Fiscal Fitness: Higher Education Must Be Run Like a Business

Without exception, each and every college and university must keep their fiscal house in order at all times by maintaining a balanced budget with "rainy day" funds that promote freedom, action and innovation.
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Note: This article by College of DuPage President Dr. Robert L. Breuder first ran in Community College Daily on Dec. 16, 2014.

While many colleges and other businesses take a hard look at fiscal fitness during budget season, keeping the numbers in shape must be a year-long effort. Every year. A budget based on controlled costs and strategic spending and preserving a solid nest egg opens opportunities in key areas such as research, development and business growth.

As a president of three different community colleges for the past 34 years, I have received my share of criticism from traditional educators for referring to educational institutions as "businesses." With more competition than ever, however, including for-profit and online universities, it is essential that colleges operate with a budget-based perspective. Money in the bank means the ability to weather storms and seize/create opportunities. Over the past four years, College of DuPage has added 60-plus certificates and degrees that keep up with workplace trends so our students leave with a credential in hand that will allow them to earn an enhanced income.

In addition, we recently completed a $550 million overhaul of our campus, thanks to the backing of our "shareholders" or District 502 residents who footed approximately 80 percent of the bill for this transformation. The end result? More "customers" or students. In fact, College of DuPage has continued to be a shining example by attracting new customers over the past five years during a time of downward enrollment among many two- and four-year schools. Since fall 2010, this institution's total Full-Time Equivalent student enrollment has increased 6 percent and our credit headcount has increased 10.3 percent. This is in stark contrast to enrollment at Illinois' 48 community colleges whose FTE is down 13.1 percent and headcount down 11.1 percent. No other Illinois community college other than College of DuPage has grown FTE enrollment over the past five years.

Let's talk about debt for a minute. Currently, the Federal government boasts a national debt of $17.9 trillion - or $56,303.70 per each citizen in this country. Closer to home, Illinois has a debt nearing $162 billion, with Chicago coming in at $33 billion, plus pension obligations. That's more than four times what the city spends in a given year. Now let's get back to business - if the nation, our state and the third- largest city in the U.S. were companies - they would be forced to file Chapter 7. Ever since I was a young boy, my parents instilled in me the simple anthem: "Don't spend more than you earn and save money for a rainy day." Where has that common sense gone? When I started here at College of DuPage in January 2009, the College's unallocated fund balance (unrestricted savings account) was $43 million, which in my view was inadequate given the financial uncertainty and challenges facing our state. Since that time, we have increased this figure to $178 million, which gives us the freedom to make sweeping and positive changes to our institution. Deficits do not control our destiny.

Common sense and much work goes into the balancing of our budget, which has resulted in clean and unmodified external audits, countless financial awards from national organizations, and a consistent AAA/Aaa bond rating from Moody's and Standard and Poor's, respectively. What we do we do very well and it's not rocket science. Simply put, we don't spend what we don't have and we don't take unnecessary risks. We underestimate revenues, including dwindling state allocations. This has been extremely important, with disbursements from Illinois both uncertain and declining every year with no end in sight. On Nov. 24, Illinois Board of Higher Education Executive Director James Applegate said he was issuing "bad budget news" after meeting with Gov.-elect Bruce Rauner's budget transition team who said Illinois' public universities should expect cuts in state funding of up to 30 percent over the next 18 months. At College of DuPage, our most recent budget was created with the idea that we will receive just $13.1 million (or 7.2 percent) of funding from the state for FY 2015, which is a far cry from the $66 million we should receive based on the Illinois Community College Charter that promises 33 percent of funding. Over the past several years IOUs from the state have been commonplace and they diminish further what we do receive through a myriad of unfunded mandates.

In addition, we are conservative in our enrollment growth assumptions, interest income and have a five-year strategic plan that results in contributions to our reserves. On the flip side, we responsibly overstate expenses such as salaries, health benefits and the costs of maintaining our facilities. In so doing, we are certain to have any unforeseen condition or event covered and, if all goes well, have some excess revenues over anticipated expenses. We play it safe and it works. We also "pay ourselves first" by maintaining a $3 million line item that only I as President can access for special needs or emergencies; we monitor our budget and cost centers daily with full monthly reports; we often freeze spending 60 days prior to the end of each fiscal year, thus avoiding the commonplace "rush to spend" phenomenon; and we tie our spending directly to our institutional planning documents.

So, who loses in the process? Who feels the tug and pull of keeping a tight, balanced budget at COD? Absolutely no one. Instead, everyone wins. Maintaining a healthy budget keeps us independent and strong with the ability make changes and seize opportunities at our discretion. Here are some examples: we introduced a 3+1 program with six partner institutions that offer 12 degrees to students entirely on our campus at a cost of less than $34,000 for a bachelor's degree. In addition, we've achieved significant enrollment increases, with our students enjoying access to the highest-quality educators, labs, equipment and facilities. Our Foundation has been free to explore new and enduring development opportunities, increasing fundraising from $1.2 million per annum a few years ago to more than $5 million last year. And we were actually able to reduce tuition by $4 per credit hour this spring during a time when costs are skyrocketing across the country. Last - but certainly not least - we have been able to provide our stellar employees with an average annual 3.28 percent raise from FY 2012 through FY 2017. Employees are our greatest asset. We keep a tight rein on numbers, ask people to do more and reward accordingly.

The future of higher education has never been more difficult to ascertain. No one is sure what is on the horizon. I predicted years ago we will witness mergers and acquisitions in higher education no different than those within the business community. And we will of course see "going out of business" signs. All three have occurred. Any college or university that has not identified a market niche and declared irrefutable centers of excellence places their future at risk. We must all differentiate and distinguish ourselves from the competition. I have also predicted that state government will eventually abandon funding of higher education altogether, focusing their limited dollars on politically more popular K-12 schools.

Without exception, each and every college and university must keep their fiscal house in order at all times by maintaining a balanced budget with "rainy day" funds that promote freedom, action and innovation. We must avoid the plethora of usual excuses of why it's not possible to accomplish a robust agenda without additional revenue. Public entities can and should operate in the black. They must begin by making difficult decisions and make choices that provide a strong return on investment for their customers. Higher education practitioners would be wise to limit their dependency on taxpayer dollars. We must all follow the time-tested business practices that have driven this nation's economy since the pilgrims landed in 1620. This means stepping outside the conventional box and veering from the obvious. As in business, education's leaders must always be a step ahead of the curve, focusing on tomorrow. We must be steadfast in our commitment to financial solvency and stability. If we are not entrepreneurial, decisive, visionary and (responsible) risk takers, we must be willing to suffer the inevitable consequences that are generated by a lack of courage, conviction and leadership.

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