This blog summarizes key takeaways from our fiscal resiliency podcast series, episode three.
When examining fiscal resiliency within the context of the current higher education landscape, it is clear that colleges and universities are facing pressure from many different directions.
Fiscal pressures have been mounting for decades as the competitive cost to operate an institution has increased and, along with it, the cost for students to attend has escalated. As a result, we’ve seen a huge increase in student tuition over the years. With COVID-19 playing a significant role this year, there has been a 4% decrease in nationwide undergraduate enrollment and a 22% decrease in community college enrollment for first time students this fall1. The drop in enrollment, and uncertainty the pandemic brings, has magnified the pressures the higher education industry is experiencing.
“While schools have ‘rainy day’ funds, the rainy day is here – and it’s been here for more than eight months now,” Tim Meyers, senior higher education advisor at Baker Tilly, said on our recent podcast. “Institutions across the country are running short on (or have exhausted) their excess reserves and are looking for more strategic means of survival.”
Considering these trends and what’s going on across the U.S., it is more important than ever for institutions to understand their current fiscal position – and the opportunities to protect their fiscal position in the future.
As emphasized above, 2020 has presented the perfect storm for higher education institutions in terms of fiscal challenges. They are getting pressured from every angle – and they need to know the specific details of what is necessary to bounce back. One critical part of a school’s resiliency plan should be sound financial modeling. A thorough three-to-five year financial model can analyze the impacts of rising costs, decreasing enrollment and, of course, COVID-19, among other factors.
Modeling should, at a minimum, examine an institution’s income statements, balance sheets and cash flows. This will allow higher education leaders to self-evaluate their school’s fiscal situation and understand key levers for improving their financial performance.
Generally speaking, a solid model is:
Times are changing and colleges and universities need to adapt to a transforming environment, which means modifying strategy to achieve fiscal resilience.
Gone should be the days of institutions using dollars allocated for maintenance for aesthetic purposes (i.e., to create a beautiful campus that draws in new students rather than to improve old infrastructure that desperately needs upgrades). The cost of deferred maintenance is roughly $100/square foot on average, according to a recent study by Jones Lang LaSalle2. Combined with the traditional annual influx of additional academic programs at most colleges, historically, there has not been much of a push to figure out the academic cost per hour.
During this period of necessary transformation, institutions of all sizes can benefit from a keen strategy based on the following:
Remember that the short term is all about surviving. But the long term – now and always – is about strategy.
Planning and communication are critical parts of the fiscal modeling process to ensure resiliency, as it helps facilitate important decisions about the present and future, and the institution’s ability to stay cash flow positive. College and university leaders should keep these key tips and tools in mind:
Today’s higher education environment makes it crucial for leaders to truly know their institution to make strategic decisions about the school’s future. However, no matter how well-informed and prepared, projections and financial forecasts are not necessarily based on reality. Still, fiscal modeling can help decision makers narrow down a potential path to success.
Institutional leadership, board members and the executive team must unite to meet the goals of the institution and fulfill its mission. They need to collaborate to determine synergies and implement efficiencies that will ultimately bring down the cost of tuition. This change exploration process tends to result in a lot of questions, but not many answers. University leaders and board members need to figure out how to position the school for the long-run. Everything should be on the table. Students, faculty, staff and the alumni community deserve nothing less.
For more information, or to learn how Baker Tilly’s higher education specialists can help your institution gain fiscal resilience, contact our team.
Stay tuned for our next Higher Ed Advisor podcast that discusses the board’s role and perspective in achieving fiscal resiliency for higher education institutions.
National Student Clearinghouse Research Center, COVID-19, Stay Informed with the Latest Enrollment Information
Jones Lang LaSalle, Cost vs. campus appeal: Seven strategies to uncover cost savings through integrated facilities management