees pension funds. I think that the coverage is less than half that required. If so, faculty may end up with significant pension reductions upon retirement. Retirees may have their pensions cut in mid-retirement. This may impact the university’s hiring prospects once the cuts are impending and become known.

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1. bloggerclarissa
  
  July 31, 2012
  
  Yes, there is a huge drama going on around the state pension accounts. I have decided to pretend that pension account doesn’t exist and provide for my pension needs in different ways.
  
  Our university, in the meanwhile, has been bailing out the state financially because the state hasn’t been able to get its stuff together. 😦
  
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2. Z
  
  July 31, 2012
  
  I wish the governor and legislature of Louisiana would listen to Rowley on this. And a few other states that are cutting or have massively cut subsidies. It is a way to hurt education, but not a way to save money or improve the economy.
  
  And Illinois is one of the states, like Louisiana, that does not pay into Social Security for university employees. Both are now messing with the state retirement system, which was supposed to be extra good in Louisiana precisely because there was no SS to back it up. It is essentially robbery because this is money people have earned.
  
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kennethuil

July 31, 2012

Another limit that many schools are approaching… when paying student loans from a job that you can get with a degree leaves you worse off than not getting a degree at all and not paying student loans from a job that doesn’t require a degree. At that point, college becomes a losing investment and people will stop going.

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1. bloggerclarissa
  
  July 31, 2012
  
  Not getting any degree is soon becoming a losing proposition that will inevitably leave one permanently unemployed or underemployed. The world is changing and the quality of the US high school diploma is plummeting.
  
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  1. kennethuil
    
    July 31, 2012
    
    It’s been fairly close to zero for years, as far as I could tell. Efforts to “improve” “graduation rates” means that complete idiots end up with the same piece of paper you do, and one way or another, you’ve got to differentiate yourself from them. College is one way, but it’s hugely expensive and getting more so.
    
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    1. bloggerclarissa
      
      July 31, 2012
      
      “College is one way, but it’s hugely expensive and getting more so.”
      
      – As I explained on multiple occasions :-), my very good state university is very cheap to attend. People from middle-class $50K income families pay $4k per semester. Everybody else pays much less. I don’t find this at all prohibitive. Note that our students don’t even pay for textbooks.
      
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David Bellamy

July 31, 2012

We do not have a faculty pension plan at all. But, the university contributes to TIAA-CREF for each faculty member, and faculty contribute also. Staff members can participate if they wish, although the non-academic staff do have a state pension plan for which faculty are not eligible. I think the defined contribution plans are better, overall. Ours is a 403-b; someone here called it a “401” plan a year or so ago, which to me meant that he was clueless and ignorant about reality, although he defended himself by saying that it would confuse people to distinguish between a 401-k and a 403-b. This kind of pandering to ignorance is worse than ignorance itself! As I understand it, a 403-b has more lenient mandatory withdrawal rules than does a 401-k.

Sorry. I am off on a tangent again.

I am horrified that some states do not contribute to FICA for their employees.

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1. bloggerclarissa
  
  July 31, 2012
  
  I wish I could understand anything in this comment. But my brain clouds over whenever I hear this terminology. I have now handed over these issues to N., who at least is not scared by the term “defined contribution plan.” He’s good at explaining these things, so I hope he will teach me.
  
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  1. David Bellamy
    
    August 1, 2012
    
    A defined contribution plan is a plan where the employee and employer each deposit a specified amount into a savings plan every month. Money accumulates, and it is up to the person retiring how to take out the money at retirement. A defined benefit plan, by contrast, has no such structure; the employer promises a payment of a certain amount each month after retirement, usualy expressed as a percentage of the retiree’s annual salary at the time of retirement. This continues for as long as the retiree lives, sometimes with cost of living increases from time to time. This is how Social Security works, in essence.
    
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    1. bloggerclarissa
      
      August 1, 2012
      
      OK, I now need to find which kind is my retirement plan. If it even survives the legislative changes come November. 😦
      
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