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Presented to the: State Higher Education Executive Officers Professional Development Conference Philadelphia, Pennsylvania Presented by: J. Kent Caruthers.

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Presentation on theme: "Presented to the: State Higher Education Executive Officers Professional Development Conference Philadelphia, Pennsylvania Presented by: J. Kent Caruthers."— Presentation transcript:

1 Presented to the: State Higher Education Executive Officers Professional Development Conference Philadelphia, Pennsylvania Presented by: J. Kent Caruthers Senior Partner MGT of America, Inc. August 14, 2004 ALTERNATIVE REVENUE SOURCES FOR STATE UNIVERSITIES: FINANCIAL STRATEGIES IN TIMES OF REDUCED STATE APPROPRIATIONS AND TUITION CAPS

2 Page 1 Revenue Outlook for State Universities A Combination of Economic, Demographic, and Operational Trends are Combining to Create Pressures on State Universities to Develop Alternative Sources of Revenue

3 Page 2 Changes in Revenue Mix for State Universities

4 Page 3 Loss of Purchasing Power in State Appropriations per Weighted FTE Student

5 Page 4 Trends in Net Tuition Income per FTE Student

6 Page 5  Ohio  Ohio challenge to reduce tuition rates by 2% per year over five years  Michigan  Michigan limit on tuition increases to rate of inflation  Maryland  Maryland proposal to cap annual tuition increases at 4% per year  Illinois  Illinois plan to freeze tuition for each incoming class for four years Political Resistance to Further Tuition Increases

7 Page 6  Enrollment is Likely to Grow More Rapidly than State Appropriations in Many States  Political Resistance to Tuition Increases Will Continue or Expand  Recent Low Levels of Inflation are Unlikely to Continue Result: Financial Pressures on State Universities Will Intensify Outlook for Revenue Growth for State Universities During Next Decade

8 Page 7  Institutions Must Operate More Efficiently and/or  Institutions Must Develop Other Sources of Revenue Question: What is the potential for each? Options for Addressing Financial Pressures

9 Page 8  “Low Hanging Fruit” has Already Been Picked at Many Universities  External Requirements and New Demands Often Serve to Increase Costs  Strong Reluctance to Apply Efficiency Measures to Academic Programs Conclusion:Cost Reduction Opportunities Continue to Exist, but Will Be More Difficult to Realize Potential for State Universities to Achieve More Efficient Operations

10 Page 9  Some Revenue Sources Have Received Little Attention in Recent Years  Most Types of Fee Increases May Face Less Political Resistance than Tuition Increases  Some Types of Revenue Increases May Serve to Encourage Lower Costs Conclusion: Revenue from Alternative Sources is Often Easier to Increase than Expenditures are to Decrease and Has Fewer Adverse Impacts on University Programs Potential for State Universities to Increase Revenue from Alternative Sources

11 Page 10  New Product Offerings  User Fees  Service Charges  Fines and Penalties  Licenses and Royalties  Lease/Sale of Institutional Assets  Sponsored Academic Programs Examples of Alternative Revenue Sources

12 Page 11 Examples of Alternative Revenue Sources (cont’d)  Partnering Agreements  Investments  Gifts  Professional Fees  Operating Surpluses in Auxiliary Enterprises  Outsourcing

13 Page 12 Impediments to Increasing Revenue from Alternative Sources  Fears that University Mission Will Be De-Valued  Policies Against Competition with Private Sector  Morality Issues  Fears of Commercialization of Higher Education Implication: The First Step in Increasing Revenue from Alternative Sources Should Be the Development of an Institutional Revenue Philosophy

14 Page 13 Approaches to Revenue Enhancement  Determine for Each Support Service Whether it: — Should be Totally Subsidized by Appropriations and Tuition — Should Receive Partial Subsidy — Should be Self-Supporting  Align Special Fees and Charges with Self-Supporting Policies  Determine Whether Existing Charges are Competitive  Determine Whether Existing Charges have Kept Pace with Inflation  Identify Behaviors to be Discouraged by Financial Disincentives  Identify Institutional Assets with Commercial Value

15 Page 14 Implications of Alternative Revenue Sources for State Funding Policy  Differences in Opportunity to Develop Alternative Revenue Sources May Lead to Inequities in Unrestricted Funding per Student  Secondary Revenue Sources Often Receive Little Attention by State Coordinating Boards — No Approvals May be Required — May Not Offset Formula-Calculated Needs  Differences in Institutional Revenue Philosophy May Threaten State Policy


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