Where does the money go?

OK, so it’s one thing to know what forces are driving tuition increases.  It’s another thing to know where money is being spent.   That is a problem of different proportions because universities do not report their spending in neat categories like

• cost of scaling beyond capacity
• making up for lost subsidies
• cross-subsidies with loss leaders

And, as The Delta Project’s Jane Wellman is  fond of pointing out,  there is no category representing value that ends up on a student’s diploma.

It’s not a completely satisfactory approach, but you can look that the “Where does the money go?” in question in two ways.

The Accounting View

As I pointed out in a previous post, overall spending has not substantially increased — even as tuition has risen.  What has increased is spending in the following categories:

• institutional grant aid
• public service and research
• energy
• facilities
• contingent faculty
• residence hall operations
• groundskeeping
• online
• admin
• bookstore
• general staffing
• financial services

These are interesting categories because increases in these areas generally compensates for decreased spending in others.  Take contingent faculty, for example. Increased spending for part-time or adjunct professors compensates for an overall reduction in tenure-track faculty. Contingent faculty carry  a completely different cost platform.  In many cases health care costs can be trimmed by reducing the number of full-time faculty. adjunct professors do not require expensive startup packages. Capital requirements also change, because office and lab demands are not the same.

This brings us to a second way of tracking dollars: what behaviors result in large shifts in spending priorities.

The Behavioral View

Behaviors are interesting because you can imagine controlling them.  Here are the behaviors that institutions report as affecting their current spending priorities.

• Making up for lost revenue
•  Lost productivity
•  Capital expenditures
•  Cost of non-core activities
•  Administrative bloat
•  Giving it away
•  Compliance
•  Health Care and other costs of an aging workforce
•  Unquantified “quality”
• Overshooting markets like internationalization
• Stealing revenue  from academic programs
• Operational inefficiency
• High cost of materials
• inappropriate skills utilization

There are others of course.  Stanford president John Hennessey has recently pointed to labor costs tied to the professorate drive cost increases, but I can’t find anyone who will show me a price increase that is due to increased faculty costs.

I can find examples of capital projects where initial funding plans have collapsed. Few of these projects are drop-dead institutional requirements.  There are a fair number of vanity projects and many examples of non-core activities like athletic practice facilities or mixed-use facilities that were once thought be revenue-producing opportunities but for which a real market never materialized.  When funding profiles change dramatically, one response might be to re-evaluate the need for a new building, but that rarely happens.

This is a true money pit.  There are really only three sources of discretionary revenue: tuition, government allocations, and private gifts. One way to make up for lost revenue is to increase income from other sources.  In most cases, this means tuition.