Issues of Financing Colleges and Universities

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8th Feb 2020 Education Reference this

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Higher education, like many other sectors, is experiencing new levels of financial despair. Despite enduring, harbor reputations, colleges, and universities are business ventures that are vulnerable to supply and demand concept, non-traditional competition, the ups and downs of the financial markets, and demographic shifts. The value of higher education seemed to be weak and the availability of resources to support academic programs, students, and research appeared less. However, the higher education arena is still fast approaching. There’s been an increase in student populations in federal research money in spite of tight investment markets. The truth is; the costs, other revenue avenues, and student enrollment have shifted tremendously in many directions. In turn, they are applying significant pressure to academic boards, officials, administration, and management teams who now must re-evaluate their pursuit of lasting sustainability. The Higher education spectrum is in an environment that operates like corporate industries. Corporate has sharp competition as well as persistent pressure to demonstrate value to its stakeholders and constituents. To remain viable, United States colleges and universities must adapt.

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At a very high magnitude, financial sustainability is the greatest challenge threatening the ability of United States colleges and universities to fulfill its missions. Practically, all source of funding such as; government allocations, grants, tuition, and debt financing have been squeezed; changes in one can cause a ripple effect on others. More importantly, the challenges are more than financial. Colleges and universities are required to update operational and academic strategies, coordinate with financial obligation and responsibilities, and to sustain their university mission. Therefore, it’s essential that colleges and university have responsible and reliable leadership that can lead them into the future. Many college and universities have poor quality leadership that leads colleges and universities into destruction. There is a significant concern in higher education; it cannot grow revenue in a way they have for the last 20 years. Each year you either read or hear about numerous colleges and universities have closed, merged, or been purchased by for-profit colleges in the previous years; this is because of the lack of funding or stable budget.

For many decades colleges and universities have been in disarray, because the lack of financial stability and growth for the future; they continue to have economic distress because of stagnant school officials making poor financial decisions, which are based on old traditions and habits. Unfortunately, this is not the right direction for colleges and universities to press forward and succeed in the future. One university that’s dealing with budgetary debt concerns and unreliable financial faculty and staff is Seymour University. Seymour University adheres to traditional habits of the past and is not able to move forward because the CFO and board members are doing just enough to patch the financial problem. Seymour lacks straightforward, reliable leadership to make sound financial decisions that are best suited for university longevity. This paper will cover the overview of the Seymour background, financial issue(s), budget/planning action changes, and impacts on the issue(s), and strategic solutions to help the university.

Seymour University Background & History

 Seymour University has a vibrant campus of culture and history that the officials take proud in sharing and bragging. The university was founded during the mid-19th century with a mission to serve and help students who were from disadvantaged economic backgrounds. Seymour had a reputation for glowing in the fact that their liberation from governance and financial ties to religion made them be a leading university; but also proud in the aspect that the community decision, marketing, integrity, and commitment is the drive of the campus social justice stance. Seymour is one of the oldest universities in the states that catered to the 18-22-year-old traditional student population, but later capture the attention of adults who were non-traditional. The university developed programs to appeal to the older people that geared toward adult-centered learning; the adult population was 23 and older. Years later, to attract and grow their student population, in 2007 the university started to expand their efforts to recruit high school gifted students to attend their proud campus. Seymour was an advocate in producing the best quality students who are committed to serving as teachers, ministry, and career service jobs. In efforts to uphold a polished image, Seymour was at a disadvantage themselves; their budget was in chaos.

Seymour University faced a real low point within the administration, faculty, and staff; campus suffered from maintenance problems; enrollment was unstable because of their dire financial situation. There was a huge draw on endowment funds and $3.4 million operating deficit. The university had a plethora of academic programs that had only one faculty member. Staff and faculty were in disarray about how to handle the financial woes and there was no strategic plan for the university in place. Anthony was hired on as President to demonstrate his skill set and experience to help the university in strategy, transparency, community relations, and academic quality.

Financial Issues

Frank Anthony first year as President, developed a capital campaign at the same time he was getting acquainted with the key stakeholders, campus members, and the constituencies. President Anthony had his work cut out for him because he had to create a strategic plan that will be all-inclusive with the university’s planning committee and new faculty budget committee. Anthony begins tackling a financial debacle. Under the previous leadership President Miller, Seymour had accrued administration debt, significant amount spending with endowments and a weak budgetary process. There were seven attempts in ten years to develop a strategic plan which all were not successful. Seymour University was financially unstable to function because of the following issues:

  • Debt climbed because of the science building. Nine-million-dollar expansion and renovation of the library, construction of students’ apartments, and other capital projects.
  • CFO tried to sell 12 acres of campus land that served as a corridor around the “university woods.”
  • In 2002 a $60 million goal, a capital campaign was raising millions for financial aid, faculty positions, and endowment but did not offer any budget relief.

I know you’re wondering, “Why this is important, or why this matters?” Since there’s a new president in leadership it’s essential and it does matters because with such bad decisions under the previous administration concerns were brewing. The concerns were the campus community no longer believed the budget process was inclusive or practical, the CFO and Budget Manager were impossible to work with because of their negative personalities, and there was a 1.2 million dollar debt and 11% endowment spending when the new President took office.

Budget & Planning Impact

Anthony took on the task to put the school financial issues back on track. That meant making changes to the budget process that will not sit well with university officials and staff. He made the suggested changes for the following items: inclusion of faculty in the discussion and decision-making process, implementation of narrative to the budget proposal, usage of a budget checklist, hiring freeze, student financial impact, and facility renovations as a priority.

  1. Inclusion of faculty in the discussion and decision-making process:
  • Change of Action: For the FY 08-09 budget process, Anthony asked Professor James Ward to serve as the Chair of the Budget Committee.
  • Impact: Inclusion of faculty opens the conversation and decision-making process for the institution. This strategy allows the administration to bring balance to the discussion table.
  1. Implementation of narrative to the budget proposal:
  • Change of Action: Anthony asked the CFO to write a description that would explain and layout the budget numbers so that this can be easily accessible to those without knowledge of budget terminology.
  • Impact: Implementation of narrative to the budget proposals comprised of mostly charts, tables, and graphics that were hard to understand. These graphics enabled everyone to understand the context and what the numbers meant entirely.
  1.  Budget checklist
  • Change of Action: President Anthony suggested to the trustee Finance Committee Chair that he use a checklist of budgeting best practices when conducting a presentation to the board.
  • Impact: The use of a budget checklist, allows the board to evaluate budget independently, which no longer had to rely on the CFO or administration to give out suggestions.
  1. Temporary hiring freeze:
  • Change of Action: Achievement of financial balance by FY 10-11 would require a temporary hiring freeze in FY 09-10 for positions not related to enrollment growth.
  • Impact: Enforcing a temporary hiring freeze is going to reduce cost, especially in this case. Seymour University is under financial stress and has considerable debt.
  1. Student financial impact:
  • Change of Action: Raise student fees by no more than 5% for the 09-10 budget year.
  • Impact: The increase in the student fees will allow the committee to consider the ability of students to pay and the possible implications for enrollment as a critical strategy when building the budget.
  1. Cost of renovation allocation:
  • Change of Action: Spread out the cost of significant renovations by 1 or more each fall to keep up the “enthusiasm.”
  • Impact: This strategy of renovations and facility maintenance will grow enrollment and tuition revenue.
  1. Develop a strategic priorities committee:
  • Change of Action: Developing a specific committee to work on developing and writing a five-year institution plan for the university.
  • Impact: This committee can signal an end to closed-door meetings and financial decision-making dominated by the administration as well as helping develop a direction the institution wants to go.
  1. Resignation of the CFO and the firing of the Budget Director:
  • Change of Action: New leadership for the budget committee. Having new people in charge made it happier for the changes being made instead of being negative, hostile, and reserve.
  • Impact: The resignation of the CFO and the firing of the Budget Director will change the attitude of the committee.

Implementing such budgetary changes, did and will affect the staff, faculty, administration, and students in some form of fashion. Anthony was assuring that with such revision and impact this will gradually help get the university out of a deficit.

Proposed Solutions

Dealing with the revision of the budget, Anthony knew Seymour University needed to review endowment spending and reduce the expenditure rate required to support operations. A 7.5% spending rate is outside of a safe range (Mehrling, Goldstein & Sedlacek, 2014). According to Kaufman & Woglom (2008) encourage the university to “devise a financial plan that ensures the endowment will be sufficient to provide the long-run level of support that is required to balance the budget” (p. 199). Mehrling, Goldstein & Sedlacek (2014) feel that a good target range of 3-6% endowment spending will help shield a university from market fluctuations. While projected giving may be on the decline, following the Seymour capital campaign, the university needs to include expected gifts from annual alumni campaign and other potential developed giving also to help bolster the endowment. Helping to increase the endowment each year will help offset any potential losses through spending. Every staff and faculty member should ask for a donation. 100% giving from members of the university helps prospective donors decide to support the university (K. Blair, Personal Communication, June 17, 2014).

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Seymour University must be strategic in the budgeting process. Townsley (1993) states that a strategic model has four key components: a resourceful and imaginative admissions office, an adaptable academic program that meets students’ needs, a financial cushion, and a disciplined budget system. Townsley (1993) feels that being strategic is worthless without good leadership. Fortunately, President Anthony has proven to be a good leader and is placing good people into positions of leadership. The possible solution for Seymour is to put a strategic plan together that will look at the enrollment issues, academic programs and developed a budget system. To help the enrollment issues, President Anthony needs to facilitate realistic, strategic recruiting with the admissions office. If there is declining enrollment, this might lead to a concern about the survival of Seymour (Waggaman, 2001). A decrease in enrollment may also lead to an increase in tuition to help cover costs. Increasing enrollment will help to decrease overall costs at the university and help ease budget restrictions (Waggaman, 2001). For academic programs, this is where President Anthony needs to solicit faculty leaders to review educational programs and encourage streamlining programs as necessary. Seymour University has to realize that it cannot be all things to all students. Anthony and the faculty leaders must determine the most effective academic programs and terminate the others (Keller, 1983). While this may not be popular, it is necessary to remain market sensitive (Townsley, 1993). Lastly, develop a disciplined budget system. Fortunately, President Anthony and the University have created an active budget development schedule for FY 09-10 and recommend a budget. The budget is disciplined but will need to continue to be thorough in the creation of future budgets. Townsley (1993) made it clear that a financial buffer is necessary to help impede against future risk. As Anthony observed, the fiscal outlook is better than when he arrived is still uncertain and sensitive to economic and enrollment factors.

 As Seymour University continues to move forward, goals and strategic priorities will be central to the budgeting process. Making sure to keep to the base and create financial decisions on the strategic plan will be extremely important. To make sound decisions, Anthony changed the committee dynamic by appointing June Baxter the Director of Institutional Research and Assessment as a key player in future strategic budgeting situations. Baxter is capable of making individual decisions, and have assessment components related to the strategic plan. It seems as though Seymour University has an active leader in President Anthony and a strong committee/departmental structure in place taking the college to the next level, this leads to a situation where negotiation is exceptionally vital because both parties have necessary power in the budgeting process (Lepori, Usher & Montauti, 2012).

References

 

Higher education, like many other sectors, is experiencing new levels of financial despair. Despite enduring, harbor reputations, colleges, and universities are business ventures that are vulnerable to supply and demand concept, non-traditional competition, the ups and downs of the financial markets, and demographic shifts. The value of higher education seemed to be weak and the availability of resources to support academic programs, students, and research appeared less. However, the higher education arena is still fast approaching. There’s been an increase in student populations in federal research money in spite of tight investment markets. The truth is; the costs, other revenue avenues, and student enrollment have shifted tremendously in many directions. In turn, they are applying significant pressure to academic boards, officials, administration, and management teams who now must re-evaluate their pursuit of lasting sustainability. The Higher education spectrum is in an environment that operates like corporate industries. Corporate has sharp competition as well as persistent pressure to demonstrate value to its stakeholders and constituents. To remain viable, United States colleges and universities must adapt.

At a very high magnitude, financial sustainability is the greatest challenge threatening the ability of United States colleges and universities to fulfill its missions. Practically, all source of funding such as; government allocations, grants, tuition, and debt financing have been squeezed; changes in one can cause a ripple effect on others. More importantly, the challenges are more than financial. Colleges and universities are required to update operational and academic strategies, coordinate with financial obligation and responsibilities, and to sustain their university mission. Therefore, it’s essential that colleges and university have responsible and reliable leadership that can lead them into the future. Many college and universities have poor quality leadership that leads colleges and universities into destruction. There is a significant concern in higher education; it cannot grow revenue in a way they have for the last 20 years. Each year you either read or hear about numerous colleges and universities have closed, merged, or been purchased by for-profit colleges in the previous years; this is because of the lack of funding or stable budget.

For many decades colleges and universities have been in disarray, because the lack of financial stability and growth for the future; they continue to have economic distress because of stagnant school officials making poor financial decisions, which are based on old traditions and habits. Unfortunately, this is not the right direction for colleges and universities to press forward and succeed in the future. One university that’s dealing with budgetary debt concerns and unreliable financial faculty and staff is Seymour University. Seymour University adheres to traditional habits of the past and is not able to move forward because the CFO and board members are doing just enough to patch the financial problem. Seymour lacks straightforward, reliable leadership to make sound financial decisions that are best suited for university longevity. This paper will cover the overview of the Seymour background, financial issue(s), budget/planning action changes, and impacts on the issue(s), and strategic solutions to help the university.

Seymour University Background & History

 Seymour University has a vibrant campus of culture and history that the officials take proud in sharing and bragging. The university was founded during the mid-19th century with a mission to serve and help students who were from disadvantaged economic backgrounds. Seymour had a reputation for glowing in the fact that their liberation from governance and financial ties to religion made them be a leading university; but also proud in the aspect that the community decision, marketing, integrity, and commitment is the drive of the campus social justice stance. Seymour is one of the oldest universities in the states that catered to the 18-22-year-old traditional student population, but later capture the attention of adults who were non-traditional. The university developed programs to appeal to the older people that geared toward adult-centered learning; the adult population was 23 and older. Years later, to attract and grow their student population, in 2007 the university started to expand their efforts to recruit high school gifted students to attend their proud campus. Seymour was an advocate in producing the best quality students who are committed to serving as teachers, ministry, and career service jobs. In efforts to uphold a polished image, Seymour was at a disadvantage themselves; their budget was in chaos.

Seymour University faced a real low point within the administration, faculty, and staff; campus suffered from maintenance problems; enrollment was unstable because of their dire financial situation. There was a huge draw on endowment funds and $3.4 million operating deficit. The university had a plethora of academic programs that had only one faculty member. Staff and faculty were in disarray about how to handle the financial woes and there was no strategic plan for the university in place. Anthony was hired on as President to demonstrate his skill set and experience to help the university in strategy, transparency, community relations, and academic quality.

Financial Issues

Frank Anthony first year as President, developed a capital campaign at the same time he was getting acquainted with the key stakeholders, campus members, and the constituencies. President Anthony had his work cut out for him because he had to create a strategic plan that will be all-inclusive with the university’s planning committee and new faculty budget committee. Anthony begins tackling a financial debacle. Under the previous leadership President Miller, Seymour had accrued administration debt, significant amount spending with endowments and a weak budgetary process. There were seven attempts in ten years to develop a strategic plan which all were not successful. Seymour University was financially unstable to function because of the following issues:

  • Debt climbed because of the science building. Nine-million-dollar expansion and renovation of the library, construction of students’ apartments, and other capital projects.
  • CFO tried to sell 12 acres of campus land that served as a corridor around the “university woods.”
  • In 2002 a $60 million goal, a capital campaign was raising millions for financial aid, faculty positions, and endowment but did not offer any budget relief.

I know you’re wondering, “Why this is important, or why this matters?” Since there’s a new president in leadership it’s essential and it does matters because with such bad decisions under the previous administration concerns were brewing. The concerns were the campus community no longer believed the budget process was inclusive or practical, the CFO and Budget Manager were impossible to work with because of their negative personalities, and there was a 1.2 million dollar debt and 11% endowment spending when the new President took office.

Budget & Planning Impact

Anthony took on the task to put the school financial issues back on track. That meant making changes to the budget process that will not sit well with university officials and staff. He made the suggested changes for the following items: inclusion of faculty in the discussion and decision-making process, implementation of narrative to the budget proposal, usage of a budget checklist, hiring freeze, student financial impact, and facility renovations as a priority.

  1. Inclusion of faculty in the discussion and decision-making process:
  • Change of Action: For the FY 08-09 budget process, Anthony asked Professor James Ward to serve as the Chair of the Budget Committee.
  • Impact: Inclusion of faculty opens the conversation and decision-making process for the institution. This strategy allows the administration to bring balance to the discussion table.
  1. Implementation of narrative to the budget proposal:
  • Change of Action: Anthony asked the CFO to write a description that would explain and layout the budget numbers so that this can be easily accessible to those without knowledge of budget terminology.
  • Impact: Implementation of narrative to the budget proposals comprised of mostly charts, tables, and graphics that were hard to understand. These graphics enabled everyone to understand the context and what the numbers meant entirely.
  1.  Budget checklist
  • Change of Action: President Anthony suggested to the trustee Finance Committee Chair that he use a checklist of budgeting best practices when conducting a presentation to the board.
  • Impact: The use of a budget checklist, allows the board to evaluate budget independently, which no longer had to rely on the CFO or administration to give out suggestions.
  1. Temporary hiring freeze:
  • Change of Action: Achievement of financial balance by FY 10-11 would require a temporary hiring freeze in FY 09-10 for positions not related to enrollment growth.
  • Impact: Enforcing a temporary hiring freeze is going to reduce cost, especially in this case. Seymour University is under financial stress and has considerable debt.
  1. Student financial impact:
  • Change of Action: Raise student fees by no more than 5% for the 09-10 budget year.
  • Impact: The increase in the student fees will allow the committee to consider the ability of students to pay and the possible implications for enrollment as a critical strategy when building the budget.
  1. Cost of renovation allocation:
  • Change of Action: Spread out the cost of significant renovations by 1 or more each fall to keep up the “enthusiasm.”
  • Impact: This strategy of renovations and facility maintenance will grow enrollment and tuition revenue.
  1. Develop a strategic priorities committee:
  • Change of Action: Developing a specific committee to work on developing and writing a five-year institution plan for the university.
  • Impact: This committee can signal an end to closed-door meetings and financial decision-making dominated by the administration as well as helping develop a direction the institution wants to go.
  1. Resignation of the CFO and the firing of the Budget Director:
  • Change of Action: New leadership for the budget committee. Having new people in charge made it happier for the changes being made instead of being negative, hostile, and reserve.
  • Impact: The resignation of the CFO and the firing of the Budget Director will change the attitude of the committee.

Implementing such budgetary changes, did and will affect the staff, faculty, administration, and students in some form of fashion. Anthony was assuring that with such revision and impact this will gradually help get the university out of a deficit.

Proposed Solutions

Dealing with the revision of the budget, Anthony knew Seymour University needed to review endowment spending and reduce the expenditure rate required to support operations. A 7.5% spending rate is outside of a safe range (Mehrling, Goldstein & Sedlacek, 2014). According to Kaufman & Woglom (2008) encourage the university to “devise a financial plan that ensures the endowment will be sufficient to provide the long-run level of support that is required to balance the budget” (p. 199). Mehrling, Goldstein & Sedlacek (2014) feel that a good target range of 3-6% endowment spending will help shield a university from market fluctuations. While projected giving may be on the decline, following the Seymour capital campaign, the university needs to include expected gifts from annual alumni campaign and other potential developed giving also to help bolster the endowment. Helping to increase the endowment each year will help offset any potential losses through spending. Every staff and faculty member should ask for a donation. 100% giving from members of the university helps prospective donors decide to support the university (K. Blair, Personal Communication, June 17, 2014).

Seymour University must be strategic in the budgeting process. Townsley (1993) states that a strategic model has four key components: a resourceful and imaginative admissions office, an adaptable academic program that meets students’ needs, a financial cushion, and a disciplined budget system. Townsley (1993) feels that being strategic is worthless without good leadership. Fortunately, President Anthony has proven to be a good leader and is placing good people into positions of leadership. The possible solution for Seymour is to put a strategic plan together that will look at the enrollment issues, academic programs and developed a budget system. To help the enrollment issues, President Anthony needs to facilitate realistic, strategic recruiting with the admissions office. If there is declining enrollment, this might lead to a concern about the survival of Seymour (Waggaman, 2001). A decrease in enrollment may also lead to an increase in tuition to help cover costs. Increasing enrollment will help to decrease overall costs at the university and help ease budget restrictions (Waggaman, 2001). For academic programs, this is where President Anthony needs to solicit faculty leaders to review educational programs and encourage streamlining programs as necessary. Seymour University has to realize that it cannot be all things to all students. Anthony and the faculty leaders must determine the most effective academic programs and terminate the others (Keller, 1983). While this may not be popular, it is necessary to remain market sensitive (Townsley, 1993). Lastly, develop a disciplined budget system. Fortunately, President Anthony and the University have created an active budget development schedule for FY 09-10 and recommend a budget. The budget is disciplined but will need to continue to be thorough in the creation of future budgets. Townsley (1993) made it clear that a financial buffer is necessary to help impede against future risk. As Anthony observed, the fiscal outlook is better than when he arrived is still uncertain and sensitive to economic and enrollment factors.

 As Seymour University continues to move forward, goals and strategic priorities will be central to the budgeting process. Making sure to keep to the base and create financial decisions on the strategic plan will be extremely important. To make sound decisions, Anthony changed the committee dynamic by appointing June Baxter the Director of Institutional Research and Assessment as a key player in future strategic budgeting situations. Baxter is capable of making individual decisions, and have assessment components related to the strategic plan. It seems as though Seymour University has an active leader in President Anthony and a strong committee/departmental structure in place taking the college to the next level, this leads to a situation where negotiation is exceptionally vital because both parties have necessary power in the budgeting process (Lepori, Usher & Montauti, 2012).

References

 

  • Kaufman, R.T., & Woglom, G. (2008). Managing private college finances in an environment in which spending and revenues grow at different rates. Journal of Education Finance, 34(2), 196-211.
  • Keller, G. (1983). Academic Strategy: The management revolution in American higher education. Baltimore, MD: John Hopkins Press.
  • Lepori, B., Usher, J., & Montauti, M. (2012). Budgetary allocation and organizing characteristics of higher education institutions: A review of existing studies and a framework for future research. Higher Education: The International Journal of Higher Education and Education Planning, 65(1), 59-78.
  • Mehrling, P., Goldstein, P., & Sedlacek, V. (2014). Endowment spending: Goals, rates, and rules. Retrieved from net.educasuse.edu/ir/library/pdf/ffp05156s.pdf
  • Townsley, M. K. (1993). A strategic model for enrollment-driven private colleges. Journal of Higher Education, 8(2), 57-66.
  • Waggaman, J. (2001). Managing the costs in higher education. In J. L. Yeager, G. M. Nelson, E. A. Potter, J. C. Weidman, & T. G. Zullo (Eds.), ASHE Reader on Finance in Higher Education. 2nd ed., pp. 301-315. Boston MA: Pearson Custom Publishing.

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