1. Overview of Institutional Higher Education Financing in US Robert K. Toutkoushian June 5, 2013

2. 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?

3. Depiction of Funding Sources Total Revenues Students Non-Students Government Private Donations Other Funding

4. Where Do Colleges Get Their Money? 1. Tuition and fees from students  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

5. Example: University of Georgia UGA Fact Book UGA Fact Book revenue by source in 2011-12 (US$) 1. Revenues from state = $364 million 2. Tuition and fees = $387 million 3. Federal appropriations= $ 12 million 4. Gifts, grants and contracts = $273 million 5. Special federal funding = $ 14 million 6. Auxiliary enterprises = $161 million 7. Endowment = $ 1 million 8. Sales, Services, Misc. = $140 million Total revenues = $1.33 billion

6. Changes in UGA Revenue Shares Source2002-032006-072011-12 State Appropriations38.0%38.7%27.2% Federal Appropriations1.0%1.1%0.9% Tuition and Fees15.5%22.1%28.9% Gifts, Grants, & Contracts33.2%20.3%20.4% Auxiliary Enterprises7.6%11.2%12.0% Endowment0.1% Sales, Services, & Misc.4.6%6.5%10.5% State funding has declined as a share of total revenues Tuition and fees have increased as a share of total revenues Source: UGA Fact Book 2012

7. Revenue / Prestige Cycle Increase Revenues Increase Aid & Spending Raise HEI Prestige & Ranking Attract Better Faculty & Students

8. 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

9. 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)

10. 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

11. 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

12. Example: UGA The UGA Fact Book shows the following expenditure information for UGA in 2011-12:UGA Fact Book 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

13. Expenditures/Student, Public HEIs 2010-11 (US$) CategoryAll Public4-Year Public2-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 Total$26,869$36,430$12,398 Source: NCES, Digest of Education Statistics 2012

14. 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

15. 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?)

16. 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

17. 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

18. Illustration of RCM Model w/Tax RC UnitEnrollmentOld RevenueGross RevenueAdministrative TaxNet Revenue A 1,000$20,000,000 $10,000,000 $2,000,000 $8,000,000 B 5,000$40,000,000 $50,000,000$10,000,000$40,000,000 C 2,000$30,000,000 $20,000,000 $4,000,000$16,000,000 D10,000$60,000,000$100,000,000$20,000,000$80,000,000 E 2,000$10,000,000 $20,000,000 $4,000,000$16,000,000 Administration $40,000,000 Total 20,000$200,000,000 $40,000,000$160,000,000 Cost / Student =$10,000 Admin / Student =$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)

19. 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)

20. 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

21. Examples of Financial and Enrollment Trends and Issues

22. Example: Expenditures Per Student, FY95 (US$) AcademicStudentInstitutionalPlant & SchoolInstructionSupportServicesSupportMaintenanceTotal Univ of Vermont$7,905$2,287$1,091$2,722$2,308$16,314 Univ of Virginia$8,655$3,199$760$1,517$1,299$15,430 Univ of Delaware$8,458$1,190$737$1,606$1,238$13,229 UC Santa Cruz$6,622$1,781$1,798$1,936$1,234$13,371 SUNY Binghamtom$5,855$1,273$745$1,201$1,300$10,374 Univ of Rhode Island$5,872$1,587$1,186$1,466$1,379$11,490 Univ of Maine$5,342$1,536$1,382$998$1,245$10,502 Miami of Ohio$5,801$1,310$751$966$1,009$9,837 Univ of Oregon$5,246$1,396$873$983$781$9,278 U of New Hampshire (UNH)$4,901$1,193$533$1,365$824$8,815 Mississippi State$4,483$1,294$470$1,279$1,044$8,569 Utah State$4,589$1,241$494$1,293$922$8,538 Univ of Colorado$5,704$1,473$1,257$1,088$733$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%

24. 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 UNHPSUKSCUNHPSUKSC 19803,14097471039.4%12.2%8.9% 19853,2011,02477039.3%12.6%9.5% 19903,9521,4701,43445.2%16.8%16.4% 19953,6011,2381,27138.5%13.2%13.6% 20003,4331,2171,35130.9%11.0%12.2% 20073,9441,4021,40030.1%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

25. Projected Demand for UNH Year Projected New Hampshire Public High School Graduates Projected Numbers of New Hampshire Freshmen in Four-Year Institutions from Public High Schools Lower BoundMiddleUpper Bound Number of Freshmen Change from 2006 Four-Year Change from 2006 2006A-----14,062-----7,229----- 2007P12,77413,29613,8176,835-394 2008P12,94913,51114,0746,946-283-677 2009P12,66013,15613,6516,763-466-1,143 2010P12,65213,14613,6406,758-471-1,614 2011P12,35412,78513,2166,573-656-1,876 2012P12,16112,55512,9506,454-775-2,368 2013P12,03012,40212,7746,376-853-2,755 2014P11,82912,17112,5146,257-972-3,257 2015P11,84412,18812,5336,266-963-3,564 2016P11,82312,16512,5076,254-975-3,764 2017P11,64211,96212,2836,149-1,080-3,990 Data show falling enrollment projections due to fewer high school graduates

26. 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

27. 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?