Higher Education Finance Part 2-Toutkoushian

Report
Overview of Institutional
Higher Education
Financing in US
Robert K. Toutkoushian
June 5, 2013
Overview of Presentation
 First presentation (yesterday): overview of system
higher education financing in the United States
 Second presentation: overview of institutional higher
education funding in the US




Funding from the perspective of individual institutions
Where do institutions get their money?
How do institutions spend their money?
How do institutions manage financial issues?
Depiction of Funding Sources
Total
Revenues
Government
Students
Private
Donations
Non-Students
Other
Funding
Where Do Colleges Get Their Money?
Tuition and fees from students
1.


Tuition varies dramatically for public and private institutions
Tuition at public institutions varies by residency status
2. State governments (appropriations)
 Funding has generally kept pace with inflation, but not costs
3. Federal governments (research)
4. Private donations
5. Revenues from auxiliary enterprises
6. Endowment
Example: University of Georgia
UGA Fact Book revenue by source in 2011-12 (US$)
1.
2.
3.
4.
5.
6.
7.
8.
Revenues from state
Tuition and fees
Federal appropriations
Gifts, grants and contracts
Special federal funding
Auxiliary enterprises
Endowment
Sales, Services, Misc.
Total revenues
= $364 million
= $387 million
= $ 12 million
= $273 million
= $ 14 million
= $161 million
= $ 1 million
= $140 million
= $1.33 billion
Changes in UGA Revenue Shares
Source
2002-03
2006-07
2011-12
38.0%
38.7%
27.2%
Federal Appropriations
1.0%
1.1%
0.9%
Tuition and Fees
15.5%
22.1%
28.9%
Gifts, Grants, & Contracts
33.2%
20.3%
20.4%
Auxiliary Enterprises
7.6%
11.2%
12.0%
Endowment
0.1%
0.1%
0.1%
Sales, Services, & Misc.
4.6%
6.5%
10.5%
State Appropriations
Source: UGA Fact Book 2012
• State funding has declined as a share of total revenues
• Tuition and fees have increased as a share of total revenues
Revenue / Prestige Cycle
Increase
Revenues
Attract Better
Faculty &
Students
Increase Aid
& Spending
Raise HEI
Prestige &
Ranking
Seeking Out Revenues
Observations on revenue streams:
1. State funding is beyond direct control of institution
(but can lobby govt, meet performance incentives)
2. More emphasis on increasing grants and contracts
(especially for research-oriented institutions)
3. More emphasis on raising donations & endowments
4. Incentives to become more entrepreneurial


Offer special programs to raise revenues
Partner with industry to provide services and generate revenues
The Pricing of Education Services
Tuition as a revenue source is a bit more nuanced:
 Varied authority to set tuition (state, system, HEI)
 Students charged “tuition” and “fees”
 Pricing constrained by demand & competitors
 Institutions reduce net price paid by some students by
offering financial aid (“tuition discounting”)



Need: Aid based on ability to pay
Merit: Aid based on academic performance
Other: Aid based on other attributes (ex., band, athletics)
Institutional Pricing/Aid Goals
1.
Increase enrollments

Entice more students to enroll at the institution
2. Increase net tuition revenue
3. Change mix of students

Provide more aid to desired students
4. Raise prestige

Prestige affected by profile of entering class

Provide more funding to high-ability students
Types of Costs in Higher Education
1. Instruction – Salaries and benefits for faculty
2. Research -- Externally-funded research projects
3. Public Service – Service to community, state, nation
4. Academic Support – Expenses that support the
academic mission (library, information technology)
5. Student Services – Expenses that contribute to
students outside of instruction (student activities)
6. Institutional Support –Administration
7. Other Expenses
Example: UGA
The UGA Fact Book shows the following expenditure
information for UGA in 2011-12:
1. Instruction
= $249 million
2. Research
= $318 million
3. Public Service
= $155 million
4. Academic Support
= $ 94 million
5. Student Services
= $ 45 million
6. Institutional Support = $ 68 million
7. Auxiliary Enterprises = $153 million
8. Scholarships
= $130 million
9. Physical Plant
= $113 million
Total
= $1.33 billion
Expenditures/Student, Public HEIs 2010-11 (US$)
Category
All Public
4-Year Public
2-Year Public
Instruction
$7,202
$9,133
$4,280
Research
$2,664
$4,421
$5
Public Service
$1,077
$1,673
$175
Academic Support
$1,755
$2,369
$825
Student Services
$1,231
$1,373
$1,016
Institutional Support
$2,165
$2,606
$1,498
Plant O & M
$1,710
$2,149
$1,046
Scholarships
$1,597
$1,522
$1,711
Auxiliaries
$1,970
$2,912
$546
All Other
$5,498
$8,272
$1,296
$26,869
$36,430
$12,398
Total
Source: NCES, Digest of Education Statistics 2012
Budgeting Approaches in US
 How do HEIs in the US allocate revenues
and expenses to academic and
administrative units?
 Two main approaches:
1. Line Item Budgeting
2. Responsibility Centered Management
Line Item Budgeting
 Administration makes decisions on how much to
increase or decrease each line item in the budget
 Often based on average pool of additional revenues

If institution has 3% more revenues than last year to
distribute, then average line item increase is 3%.
 Advantage: Easy to implement and understand
 Disadvantage: Does not provide incentive to cut back
expenses or bring in more revenues


May continue funding “unprofitable” activities at HEI
Not clear how funding decisions are made (politics,
performance?)
Cross Subsidization
Considerable cross-subsidization within HEIs:
1. Undergraduate students subsidize graduate
2. Low-cost majors subsidize high-cost majors
3. Academic units subsidize non-academic units that
do not generate sufficient revenue to cover costs
(e.g., administration)
4. Teaching subsidizes research and public service
Responsibility Centered Management (RCM)
An alternative to line item budgeting is “RCM”
 Institution is divided into “responsibility centers” or
“RCs” (ex., collegiate units within HEI)
 Revenues are distributed to RCs based on formulas:

Revenue per student (credit hours), research
 Each RC has to ensure that it has enough revenues to
cover their expenditures
 May impose a “tax” to pay for HEI administration
 Provides incentive to cut expenses, attract funding
Illustration of RCM Model w/Tax
RC Unit
A
B
C
D
E
Administration
Total
Enrollment
1,000
5,000
2,000
10,000
2,000
20,000
Cost / Student =
Admin / Student
=
Old Revenue
$20,000,000
$40,000,000
$30,000,000
$60,000,000
$10,000,000
$40,000,000
$200,000,000
Gross Revenue Administrative Tax Net Revenue
$10,000,000
$2,000,000
$8,000,000
$50,000,000
$10,000,000
$40,000,000
$20,000,000
$4,000,000
$16,000,000
$100,000,000
$20,000,000
$80,000,000
$20,000,000
$4,000,000
$16,000,000
$200,000,000
$40,000,000
$160,000,000
$10,000
$2,000
• Institution has $40 million in administrative costs, total budget $200 million
• In RCM, distribute all revenues, then tax units to pay for administration
• Administrative tax = ($2,000) x (Enroll)
Observations on RCM Budgeting
 Good aspects:
 Makes HEI finances more transparent (can see how funding
decisions are made)
 Puts decision making power closer to academic departments
 Provides an incentive for academic units to cut costs
 Provides an incentive to enroll and retain more students
 Bad aspects:
 Raises concerns about “internal competition” for students
 Administrative tax can be unpopular on campus
 Limited RC power to raise revenues (e.g., cannot set tuition)
Data on HEI Finances
 Important to develop capacity to collect data on HEI
revenues and expenditures
 HEIs in the US required by national government to
submit data annually
 Data can be used by policy makers to study higher
education industry
 Data can also be used by HEIs for comparisons,
examine time trends, make projections
Examples of Financial
and Enrollment Trends
and Issues
Example: Expenditures Per Student,
FY95 (US$)
School
Univ of Vermont
Univ of Virginia
Univ of Delaware
UC Santa Cruz
SUNY Binghamtom
Univ of Rhode Island
Univ of Maine
Miami of Ohio
Univ of Oregon
U of New Hampshire (UNH)
Mississippi State
Utah State
Univ of Colorado
Instruction
$7,905
$8,655
$8,458
$6,622
$5,855
$5,872
$5,342
$5,801
$5,246
$4,901
$4,483
$4,589
$5,704
Academic Student Institutional
Plant &
Support Services
Support Maintenance
$2,287
$1,091
$2,722
$2,308
$3,199
$760
$1,517
$1,299
$1,190
$737
$1,606
$1,238
$1,781
$1,798
$1,936
$1,234
$1,273
$745
$1,201
$1,300
$1,587
$1,186
$1,466
$1,379
$1,536
$1,382
$998
$1,245
$1,310
$751
$966
$1,009
$1,396
$873
$983
$781
$1,193
$533
$1,365
$824
$1,294
$470
$1,279
$1,044
$1,241
$494
$1,293
$922
$1,473
$1,257
$1,088
$733
Total
$16,314
$15,430
$13,229
$13,371
$10,374
$11,490
$10,502
$9,837
$9,278
$8,815
$8,569
$8,538
$10,254
Average without UNH =
$6,211
$1,631
$962
$1,421
$1,208
$11,432
%UNH above/below average =
-21.1%
-26.9%
-44.6%
-4.0%
-31.8%
-22.9%
State Appropriations as a Share of Revenues
for All Public Institutions and USNH, FY97
45%
KSC & PSC Carnegie
classification
UNH Carnegie
classification
42%
38%
40%
36%
35%
31%
30%
25%
20%
17%
16%
15%
10%
5%
0%
Research
Doctoral
Comprehensive
Baccalaureate
appropriations to revenues
UNH
KSC/PSC
Trends in Numbers of SAT Test Scores Sent
to USNH Campuses, 1980 to 2007
Year
Number of New Hampshire SAT
Takers Sending Test Scores to
USNH Institutions
Percentage of All New Hampshire
SAT Registrants Sending Test
Scores to USNH Institutions
UNH
PSU
KSC
UNH
PSU
KSC
1980
3,140
974
710
39.4%
12.2%
8.9%
1985
3,201
1,024
770
39.3%
12.6%
9.5%
1990
3,952
1,470
1,434
45.2%
16.8%
16.4%
1995
3,601
1,238
1,271
38.5%
13.2%
13.6%
2000
3,433
1,217
1,351
30.9%
11.0%
12.2%
2007
3,944
1,402
1,400
30.1%
10.7%
10.7%
Notes: Data obtained from College Board, New Hampshire College-Bound Seniors, annual
reports 1980-2007.
Data show that despite increases in number of SAT submissions to UNH, the
share of SAT submissions to UNH was falling
Projected Demand for UNH
Projected New Hampshire Public High
School Graduates
Year
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
A
P
P
P
P
P
P
P
P
P
P
P
Lower Bound
----12,774
12,949
12,660
12,652
12,354
12,161
12,030
11,829
11,844
11,823
11,642
Middle
14,062
13,296
13,511
13,156
13,146
12,785
12,555
12,402
12,171
12,188
12,165
11,962
Upper Bound
----13,817
14,074
13,651
13,640
13,216
12,950
12,774
12,514
12,533
12,507
12,283
Projected Numbers of New Hampshire
Freshmen in Four-Year Institutions from
Public High Schools
Four-Year
Number of
Change from
Change from
Freshmen
2006
2006
7,229
--------6,835
-394
-394
6,946
-283
-677
6,763
-466
-1,143
6,758
-471
-1,614
6,573
-656
-1,876
6,454
-775
-2,368
6,376
-853
-2,755
6,257
-972
-3,257
6,266
-963
-3,564
6,254
-975
-3,764
6,149
-1,080
-3,990
Data show falling enrollment projections due to fewer high school graduates
Conclusions
 HEIs need revenues to enhance reputation and
prestige – “arms race” in academia
 HEIs focus on specific revenue streams


Less control over funding from state government
Declining state funding has increased pressure to raise funding
from other sources (students, grants, donations)
 New budgeting model (RCM) has promise for higher
education institutions
 Data are needed to conduct policy analysis in higher
education at both aggregate and institution levels
Suggested Small Group Topics
 How do Croatian HEIs get their revenues? Which
are growing and declining in importance?
 How do the budgeting models in Croatian HEIs
compare to those in the US?
 How prevalent is tuition discounting in Croatia?
How does it compare to the US?
 What systems are in place to collect data on
revenues, expenditures, and enrollments for HEIs in
Croatia and the region?

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