HOW INSTITUTIONS ARE PREPARING FOR UNCERTAIN TIMES
Idea in Brief
- Higher education leaders are less worried about a potential economic recession than they are about other known unknowns: demographic shifts and enrollment declines; incoming student cohorts with greater need for academic and financial support; and public skepticism about the value of a college degree. How these issues are resolved across campuses will hinge primarily on leadership response.
- Central to addressing these and other pressing concerns will be how CBOs maximize investment in support of mission priorities. This will require strategies—both small and broad in scale—to deliver on student success and employers’ needs and demands.
- Engaging employees will be key to mustering the energy and innovation required to make positive change.
Turbulent times call for proactive planning. Amid rumblings of a possible economic downturn on the horizon, campus leaders say they are more consumed by other looming challenges, such as the impacts from demographic shifts already underway. (For in-depth coverage of demographic changes, read “Seismic Shifts” and “High Priority” in the July/August 2019 issue.)
Last summer, Marquette University, Milwaukee, Wisc., announced a 2.5 percent personnel cut, eliminating 73 staff roles through a combination of layoffs and unfilled vacancies. It was one of several proactive measures the university took in response to the projected enrollment declines that many institutions know are forthcoming.
Even as leaders take stock of possible threats and find ways to recession-proof their campuses, they must carve out new areas of growth and opportunity to fulfill their institution missions.
Excellence Meets Reality
As President Michael Lovell outlined in an August 2019 letter to Marquette’s employees detailing the leadership’s difficult staffing decision, predicted drops in enrollment within the next decade “are not merely an inflection point” but suggest an “ongoing state of turbulence in higher education.”
Lovell points to what has become required reading for many college and university boards and leadership teams: Demographics and the Demand for Higher Education (Johns Hopkins University Press, 2018). In the book, Carleton College Social Sciences professor Nathan Grawe projects sharp declines in traditional college-age students in the coming years—by as much as 15 to 25 percent—especially for schools in the Midwest and Northeast.
In fact, Marquette has already felt the pinch during its most recent admissions cycle. In 2019, Illinois—Marquette’s biggest feeder state—spent millions of additional dollars to encourage students to attend in-state institutions, Lovell says. With increasing competition for fewer students, market forces will add more pressure as institutions and states attempt to protect their turf, he adds. “Knowing that we are stepping into these headwinds, we want to start from a position of strength. By the measures we have already taken, we are in a financially stable place.”
Redefine growth. Yet, this is also a time when institutions can and should lean into a spirit of innovation, Lovell says. “I’d rather have us define what Marquette is than have the market dictate that for us. This is an opportunity to evolve, to set ourselves up for continued success in the future. The point is that we have to plan now—we can’t wait.”
To that end, Lovell has been working proactively with his board and leadership team for three years to flesh out and enact a new strategic plan that factors in this altered landscape. The new plan includes investing in research, new programs in line with market demands, more online education, and focused diversity initiatives.
Significant reductions in traditional student populations doesn’t mean that an institution should shrink, Lovell says. “We are likewise pursuing other opportunities and markets.” This has required a hard look at rebalancing academic priorities. In the past two years, Marquette has launched 13 new academic programs and has sunset 15. “We view this as an imperative,” Lovell says. “Employment is evolving and job markets are changing, so we are making significant investment where we know there is, and will be, employer demand.”
Supply the demand. In one example, Marquette’s data science program received a huge boost in 2019 through the university’s partnership with University of Wisconsin–Milwaukee and financial services firm Northwestern Mutual Investment Services LLC to develop a data science institute on the Northwestern Mutual campus. This business alliance also provides opportunities to pull in Marquette faculty from different disciplines to teach and conduct research, Lovell says.
Health care and health sciences also present strong employment prospects for Marquette graduates, Lovell says. Among those opportunities that have been launched or are in the pipeline are programs for physician assistants and occupational therapists, along with expansion of the university’s established nursing program to allow for a near doubling of admissions.
Lovell stresses that even as the university seeks stronger industry ties and consults closely with area providers to develop programming, Marquette’s Catholic Jesuit tradition remains front and center. Central to Marquette’s data science curriculum, for instance, is exploring the ethics surrounding big data, Lovell says. Neither is the university moving away from its humanities focus on critical thinking and communication. “We know that these skills are highly valued by all employers.”
Break barriers to access. Marquette is in the midst of a campaign focused predominantly on scholarship funding. The university also plans to use more funds from its endowment going forward to provide greater financial assistance to students, Lovell says. This becomes even more important as the university increases its outreach to first-generation students.
In the summer of 2019, Marquette also became “test optional.” “We found that these standardized tests can be a barrier for underrepresented groups,” Lovell says. “We want to clear that hurdle for a population that we know we need to better serve.”
Practice Makes Less Painful
The reality of an economic downturn has been baked into the budget assumptions at Pierce College since before the Great Recession forced substantial cuts to offset a 22 percent reduction in state funding. The standard practice of planning for 2 percent to 3 percent cuts as a tool for identifying resources to release if needed also preceded Choi Halladay’s arrival as vice president of administrative services in 2013.
He notes that even in years when revenues are projected to rise, this annual budget-reduction scenario planning takes place within every department across the community college, which encompasses two campuses and one auxiliary location serving Pierce County, Wash.
Still, the 10 percent cuts required on the heels of the Great Recession introduced a level of “cultural trauma” that has not completely subsided, Halladay says. In some respects, because of the deep cuts the college had to make, it’s easier today to have conversations about potential reductions, he adds. “Everyone has become attuned to the volatility of revenues, and no one wants to live through that level of unanticipated budget slashing again.”
Change your point of reference. The reality that some programs and services may not exist forever has also made faculty and staff less inclined to question financial reserves, Halladay says. “We used to get queries about funds set aside. ‘Why can’t this money be used for student services?’ or ‘Why can’t we add more classes?’ Now there is broad awareness of the need for a cushion.” By stated policy, Pierce College must maintain at least two months of operating cash on hand, Halladay says.
Identifying potential reductions isn’t a rote exercise, Halladay says. On multiple occasions, the college has employed some of its budget cutting scenarios to redirect funding to institution priorities. In 2010, for instance, implementing additional student success measures required focused investments beyond current allocations.
Do your homework. We apply the same discipline to thinking through new proposals on the front end, Halladay says. Before giving any big initiative the final go-ahead, leaders ask: What would it look like to rewind this?
As one example, the college has invested substantial resources to re-sequence its math curriculum. It has taken several years to roll out these updates, train faculty, and change the scheduling model, Halladay says. “Throughout our planning, we asked: ‘What would happen if, five years from now, we look at our data on student success and see this isn’t working? Would we revert to prior practices? Invent something new? How much time should we allow to determine the related impacts on other departments if we required another major redesign of the process?’”
Rethink how to fund student services. Halladay says that just as important as increasing and diversifying revenue is innovative thinking around cost sharing, in particular as a means to expand student services. While public-private partnership is most often synonymous with capital projects, Halladay suggests applying this notion to operational partnerships. “Where do the college and our community have similar needs, and could we go in 50-50?” Pierce College does this with its job placement services. “We provide space on our campus, and operational costs are split between the college and the employment agency,” Halladay says.
Similarly, instead of establishing food pantries on its campuses, the college purchased a delivery truck for a local food bank that sets up a portable pantry once per week on each campus and at other locations around the county. “Our philosophy is that we are never going to be as good at being a social service agency as those agencies that are designed for specific services,” Halladay says. “What we try to do is trailblaze the easiest path to connect students to organizations that can address specific challenges that we can’t.”
Uncertainty Invites Direction
During the past decade, the sudden—and in many cases, sustained—disinvestment of taxpayer funding of higher education has forced most institutions to come to terms with the need to develop a different formula for financial sustainability, says Jennifer (J.J.) Wagner Davis, executive vice president and chief operating officer, University of Virginia (UVA), Charlottesville.
As a former budget director for the state of Delaware, Davis says the same basic lessons that emerged in the aftermath of the Great Recession for state governments prove applicable for colleges and universities. Namely, the continual need to drive down costs, consider areas for efficiencies, and prioritize resources based on true needs and requirements.
Another crucial focus for institutions today should be diversifying revenue streams, Davis says. “This is not only a smart approach but also critically important as a tool for managing business cycles.” On a more micro level, Davis says institutions have likely internalized a lot of what they gleaned from the last economic downturn. Chief among these lessons are the need to:
- Build operating models that consider affordability.
- Be more conservative on assumptions with regard to multiyear financial models.
- Construct efficiencies into the base of the budget.
- Carefully think through questions around procurement and big-ticket expenditures such as technology-based systems.
“At UVA, we now have a much better understanding of our cost structures and a new strategic plan that is very clear about our institutional priorities for the next decade,” Davis says. “That alone is a great tool for knowing where to orient resources.”
Another smart strategy is to monitor market opportunities. That’s exactly what UVA did this past September when it executed three bond sales that will save the university millions in interest payments by taking advantage of investor demand and historically low interest rates. Two of the three sales—totaling more than $787 million in new and refinanced debt—made use of the lowest interest rates on record for a U.S. higher education institution, Davis says. The sales and interest savings will help refinance outstanding debt and support multiple capital projects already approved by UVA’s board of visitors.
All Hands on Deck
In 2019, as part of its strategy to enhance its value and expand its reach, Marquette embarked on a campuswide planning exercise—holding workshops and creating an employee “ideas portal” to gather input for containing costs, addressing enrollment changes, and becoming more innovative as a campus and community. “These can be difficult conversations, but we know we must make big changes,” says Lovell. “As leaders, we are responsible for ensuring that our institutions remain viable not simply for the next two or three years, but for the next 20.”
KARLA HIGNITE, Fort Walton Beach, Fla., is a contributing editor for Business Officer.