Wednesday, May 16, 2012

College Presidents Should Be Accountable for Costs

The New York Times ran a story about Ohio State University President E. Gordon Gee who is among those university presidents beginning to "confront costs." The story is replete with hand wringing quotes about new business models, unsustainable business models, and doing business in a new way. Don't bet on it. Nothing will change because the vested interests are more resolute than the Taliban, the Federal government fosters profligacy by regulation, consumers (students and their parents) have no leverage, and there is no price competition

Tuition increases at Ohio State historically look like they exceed a CPI-type measure by 2-3% per year. Tuition at OSU has increased 60% since 2002, or about 5% per year. Government appropriations account for about $919 million of a $5 billion budget, about equal to the amount contributed by student fees, some $916 million. Taxpayers and students together contribute about 37% of the budget. Unlike federal and state government funds, which come with all kinds of strings and regulatory hooks, the consumer funds come with accounting for costs in relation to value received.

President E. Gordon Gee's mission over the next five years is to find $1 billion in "inefficient spending" out of the $5 billion budget. This number should be a slam dunk. The Times notes that $75 million can be saved alone by going to a common expense report, which by itself is 7.5% of the reduction goal. I wonder what makes up this number? On the other hand, going to common vendors for copiers, pens(?), and overnight shipping will only save $20 million, which seems too low.

Labor costs are never addressed because the weasel words "inefficient spending" will probably keep them off limits. It looks like Administrative and Professional staff comprise 15,668 FTE out of a 2011 total of 31, 581, or about 50%! Add to this a category called Civil Service staff of 5,116 and together this overhead is 66% of FTE employment. Here's the problem. Tenure track faculty, presumably a primary reason why students pay up to go to OSU, comprise only 9% of employment, or 2,916 FTE.

The payroll appears to be about 38% of the annual budget. Among public universities, OSU is number three in enrollment at 58,867 in all schools. Benefit rates are very high in comparison to the private sector and employees contribute very little to their benefit costs. Benefit rates for the Civil Service class of employees are 45.3% and Unclassified employee rates are 35.1%, both groups being above the faculty rates of 29.6%, which is reduced by the heavy use of adjuncts and non-tenured faculty.

Duplicate departments, programs and centers which do not pull student majors can never be eliminated even by a university President or Trustees without a full scale war with the faculty.

The Times articles talks about an "arms race" for buildings and student amenities, but these are what consumers want and have to live with, after all. Donors who often fund these buildings do try to build in some revenue opportunities. There's no doubt that some universities go overboard, but this isn't as big a problem as what Andrew Rosen, CEO of Kaplan, Inc., calls "Harvard envy." This phenomenon is about creating new vanity programs and curricula to enhance the academic status of schools like OSU.

In this election year, the Federal government and Congress will look to throw a bone to students with outstanding loan balances, which is very unfortunate, because these amounts are a manifestation of the underlying problem, which is in academia itself.

Zac Bissonette wrote a book which all parents of college age kids should read and give to their children, called "Debt Free U." Put together with Rosen's more strategic volume, it will give you a much better picture than the puff piece in the New York Times.

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