Thursday, September 17, 2020  |  Category: Eduvation Insider

Budgeting in a Pandemic Hurricane

Good morning!

If you’re having trouble reconciling everything that’s happening south of the border right now, you’re not alone. Over the past week, dozens of US colleges that brought students back to campus in August have been reversing that decision, suspending classes, quarantining the entire student body, or sending students home. Just yesterday, local health authorities ordered students at Grand Valley State, uColorado Boulder, and uArizona to quarantine. The state of Massachusetts took over contact tracing because Boston College was struggling.

And yet – the Big Ten conference presidents unanimously voted to play ball a month from now, after quite reasonably calling off the fall football season entirely. WTF!?  Apparently, Republican governors and federal politicians still carry plenty of clout: the medical question about myocarditis still hasn’t been resolved.

Heck, here in Canada even Quebec has finally cancelled university sports for the fall. In Ontario we’ve been seeing a disturbing trend of new outbreaks in 20 long-term care homes over the past 2 weeks. And of course, as students return to campus we’re seeing news coverage of rowdy partying, unmasked gatherings, and long line-ups to access COVID19 testing. Thankfully though, so far we have nothing as tragic as the superspreader wedding in Maine, which has caused 175 cases of COVID19 and 7 deaths!

Today we continue our dive into higher ed budgets and finances, which I began yesterday. But first, a few more COVID cases in CdnPSE…

CdnPSE Cases

The pace of daily case announcements is picking up, although I still suspect many positive test results never make it to a media release or newscast…

Algonquin College reports “its first case of COVID19 affecting a student who has been on-campus.” Algonquin

Brock U reports that an off-campus student, who has not visited campus this term, has tested positive for COVID19. Brock

Mount Royal U reports that an individual who was on campus last week has tested positive for COVID19.  MRU

“As Warren Buffet once famously said, ‘only when the tide goes out do you discover who has been swimming naked.’ For Canadian higher education, COVID is the ebb tide.” – Alex Usher, Higher Ed Strategy Associates

$ Postscript: Australia

Announcements are continuing to come out in Australia on a daily basis. Since yesterday…

Australian National U projects a $192M deficit in 2021, and similar amounts in 2022 and 2023. It plans to achieve half of the required savings by eliminating 215 positions, hopefully through natural attrition and voluntary departures. (250 FTEs have already taken VR.)  ABC News

Monash U plans to eliminate 277 FTEs through voluntary redundancies, specifically 30 library positions, 14 faculty-based research support, 58 teaching FTEs through course rationalization, 91 central student admin and support, and 56 distributed through the faculties. Campus Morning Mail

Sydney U dispatched “about 100 uniformed and public order riot squad officers” across campus in response to public demonstrations protesting budget cutbacks (and the president’s $1.5M salary). Police fined 10-15 students $1,000 each, and arrested one.  Sydney Morning Herald

Disguising Job Losses in FTEs

Temporary layoffs, furloughs, and voluntary redundancies are always expressed in FTEs (full-time equivalents), which understate the impact on employees and their families – particularly the casual part-timers who typically go first. At UNSW, 741 FTE positions are actually occupied by 5,846 individuals – almost 8x as many! At uSydney, 7,000 casual staff are considered 500 FTEs, based on a 35-hr work week rather than the typical academic teaching load. Campus Morning Mail

$ Postscript: UK

This item would definitely have provided helpful context yesterday as I observed that UK universities are turning to government for aid…

$1.2B in Government Aid

Britain’s National Audit Office reports that the Department for Education has disbursed >Ł700M in emergency funding to 115 “further education” and “sixth form colleges” in England (about half). These interventions “have absorbed considerable amounts of public money, while many colleges remain in financial difficulty.” Sector reviews begun in 2015 resulted in 57 college mergers and cost the government >Ł430M. Loans of Ł250M were extended to rescue 36 colleges with serious cashflow problems. The education secretary has promised a white paper later this year proposing plans for the sector.  Guardian

$ Postscript: USA

Colleges under Financial Strain

Scott Carlson, a senior Chronicle writer, explained to NPR that many small colleges felt they had to bring students back to campus, both for athletics and because revenues from dorm rooms subsidize academic activities. Demographics have been pressuring small colleges in Vermont, Pennsylvania, Minnesota, and North Dakota for some time, and institutions have been discounting tuition to maintain enrolments since the 2008 recession. COVID19 brings additional costs, like the prohibitive cost of thorough testing programs: Cal State rejected the idea because it would cost ~$25M a week. The old adage says “it takes a long time to kill a college,” but Carlson predicts we will start to see a lot of colleges close in the Northeast, Midwest, and parts of the South.  NPR

“One small private college president in Ohio told me, ‘We make money on the dorms. We break even on dining, and we lose money on everything else, including the education and tuition.’” – Scott Carlson, Chronicle of Higher Ed, to NPR

Lingering Fiscal Challenges

Pandemic impacts on institutional budgets will not disappear when we have a vaccine. Current revenue losses will be compounded through 2021, with declining ancillary revenues, reduced enrolment, and discounting of tuition for online courses. (Elite institutions have offered price breaks from a position of strength, while vulnerable institutions have done so in desperation.) Institutions that miss net revenue targets for 2020 and 2021 (through underenrolling, overdiscounting or both) “will be burdened with these low-revenue cohorts until they graduate.” It will take a decade for the US unemployment rate to return to prepandemic levels, and many regions face a demographic “precipice” by 2025. Tuition-dependent colleges need to rethink their business models and rightsize their operations to be sustainable. Particularly in the US, tuition pricing strategy is key, and executed poorly, could lead to “an existential crisis.” “Hope… is insufficient as a foundation for strategy.”  Inside Higher Ed

CdnPSE Context

Some Tough Premiers

Canada’s colleges and universities are not immune, grappling with pandemic expenses, declining international enrolment and ancillary revenues, and new costs to pivot courses and services online – plus cuts by right-leaning governments that began even before COVID19, in Alberta, Manitoba and Ontario. Already, uAlberta has cut $110M and 400 jobs in the last 2 years, and is planning to cut $120M and 635 more jobs in the next fiscal. In April, the Manitoba government gave its universities just 5 days to plan for a cut in payroll of up to 30% (although ultimately that was much softened). And institutions in Ontario are coping with a 10% cut to domestic student tuition fees, and bracing for the implementation of aggressive new performance-based funding models.  Huffington Post

CdnPSE Budgets

Over the past week, multiple institutions have made public announcements about their financial position heading into the fall…

Fanshawe College is facing a $24M deficit because of an 18% decline in international enrolment, from 7,300 to 6,000, and $8M revenue shortfalls for residences and other ancillary services. (Residences are operating at 46% capacity.) Domestic enrolment is up 2%. Fanshawe did not renew 150 full-time faculty contracts this summer, and more cuts seem likely, although president Peter Devlin assures employees that no full-time permanent staff will be cut.  London Free Press

uRegina anticipates a $13.5M deficit for 2020-21, thanks to an $8M decline in parking and residence fees, $3M in student ancillary fees, and $2.5M less revenues from ESL and the Conservatory. Remote learning will continue through the Winter 2021 term. Senior administrators are discussing means of addressing the deficit, but “there are no plans for layoffs” since UofR wants to “keep our complement intact and engaged so we have full institutional capacity when the pandemic abates.”  Regina Leader-Post

“The effects of the pandemic are now sharply challenging revenues on which the University depends… There are no plans for layoffs at the University of Regina. We have a particular responsibility to those among us who are economically vulnerable. We also wish to keep our complement intact and engaged so we have full institutional capacity when the pandemic abates.” – Thomas Chase, Interim President, uRegina

Royal Roads U reports a 20% decline in international students, but an “uptick” in domestic, resulting in an overall decline of 6%. That means a $2M revenue hit, on a budget of $70M. Some staff have been redeployed, but no layoffs. Victoria Times-Colonist

Thompson Rivers U now estimates a decline of 21-23% (not 30%) in international enrolment this fall, which will have a $12M impact on revenues.  The Tyee

Vulnerable Canadian Institutions

HESA has analyzed CdnPSE financials pre-COVID to identify those most at risk now: institutions highly dependent upon international tuition, and who have not managed to bank accumulated surpluses for a rainy day. (Cape Breton U, for example, depends on international students for 55% of its enrolment, but has been generating the biggest operating surpluses in the country.) By this calculation, the most “theoretically vulnerable” CdnPSEs include Concordia, McGill, uStAnne, MSVU, Canadore, Cambrian, and Seneca.  HESA(PDF)

CdnPSE Enrolment

I summarized preliminary enrolment announcements last week, and am continuing to update the spreadsheet. In general, new international enrolments are down for almost all institutions. (McMaster was a rare exception.) Many universities successfully increased their domestic intake to offset those losses, but most colleges have been reporting domestic declines as well. Most announcements are trying to focus on the positive, so they cite increases in headcount or in specific categories of enrolment, without indicating whether FTEs have declined (which ultimately impacts budget). Here are the latest…

uLethbridge reports that its total enrolment is up 0.4% this Fall, with 8,987 students registered. Student retention is up 2.1%, and grad student enrolment is up 17.6%, to 740. The Calgary campus saw students increase 5%, Indigenous enrolments rose 6.3%, and international enrolments rose 6%.  uLeth

Northern Lights College is forecasting a 10% decrease in returning international students, and up to 20% fewer new international students, this fall.  The Tyee

Vancouver Island U reports that domestic enrolment is down 9% this year, and international enrolment is down 31%. VIU has laid off ~50 FTEs in ancillary services, and ESL. Victoria Times-Colonist

uVic is expecting 3,463 international students this fall, a 10% decline from last year, but on an FTE basis total international enrolment is down less than 1%. Also on an FTE basis, domestic enrolments are up 1.5%. Victoria Times-Colonist

Yukon U reports that most programs have shifted to online delivery, except for some F2F teaching in Science, Nursing, Trades and Visual Arts, in class sizes capped at 6. Yukon projects a 15% decline in enrolments for 2020-21, bringing annual credit student numbers to just over 1,000. About 100 international students are registered, most continuing programs begun pre-COVID. Yukon

The Big $ Picture

Above and beyond the financial pressures, budget cuts and job losses impacting higher education around the world, here is some interesting insight and strategic advice…

Bad Choices Left us Vulnerable

Since the last recession, US colleges saw enrolment decline 12%, yet they grew full-time faculty by 7% and admin staff by 16%. Their endowment funds realized just half the gains of the stock market. And they accumulated debt to spend $11B a year on new facilities. With decentralized budgets, minimal accountability, and perverse spending incentives, some blame PSE administrators for their financial weakness, even before COVID19.  Hechinger

Managing Shrinkage

Matt Reed observes that college presidents have spent decades in growth mode, leaving their legacies by adding buildings, programs and students. But the past decade has seen a downward trend in enrolment, particularly in the US Northeast and Midwest. “Suddenly, the task for many presidents involves managing shrinkage rather than growth.” Campus stakeholders credit their leaders for growth, but blame them for cuts – meaning leaders have powerful incentives for denial, or stalling on tough decisions. It’s also difficult to get stakeholders to understand the situation “when their livelihood depends on them not understanding it.”  Inside Higher Ed

Strategies for Sustainability

As institutions face downward pressure from demographics, government funding, fundraising and/or tuition, they need to leverage data as a strategic asset to improve student recruitment and retention, operational efficiency and cost-containment. (And this spring’s online pivot makes even more data available than ever.) In the long term, sustainability will require cost controls on academic programs, administrative costs, and facilities. Ultimately, the entire campus community will need to be engaged in strategic efforts to transform operations. “The incremental approach used so often in higher education won’t be enough. We believe higher education must re-energize its efforts and unleash the power of data and analytics… to support students and institutions.”  Education Dive

Budgeting in a Hurricane

A focus on improving performance has 30x greater impact on outcomes than managing to meet budgeted income and expenses. This is particularly true in times of crisis and disruption, when historically two-thirds of plans have to be rewritten. “In a world of unpredictable and accelerating change, long-term forecasts will be increasingly unreliable, and commanding people to stick to flawed plans will grow more dangerous.” In turbulent times, consider budgeting like NOAA forecasts hurricanes: describe expected paths, estimate uncertainty, and track your hypotheses over time. Ongoing agile budgeting “focuses on learning, adapting, and growing – not on trying to predict the unpredictable.” Allocate a percentage of your budget towards incremental innovations, and toward breakthrough innovations. To be strategic about outcomes, “allocate resources from the strategy down, rather than from individual projects up.”  Harvard Business Review

Who Pays for COVID?

US colleges and state governments alike face massive deficits because of COVID19, and the campus experience that justifies high tuition fees has evaporated. “Education can be delivered in a pandemic. But schools that are losing revenue were delivering more than that,” observes Scott Pulsipher, president of Western Governors U. “To the extent that schools are losing revenue during the pandemic, it is largely because they are not able to offer the private goods: food, housing, and fun.” Naturally, Pulsipher believes public funds should not subsidize lost revenues from housing or food, but should be targeted toward reskilling and upskilling the workforce.  Forbes

Pathogens & Monocultures

In discussing the idea of trimester scheduling, Matt Reed deploys a powerful metaphor that I think can apply to institutional revenue models, expenses, and much more too. He points to the uniformity across the higher ed landscape, resulting from accrediting bodies, financial aid rules, collective agreements and centuries of tradition. “If we saw more experimentation, we’d be less likely to see the entire industry struggling at the same time. As any farmer can tell you, pathogens thrive in monocultures… If we want the system to be resilient, we need to allow its members to try many different approaches.” Insider Higher Ed

“As any farmer can tell you, pathogens thrive in monocultures; COVID-19’s effects on higher education should settle that question once and for all. If we want the system to be resilient, we need to allow its members to try many different approaches. That may mean taking a good, long look at some of our guiding assumptions.” – Matt Reed, writing in Inside Higher Ed

Sorry today was a long read – but I wanted to finish off this topic before Friday!

Stay safe and be well,

Ken