Friday, October 1, 2010


From the University of Minnesota

Department of

"The Emperor Has No Clothes"


I apologize for the length of this post.  To a certain extent it is an inside baseball story.  However it is important that faculty, students, legislators, and interested citizens know what is actually going on at our university.  I don't agree with everything that is said below, especially with Dean Finnegan, but I appreciate his candor as well as that of other deans.

Executive summary: The deans are not happy with finances at the University of Minnesota and realize that there has to be a connection in the mind of the public between paying higher tuition and an increase in quality, not DECREASE in quality, which is actually what has been happening. 


Senate Committee on Finance and Planning
Tuesday, September 21, 2010




If the cuts instead were from the FY11 base of $591.1 million (the current actual base), they would $59.1 million at 5%, $118.2 at 10%, and $177.3 million at 15%.  Again with the case of the last, to make it up entirely through tuition would require an 11.8% tuition increase.
Professor Roe noted that the federal stimulus funds had been used to support tuition; those funds run out at the end of the fiscal year.  If there is no change, what will the tuition increase be?  About $750 for a returning undergraduate, Ms. Tonneson said.  So any tuition increase becomes even more onerous, Professor Roe commented, because there will be an increase solely because the stimulus funds will be gone.
What goes to the Board of Regents in October, Professor Luepker inquired?  The Board has to approve the numbers in the request, Mr. Pfutzenreuter said. This time, with $102 million more than the University is spending (i.e., the $51.1 million times two for the biennial request), they will ask the Board to approve the entire $642.2 million (times two for the biennium).  So far there is no language describing what the $102-million increase would be used for.
    Professor Roe asked if the $51.1-million increase is common knowledge.  It is, Mr. Pfutzenreuter said.  The governor's office is aware of it and Mr. Emmer's higher-education budget proposal dispenses with it altogether.
Professor Luepker promised that the issue of fees will come back to the Committee once the fee study has been completed.  Professor Roe inquired if students are every surveyed before there is an increase in fees.  If the answer is "no," there should be a question about increasing them.
The deans' argument is not with the allocation system, it is with the total level of costs—they are too high and growing too fast.  The overhead (cost-pool) costs for the Carlson School have been growing at an annual compound rate of 7.2%, far faster than her other costs and her revenues.  More importantly, she told the Committee, the way the budget model is implemented does not recognize that there are college costs as well.  The decision-making process is late, not transparent, and the outcomes are not predictable.

Dean Parente said that CLA's cost pools have increased by 7% from FY10 to FY11, and part of those increases are tied to the cost of the Minnesota Promise scholarships (undergraduate financial aid), which are charged to the cost pools.  That is not a sustainable position.   The University needs to think about whether it can afford the increases in financial aid, including the 21st-Century assistantships at the graduate level.    Normally matches come from outside funds to encourage more giving, Dean Davis-Blake observed, but for the University to raise $1 million and take $1 million out of its own pocket forever to match the funds raised is unusual.  She concurred with Dean Parente:  The growth in financial aid is not sustainable.
Dean Finnegan said he agreed with the foregoing comments.  He said that one line in the consultants' report spoke to the decision-making process, there is "visibility but not transparency."  The process is not transparent.  Visibility is when one is drowning in numbers, something the system produces a vast quantity of; transparency is understanding the decision-making system and how its "outputs" align with larger University goals. 
Another problem is the way annual budgets are built, Dean Speedie said:  They do not look at revenues and expenditures.  The colleges are the revenue-generators, but the administration does not look at the colleges when it decides on salary increases and tuition levels and the President's discretionary investment pool.  Those decisions are made and the amounts to be taken from the colleges are determined without being based on unit finances.  The problem is how the budget framework and state funding interfaces with the budget model; the cost pools are growing but there is no new revenue.  If they raise tuition, a large part of the increase goes to central administration and cannot accommodate college needs.  The administration has the right to make investments where it wishes, but without being responsive to college finances, the result is not a transparent or rational model.
Dean Davis-Blake said that if one does a household budget and one only compiles the costs, this can be dangerous.  For example, if one takes out a mortgage at 110% of the value of the house, one learns that is financially unhealthy.  This is what the University does.  Any rational budget model has to look at how much revenue there is in the system. 
With respect to revenue, Dean Davis-Blake said, the budget framework calls for raising tuition X% (a percentage that is different each year), but she looks at the elasticity of demand and knows that some programs and units cannot raise tuition that much without decreasing total revenues while there could be greater increases for some units; there has to be consideration of the markets in which the colleges operate. 
An unintended effect, however, is that in protecting Minnesotans from the impact of the state's disinvestment in higher education, the public blames the University rather than the state for ANY tuition increase.  Many deans believe that we cannot sustain this tuition buy-down by, in effect, eating our own seed corn. That is not sustainable, he said.  He said he does not want to see even higher tuition increases, but using University funds to make up the loss of state investment means losing quality and falling into a slow downward spiral.  Then who will want to attend the University?
Another point, Dean Finnegan said, is that the budget decision-making process is done backwards.  The University starts with the cost pools, not the revenue-generating units. Professor Martin said that everyone knows there will be a new president soon.  In the search process, it would make sense for anyone meeting with candidates to talk with them about the need to reverse the order of the process. 

Ms. Stahre asked if, given current constraints, the deans feel quality in their colleges has suffered because they are unable to make investments.  Dean Davis-Blake said that quality is going down because the quality of the student experience has declined, which is related to uncontrollable central costs.  At the Carlson School, they have fewer TAs, fewer classes, more students in classes, the building is less clean, there are fewer advisers, they have more adjuncts, and they have less information technology.  All of these things are happening.

The ability of the deans to manage is constrained, Dean Finnegan said, because they have such limited control over revenue and costs.  They cannot set tuition at a rate beyond that approved by the Regents even where it would make sense to do so in the marketplace (especially for professional and graduate students).  They set it as the University directs and most of the increase is taken to satisfy cost pool increases centrally. They also have very limited control over costs, which constrains the dean's ability to lead the college.  They are becoming more of a middle manager.  He emphasized that he is not saying deans should be able to do whatever they want to and he understands there must be accountability in the system.
Dean Davis-Blake said there have been many attempts by individuals and the colleges to put numbers on the effects, and the aggregate numbers are clear.  What is more difficult is the will to take action:  Central costs must go down or in four years her college will be spending more on central costs than it does on its faculty.  Making that change will require hard choices and it will require that the University model revenue and live within its budget.  In terms of quantifying the impact on quality, she said, they can look at class size, types of faculty, etc.—the information is all there and they have made the case.  They have to get out from underneath the crushing cost architecture of the system.
The institution needs to move to a strategic-planning model [sic], Dean Finnegan said.  It is Vice President Pfutzenreuter's job to have a balanced budget overall at the end of each year, not to set the University’s goals for financial investment.
Professor Martin said she was not surprised by the scenario being laid out by the deans.  It gets to the question of the quality of the University in the aggregate.  Her question is about the quality of the student experience:  Students are paying a lot more than when President Bruininks started in office, and the assumption has been that quality of the experience would increase as well.  Now they are hearing that the quality is eroding.  How can the University play in the global village when its costs are increasing and the student experience is declining in quality?
What is extremely important as the University plans for the next biennium, Dean Parente said, is that it makes clear what it is doing to enhance quality for students.  That must be a main driver; the University cannot argue for tuition increases because the state is cutting funding.  The tuition increases must be related to the quality of education.

No comments: