Addressing the Financial Challenges of American Urban and Regional Universities
Addressing the Financial Challenges of American Urban and Regional Universities.
In my previous post, "The Wicked Mess of Financing American Urban and Regional Universities," I highlighted the systemic financial crisis confronting regional universities. In this piece, I'll explore the strategic options available to these universities to avert collapse amidst this turmoil. Subsequently, I'll delve into the external and public policy dimensions of this issue.
Neither individuals nor the universities themselves possess the social authority, resources, or discretion necessary to directly resolve the financial crisis that many urban and regional universities face. As I discussed previously, the root cause lies in the structural mismatch between the traditional organization of knowledge within universities and the evolving demands of the 21st-century knowledge economy.
The disciplinary structure of knowledge that emerged during the industrial revolution served universities well in the 20th century, when the nation’s productive capacity was centered around the building of suburbs by industries like automotive manufacturing, steel, oil and gas, and consumer electronics. However, it is ill-suited for the current era increasingly dominated by artificial intelligence, information technology, renewable energy, biotechnology, and e-commerce.
Understanding the causes, consequences, and implications of this crisis is crucial for informed public policy and decision-making. By raising awareness and fostering discussion, individuals can mobilize support for systemic reforms and interventions.
That being said, there are steps that can and should be taken to sustain the invaluable contributions of regional universities to society and potentially enhance their research, teaching, and service capabilities.
While each university's circumstances are unique in some ways, they all share a common mission of knowledge formation. Like any business, universities must adopt a strategic approach to address their financial challenges. Without sufficient revenue to cover expenses year after year, universities risk closure unless they possess a substantial endowment (which most do not).
To provide context, let's consider a typical breakdown of expenditure categories in a regional university's operating budget:
· Payroll (faculty, staff, administration, and student wages and benefits): 60-70%
· Academic Support (e.g., libraries and related services): 10-15%
· Utilities and Plant Services: 10-15%
· Student Services: 5-10%
· Technology: 4-7%
· Auxiliary Enterprises (e.g., stadiums, residence halls, food services): 5-10%
· Scholarships and Fellowships: 5-15%
· Public Service: 1-5%
These figures underscore the labor-intensive nature of universities, their heavy reliance on technology, and the cost of providing support services to faculty, students, and alumni.
On the revenue side, regional public universities typically rely on several primary sources:
· State appropriations: 20-30%
· Tuition and fees: 30-40%
· Federal grants and contracts: 10-20%
· Auxiliary enterprises: 10-20%
· Private gifts, grants, and endowments: 5-10%
· Miscellaneous income: 5-10%
However, none of these revenue streams can be significantly increased without external factors such as state policies, student enrollment dynamics, and federal grant allocations.
State appropriations and tuition rates are largely determined by external actors, while efforts to secure federal grants are time-consuming and uncertain. Thus, universities are often left with limited internal options, primarily focused on reducing costs rather than increasing revenues.
Unfortunately, cost-cutting measures often come at the expense of the institution's core mission and the quality of education it provides. They tend to reduce academic rigor and narrow the curriculum, reduce opportunities for students to engage in research, attract and retain lesser qualified and experienced faculty members, reduce student support services and counseling, or reduce quality classrooms, laboratories, libraries and technology.
Reductions in payroll may lead to organizational routines centered around faculty and staff optimization, compromising teaching quality and research output.
Some universities turn to part-time or adjunct faculty to reduce payroll costs, risking continuity and student engagement. Others increase class sizes or consolidate programs, potentially diminishing the educational experience and alumni support.
Outsourcing services like student counseling may reduce payroll expenses but at the cost of reducing the quality of services and not aligning student counseling with the university's values.
While cost-cutting measures can be implemented with care to mitigate negative impacts, they inevitably affect academic quality, student access, employee morale, service quality, and strategic priorities.
In conclusion, the options for regional universities to address their financial challenges through internal strategies are severely limited. Therefore, solutions must involve external stakeholders and policymakers to ensure the continued viability of these institutions.
Bill Bowen