Maintenance Over Management: A Survey of Business Officers

The sky has not fallen -- but pieces of it could soon be hitting a campus near you.

That is one way of summing up the findings of Inside Higher Ed's first-ever Survey of College and University Business Officers, released today in advance of the annual meeting of the National Association of College and University Business Officers. (A copy of the survey report can be found here.)

The survey, the second of a series in which Inside Higher Ed is gauging the views of key higher education constituents, reveals a surprisingly upbeat assessment about the financial state of American college campuses (especially private nonprofit ones), as seen through the eyes of their chief finance and business officials, 606 of whom responded to the survey.

About one in six business officers at both public and private nonprofit colleges described the financial health of their respective institutions as “excellent,” and another 57 percent of public-college CFOs and 47 percent of private-college CFOs characterized their respective institutions’ financial health as “good.” Business officers at public and private institutions alike also generally rebuffed the notion that the budget cuts their institutions have suffered so far have damaged the quality of their academic programs or academic support for students -- opinions that many other people on their campuses are unlikely to share.

Sanguine as they were about what has happened to date, however, business officers at public institutions were far less optimistic about the near future than were their private college counterparts. While about three-quarters of public college CFOs described the current health of their campuses as good or excellent, less than one in five said their institutions were in much better shape now than they were two years ago, and only one in 10 said they expected their colleges to be in better shape in 2012 or 2013 than they are now.

Private college and university CFOs were nearly three times likelier to believe that their institutions will be better off in May 2013 than were public college business officers.

And financial officials at all types of institutions appeared to recognize that the cuts are beginning to take a toll: about 60 percent of all respondents to the survey disagreed or strongly disagreed that “my institution can make additional and significant budget cuts without hurting quality.”

Among other highlights of the survey of 606 business officers, which was conducted in May and early June:

• Nearly 4 in 10 business officers at public and private colleges alike said their institutions had already decided to outsource, or were considering outsourcing, the development of instructional resources or the delivery of instruction for their online academic programs. The proportion saying that they had decided not to outsource these functions or that doing so was “too political to consider” was only slightly larger.
• Less than 40 percent of business officers at public and private institutions alike said their colleges were very effective at using data to inform decision making, and fewer than a third said their colleges’ budget models were very effective at helping the institutions set or reassess their priorities.
• More than half of business officers at private master’s universities and baccalaureate colleges said their institutions’ tuition discount rates are unsustainable.
• Six in 10 said there are too many “sacred cows” at their institutions that cannot be touched.

Experts on higher education finance had a variety of explanations for the comparatively rosy view of many business officers.

Kent John Chabotar, president of Guilford College and a former chief financial officer at Bowdoin College, attributes the “disconnect” between the CFOs’ views and the “awful” stories from the deans and

advancement officials he encountered this summer at Harvard University’s Institute for Management and Leadership in Education to a difference in perspective.

“Many of my financial colleagues think that the academic program is over-budgeted and sometimes even bloated, so cuts may seem to them to be restoring the proper balance,” Chabotar said via e-mail. “Another factor here is that financial officers have great pride in their ability to cope with financial crises come what may, so might be less likely to recognize that bad things have happened to academic programs and student services on their watch.”

Jane Wellman, executive director of the Delta Project on Postsecondary Education Costs, Productivity, and Accountability, says she read the survey to reflect business officers’ positive assessment of “their ability to manage and handle” the economic downturn -- “to get through the year-to-year cuts okay. But are they doing it strategically? Are they using data to analyze how effectively they’re spending money? Are they doing a good job of explaining what’s going on to the constituents who matter? They are maintaining things O.K., administering it, but are they managing it in a way that’s sustainable? That’s not at all clear.”

The CFOs Speak

The survey of business officers follows by several months the release of Inside Higher Ed’s first survey, of 956 college and university presidents. That survey sought to gauge the views of campus leaders about how they and their institutions have navigated the current economic downturn.

This survey, querying chief financial officers, solicits the opinions of those closest to the institutions’ bottom lines and drills down into the business practices and strategies that institutions have used, and envision using going forward, to cut costs, increase revenues, and manage resources.

Given the several years of state budget cuts, endowment ebbs and flows, and other economic turmoil that have affected many campuses, one might have expected colleges’ financial experts to be pessimistic. But while they see plenty of potential peril ahead, the business officers surveyed offer a generally upbeat view about the financial state of their campuses right now -- more so than the presidents surveyed by Inside Higher Ed a few months ago, and far more so than many rank-and-file faculty and staff members, who regularly express their concerns about furloughs, flat or declining salaries, and cuts in academic programs.

For example, almost 93 percent of business officers disagreed or strongly disagreed with the statement that “budget cuts over the past three years have done major damage to the quality of academic programs at my institution,” and 88.8 percent said the same thing about the quality of student academic support services. (A slightly larger proportion acknowledged some impact on the quality of campus operations and support services, and a majority of public college CFOs conceded damage to staff morale.)

As is true in other parts of the survey, public college CFOs had a slightly more pessimistic assessment than did their private college peers of the impact of the cuts so far. While not a single business officer at an independent doctoral or master’s institution agreed that recent cuts had seriously damaged his or her institution's academic programs, about one in six business officers at public four-year institutions said they believed such damage had occurred.

Larry Goldstein, a longtime CFO who is now a financial consultant to colleges, says he hears a very different message from officials at the institutions he works with -- though he acknowledges that “a lot of times when they’re calling me, they’re in trouble.” He adds: "Still, I can’t reconcile the idea that [the downturn] has had little significant impact with what I’m seeing.”

Not surprisingly, neither can Sandra Schroeder, who is president of the American Federation of Teachers’ chapter in Washington State and chair of the union’s Higher Education Program and Policy Council. She notes that cuts in her state have taken the form of increased class sizes, reductions in force, and ever more hiring of part-time instructors.

“Financial officers have the least direct interaction with students, faculty, and the learning environment of any administrators, so it’s not surprising they would devalue the damage of three years of devastating cuts on the quality of education,” Schroeder said via e-mail. “Our programs and services may not have sustained ‘major damage’ in their eyes, but they have been hurt — by losses, but even more by progress that cannot be made…. The erosion of quality may be indiscernible to top level administration but it certainly is not so to those on the ground working with students desperate to get their degrees and better paying work.”

Looking Ahead

The survey shows that most business officers do not think that their campuses can continue to absorb financial strain without feeling pain. This is particularly true at public colleges, where less than a quarter of CFOs at doctoral and master’s universities, and about 40 percent of finance officers at four-year and community colleges, say their institutions can “make additional and significant budget cuts without hurting quality.” (Business officers at private doctoral universities take a more optimistic view than their peers; perhaps buoyed by the recovery of their endowments, 56 percent of them agree that their institutions can absorb further serious cuts without hurting quality.)

Where is financial pain most likely to come from? That depends largely on institution type. Asked to identify the two most important issues confronting their institutions, business officers at public colleges of all types (community college through doctoral institution) cite cuts in state operating support at the top, with doctoral and master’s institutions citing rising tuition/affordability second. CFOs at public doctoral universities expressed concern about potential cuts in federal research support, while their peers at other public colleges identified potential cuts in federal student aid as a major worry. Fewer than a quarter of public college business officers cited rising tuitions and affordability as a top concern.

A mix of enrollment and pricing concerns topped the issue list for private college business officers, with about a third of CFOs at master’s and baccalaureate colleges questioning their institutions’ ability to generate sufficient tuition revenue. Nearly that many expressed concern about the rising rates at which their institutions are discounting tuition. And "health care liabilities" turned up remotely high on the list of concerns only for private doctoral universities and public baccalaureate institutions -- an omission that troubles the Delta Cost Project's Wellman. "Health care's going to kill them," she says bluntly.

The strategies that institutions are adopting to position themselves for the next few years vary significantly, and seem to have more to do with institutions’ size and complexity than whether they are public or private.

Business officers at doctoral and master’s universities, public and private alike, said they believed that better use of metrics would be most important to helping them cut expenses, while those at public and private bachelor’s colleges and community colleges emphasized the need to eliminate low-enrollment academic programs as a key strategy for budget cutting. To the dismay of Goldstein, however, less than a third of campus CFOs -- and about one in five at public and private baccalaureate-level colleges and community colleges -- cited “cutting underperforming academic programs” as a strategy they were using to address the economic downturn.

“I’m alarmed that with this much stress in the system, more institutions aren’t asking the tough questions -- should we be resourcing all of these programs?” says Goldstein, who emphasizes that his definition of “underperforming” includes many criteria beyond mere enrollment levels.

And for institutions of all types, increasing enrollments -- especially with students paying higher tuition rates or a larger share of their tuition -- appears to be the holy grail for business officers hoping to bolster revenues. A majority of business officers at public doctoral and master’s universities said that recruiting more out-of-state students was a “very important” strategy for increasing revenues going forward; public master’s and community colleges said they would focus on developing online programs, and doctoral universities and bachelor’s colleges emphasized the recruitment of international students. CFOs at private institutions of all types cited increasing net tuition revenue as a top revenue-boosting strategy.

But how they do that appears to be an area of increasing concern. Many private colleges -- and in recent years an increasing number of public institutions -- discount their tuitions significantly to entice students and families who could otherwise afford higher education to enroll at their institutions. As competition for students -- especially paying students -- has escalated amid rising tuitions, some colleges have seen their discount rates rise above 50 percent.

More than half of CFOs at private master's institutions (54.4 percent) and baccalaureate colleges (51.4 percent) cited their discount rates as "unsustainable" -- but so too did nearly a third of business officers at flagship and other public doctoral universities, and more than a fifth of CFOs at public master's institutions and community colleges. "It's good that they're recognizing it as unsustainable -- hopefully there'll be a move to do something about it," says Lucie Lapovsky, a former president of Mercy College who has worked in both public- and private-college finance and surveyed business officers for NACUBO.

Lapovsky, who consults with colleges, says she was also struck by the extent to which business officers -- when asked how they would increase revenues, and what kinds of outsourcing their institutions were considering -- identified the development of online programs and a willingness to outsource the development of instructional resources and even instruction in those programs. As seen in the figure alongside, about 40 percent of public and private college CFOs said they were or would consider outsourcing those functions, which have long been seen as central on many campuses. (Far fewer business officers said their campuses would consider outsourcing counseling and academic advising services, with between a fifth and a quarter still saying such a move would be "too political to consider.")

"From my perspective, that's big -- a whole new paradigm," says Lapovsky. "It suggests that this isn't business as usual."

Acknowledging Flaws

If the answers to those questions suggest that business officers are being strategic and searching for new ways of doing things, several other responses to the survey suggest that even CFOs know they're not being as effective or forward-thinking as they might.

Fewer than 40 percent of business officers described their institutions as "very effective" at using data to inform decision making, at aligning their budgeting with strategic planning, and at using technology to enhance their missions and finances. Those limitations -- along with data showing that just 6.6 percent of CFOs see their institutions "narrowing or shifting" their missions -- suggest that too few colleges and universities are looking strategically at their operations to see if they should be doing fewer things better, rather than more things less and less well, says Goldstein, the finance consultant.

"Community colleges are stuck with lots of missions, but for every other sector, they have the flexibility to narrow their focus, identify a niche, and be excellent in that niche," he says. "Too many are mediocre with no niche, but it's not clear from the survey that institutions are using data or business models to look critically at themselves."

It shouldn't necessarily be the role of business officers to be directing those kinds of strategic conversations or suggesting changes in business models, says Guilford's Chabotar; that's the president's job. But he and Goldstein agree that it is the business officer's job to communicate with other campus constituents about the financial situation. So if it's true, as CFOs report in Table 14 of this survey, that many campus and community groups (faculty members, students, alumni, even department chairs and deans) don't fully "understand the financial challenges confronting [their] institution," business officers themselves must be at least partially responsible, says Goldstein.

"If the CFO isn't able to explain [the situation] adequately, so that the average faculty or staff person can understand it in real, tangible terms, I think that's a failing on the part of the CFO," he says. "I've always felt it was the CFO's responsibility to find the right language that helps people understand what's going on."

Goldstein posits that communication -- or more precisely, a lack of it -- may partially explain the apparent disconnect between what business officers say they see and the anguished reports emanating from others on campuses. "It may be that the same CFOs who aren't doing the best job explaining the significance of what's happening are the same people who may not be hearing about the impacts others are feeling," he says.

It's all about perspective, reiterates Chabotar. "CFOs are used to dealing with big numbers, so a 5 percent cut may not look like much," he says. "But academic folks usually deal with tiny budgets, and if you take 5 percent out of a tiny budget, it can be horrendous -- cutting sections, losing adjuncts. It's a case of, 'Walk a mile in my shoes' -- having financial people learning more about the programs they're cutting."

John Walda, president of the National Association of College and University Business Officers, says he suspects that's exactly what will happen going forward. "Traditionally, business officers have taken the approach that they do a lot of analysis and make a lot of decisions on an island, dealing with money problems without having to engage the rest of the [campus] community in a meaningful way," he says. "They have the perception that they've done a darn good job in dealing with difficult times. But I think they also realize that has to change -- that the problems that will be caused by deeper cuts and by increased demand at some institutions are problems that will necessary involve the entire community, and informed leadership about the impact that funding cuts have."