Financial Pressures in Higher Education
This presentation by Dean O. Smith was part of a NISO 2020 virtual conference entitled Changes in Higher Education and The Information Marketplace. Professor Emeritus at the University of Hawaii, Smith is also author of University Finances, available from Johns Hopkins University Press. An interview with the author is linked in the right hand sidebar. If you want to listen to the full recording of the event, details for gaining access appear on the NISO event pnisage, also linked in the right hand sidebar.
View The Slides From Dean O. Smith's Presentation
The COVID-19 pandemic has destabilized university finances. Administrative responses to lost income during a financial crisis follow a fairly standard protocol. Typically, the first response is to slash discretionary expenditures: stop unnecessary travel, defer routine maintenance, freeze hiring, et cetera. Discretionary rainy-day reserve account may cover several months of normal operating expenses. The university also may withdraw any unrestricted funds that it has deposited into the endowment. A desperate university can dip into its restricted endowment principal during a demonstrably dire emergency. These modest short-term steps slow cash outflow but seldom solve the financial problem. Ultimately, to stabilize their finances, universities must reduce core expenditures: suspend contributions contributions to employee retirement accounts and reduce personnel salaries through lay-offs, furloughs, and decreased appointment levels. As a last resort, universities declare a financial exigency, signaling that they no longer have the funds to meet salary obligations to tenured faculty members. Practically, it implies termination of tenured faculty and academic programs. Notably, universities may retain administrators to ensure compliance with regulations imposed by federal agencies and to raise money. The overall economic meltdown confers two potential financial benefits for most universities: enrollment levels generally increase as economic conditions decrease and the cost of borrowing money decreases as interest rates decrease. After the COVID-19 pandemic has passed, universities must realign budgets with post-pandemic strategic priorities. Ironically, this may provide opportunities for profound change, updating academic priorities, business models, and operational strategies.