Adaptive budgeting: thirty-four suggestions for raising revenues, cutting costs, retaining students, and saving jobs in hard times

Liberal Education, Summer, 2009 by Peter A. Facione

TIMES ARE TOUGH, very tough. The great majority of institutions, public and private, are looking toward 2009-10 and beyond, in anticipation of the deepest budget cuts in more than a generation--and certainly deeper than at any time in the memory of most current campus leaders. Cuts of 5 percent or 7 percent would be welcomed by institutions that have been asked to plan for 12 percent, 17 percent, 25 percent, and 36 percent cuts next year.

In the current recession, even financially well-positioned independents with substantial numbers of qualified applicants for 2009-10 are canceling searches and freezing budgets out of concern for the potential financial aid cost associated with bringing in a full class next fall. Much more troubling is the plight of the many public institutions that must seriously consider laying off tenured faculty and closing programs due to the financial exigencies resulting from mandated double-digit budget cuts. As bad as this may be, these institutions can still survive it they take swift and strong emergency action. The most difficult situations are those involving institutions that began 2008-9 with soft enrollments, depleted endowments, excessive discount rates, heavy debt-service burdens, operating deficits, and weak balance sheets. For these financially fragile institutions, the recession may be too much. Even if they sell off their real estate and lay off massive numbers of staff and faculty, it may still be impossible to avoid permanent closure.

Straight talk

It is time for some straight talk--starting with the realization that institutions that cannot adapt, or that choose not to adapt, are going to fail. More than four thousand institutions currently crowd the higher education marketplace in the United States, and some have multiple campuses across cities, regions, and states. Some operate sophisticated and effective distance learning networks. Some use business models that call for harvesting the most lucrative graduate or professional student populations but that do not require the overhead of facilities and staffing generally associated with undergraduate education. The current recession has caused many of the nation's largest retailers, bank, airlines, manufacturers, and brokerage houses to fail. Millions of Americans have lost their jobs and their homes. Why should we think colleges and universities, and those employed by them, would be exempt from the same fate? The market sorts itself out at times like these. Industries realign.

The first message, right after "times are very tough," has to be that competition is going to become fierce. It would be a major mistake for leaders to believe that their main worries are the inwardly focused challenges and politics of negotiating the campus constituency groups through an unpleasant budget realignment. The institutions that survive will be those that have built collaborations among internal constituencies in order to compete externally for students, faculty talent, and financial resources. While others flail against internal divisions and interest groups, these institutions will garner opportunities to gain market share and to attract new talent.

The second message is that risk and uncertainty abound, and they can result in paralyzing fear, anger, and feelings of betrayal on the part of students, staff, faculty, and administrators. The truth is that virtually nobody did anything wrong. There has been no great industry-wide deceit equivalent to the shenanigans in the mortgage industry. Although most colleges and universities do not deserve to fail financially, some will not be able to avoid failure no matter how mightily they strive to survive. But the fate of others may yet be in their own hands.

Higher education is part of the larger economic system. There will be casualties in higher education, just as private-sector businesses will fail and other worthy nonprofits will go broke. If state tax revenues fall by massive percentages, and given that the priorities of the states are things like public safety, unemployment support, transportation, basic services, and a balanced budget, then something will have to be cut. Often, that something will be support for higher education. Many policy makers regard higher education as both a public good and a private good. Insofar as it is the latter, it is reasonable to reduce or defer support for higher education in bad times and to shift more of its cost onto the individual beneficiaries--the students. Insofar as it is the former, it is reasonable to support higher education as an economic engine and source of business, medical, legal, and technical progress. But much of that can wait, many would say, until tax revenues rebound.

If you think the current situation is like being at sea in a sailboat during a gale, you are right. But you are not without tools with which to navigate these troubled waters. After suggesting some first principles for approaching budgeting in tough times, I will offer a long list of suggestions for reducing expenses, expanding revenues, supporting students, and minimizing job losses.