State System problems get worse

Summary: Problems at Pennsylvania’s State System of Higher Education (PASSHE) continue to get worse. In May 2018, Policy Brief Vol. 18, No. 20, detailed enrollment losses through school year 2016-17 and discussed studies of the system’s problems and suggested solutions. Recently, several legislative proposals aimed at helping PASSHE deal with its severe problems have been presented.

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Enrollment

There is little doubt that for several of the universities in the 14-university system dramatic changes are needed. Since peaking in 2010 at 119,513, system enrollment has declined continuously to reach 95,494 in the fall of 2019. This loss of 24,019 students amounts to a 20 percent drop.  But that figure does not capture the whole story. There are very large differences in the enrollment losses among the universities. Note that West Chester, which now has the biggest student count at 17,691, has added 3,210 since 2010. Slippery Rock has seen enrollment remain essentially flat over the period.

All other schools have lost at least 10 percent.  Three schools—Millersville (10), Bloomsburg (14), and East Stroudsburg (16)—had the smallest percentage losses.  Three schools had losses in the 20 to 30 percent range (California and Shippensburg at 27; Kutztown at 23).  Two schools suffered losses of 30 to 40 percent—Indiana, 32 percent (the system’s biggest student number drop at 4,778) and Clarion, 36 percent.  Meanwhile, enrollment at two universities fell 40 to 50 percent—Edinboro, 46 percent (3,996 students) and Lock Haven, 42 percent. Finally, two universities lost over 50 percent of their enrollment—Mansfield, 51 percent and Cheyney, 61 percent.

Taken together, the schools with over 20 percent enrollment losses account for 23,687 or 87 percent of the actual decline in enrollment of 27,200 at the schools with declining enrollment. West Chester’s gain holds the system’s net loss to 24,019. 

Obviously, schools with 20 percent or more in student count losses face enormous difficulties. Schools with declines of 35 percent or more face extraordinary difficulties. How do they maintain economically justifiable class sizes or degree programs? How do they cope with all the surplus infrastructure—classrooms, dorm rooms, etc.? How do they handle layoffs of redundant faculty? How many doctoral or masters programs are at risk? Indeed, how can university status be maintained for schools that have lost 40 percent or more of students and are still shrinking?

Beyond the enormous problems many of the schools have with massive losses of students, PASSHE as a whole has developed major financial difficulties resulting not only from the enrollment issue but also from overly generous compensation packages for employees.  Then, too, a tightening of Governmental Accounting Standards Board (GASB) reporting requirements now shows the true level of financial difficulties PASSHE faces.

Assets and liabilities

The most definitive and succinct indicator of what has happened financially is the statement of net position—the difference between total assets and total liabilities. Note that all PASSHE financial data in this report are taken from audited financial statements for fiscal years ending on June 30 of each year cited (available online). Between 2010 and 2019, the aggregated system’s net position dropped precipitously from around zero to a negative $1.6 billion. In 2010 the reported net position was positive.  But it did not include the pension liability of around $700 million as required by GASB beginning in 2015. When the pension liability was not accounted for in 2010 there was a positive net position of $687 million.  

Liabilities climbed from $2.072 billion in 2010 (in which pension liability was not counted) to $5.460 billion in 2019. Every category of liabilities rose over the period including workers’ compensation and compensated absences.  The massive $3.3 billion jump was due in large part to the required inclusion of pension liabilities that had risen from about $700 million (based on reported net assets) in 2010 to $1.108 billion in 2019, a jump of nearly 60 percent.

Meanwhile, other post-retirement benefits (OPEB) liabilities rocketed from $723 million to $1.977 billion, a spectacular near tripling of that liability. Bond debt increased 40 percent from $825 million to $1.155 billion during the nine-year period.  The “other” liabilities more than doubled from $404 million to $1.070 billion.   

Obviously, given the decline in enrollment, on a per-student basis, the increases in liabilities are even worse than the percentages shown above. Note, too, that assets grew substantially from $2.760 billion to $3.850 billion from 2010 to 2019, a $1.09 billion (or 39 percent) gain, leaving a negative gap of $1.6 billion compared to liabilities. The nine-year period reflects an increase in assets, other than capital assets, of $600 million to reach $1.308 billion and an increase in capital assets, net of depreciation, of $655 million to stand at $2.016 billion in 2019.

The depreciated value of buildings and improvements jumped from $1.051 billion to $1.654 billion (a 60 percent rise) to account for most of the rise in capital assets.  The large rise in the value of buildings helps the balance sheet.  But with enrollment down 20 percent overall and much more at half the schools, all the new building is a financial disaster.   

Revenue and spending

System revenue was fairly flat from 2010 to 2019, rising from $1.903 billion to $2.104 billion, an increase of 10 percent in nine years. Operating revenue over the nine years rose from $1.301 to $1.386 billion, a rise of just 6.5 percent.  The largest component of operating revenue in 2019 was student tuition and fees (61 percent) with grants and auxiliary enterprises making up most of the rest. The bulk of non-operating revenue is derived from state appropriations (68 percent) with gifts and other sources making up 25 percent.

Total expenses grew from $1.859 billion in 2010 to $2.125 billion in 2019, a rise of 14.3 percent. Employee expenses (salaries and benefit payments) climbed from $1.248 billion to $1.388 billion during the nine years, an increase of 11 percent. This, while enrollment was falling 20 percent. Non-personnel outlays climbed from $611 million to $737 million, reflecting increases in interest payment and losses, depreciation and auxiliary enterprises. On a mildly positive note, expenses hit their high point in 2017 at $2.196 billion and fell slightly in 2018 and 2019.  

In short, PASSHE as a whole has severe financial issues related to declining enrollment that affects the ability to grow revenue through student charges and state appropriations for operations because student counts have fallen, substantially and dramatically, at some schools. Raising tuition becomes self-defeating when demand is falling.  The university system’s overall financial picture has worsened substantially because of accounting requirements and growth in employee benefits especially retirement benefits and continued pay increases. 

Employment

Aggregate employment—full time and part time—at the 14 schools has fallen 12.0 percent from 2010 through the 2018-19 school year. Faculty—full and part time—fell 12.6 percent over the nine years with full time down only 9.5 percent. Bear in mind that enrollment is down 20 percent while salaries and benefit payments are up 11 percent and liabilities for pensions and OPEB are up 53 percent and 174 percent, respectively.  Note that layoffs are strictly based on seniority. Newer faculty members with lower salaries are let go first regardless of ability to teach, part-time faculty has been reduced by 20 percent and annual pay increases continue based on union contracts.  All this combines to push costs higher despite the payroll count reductions.

What to do?

Legislation has been proposed to deal with the system’s severe problems while it endeavors to come up with ways under existing legislation to deal with shrinking enrollment. The most promising proposal, if passed, would give the PASSHE board the ability to close or combine schools.  Most of the other actions being developed or approved will do little to deal with the problems created by faculty unions whose powers cripple management prerogatives and, with the threat of strikes, push contractual compensation costs upward continuously in the face of the system enrollment declines and very large declines at half the schools. 

The Legislature must recognize the surplus of state-supported university capacity. With Penn State’s enrollment of over 74,000—not including professional schools or online students—Temple at nearly 40,000 and Pitt and its affiliated campuses at 34,000 students, these three state-related schools have more enrollment than all the PASSHE schools combined. And all push hard to sustain enrollment in an environment that is increasingly competitive because of falling high school graduate counts.

Moreover, there are many private schools, large and small, competing for many of the same students, not to mention schools in other states. The Legislature also must recognize the importance of union-free faculties.  Unions are inimical to containing costs, education excellence and management prerogatives such as hiring decisions and layoffs.    

Pennsylvania’s State System of Higher Education should be moving to combine the smaller failing schools, including Cheyney, with other schools. It should also contemplate letting West Chester go its own way and any other school that feels it can make it as a free-standing university. As of now, the high acceptance rates and dropout rates and low graduation rates after six years at several schools are simply not what taxpayers should be supporting.

It is time for the Legislature and the governor to address these problems head-on.

State University System Requires Major Legislative Remedial Actions

Summary: The 14 state-owned universities that make up the Pennsylvania State System of Higher Education (PASSHE) face enormous difficulties.  The problems have been well documented by two previous Allegheny Institute Policy Briefs from 2017 and two major studies, the first by National Center for Higher Education Management Systems (NCHEMS) and the second by the Rand Corporation.  This Brief goes into more depth regarding the financial situation, costs and performance than the Rand and NCHEMS studies and offers suggestions for addressing the problems. Legislative actions regarding faculty unions and degree offerings among the schools should be at the top of the list.

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At the top of the list of its woes, PASSHE schools have seen a near steady decline in total enrollment (undergraduate and graduate) since the 2010-11 academic year, with only Slippery Rock and West Chester seeing an enrollment increase. All data cited in this Brief are published by the Joint State Government Commission in its 2017 and 2018 reports on PASSHE schools and state-related universities. Enrollment figures show the system lost 14,814 (13.2 percent) fulltime equivalent students (FTE) from 2010-2011 to the 2016-17 academic year to stand at 97,512. The 12 schools with declining FTE since the 2010-11 academic year saw their count slide 17,033 or 18.9 percent. Cheyney’s 40 percent and Mansfield’s 34.6 percent plunge along with Clarion’s 29 percent dive led the percentage declines.  Declines in five of the other schools were in the 20 percent range.

Note that the western PA universities in California, Clarion, Edinboro and Indiana had a combined six-year  drop of 8,200 FTE students —almost half of the combined losses at the 12 schools with declining enrollment. These four western schools, along with Slippery Rock, have student drawing areas that overlap substantially.

The numbers for undergraduate students are even worse than the total enrollment figures. Only West Chester had a gain over the period while Bloomsburg and Slippery Rock had minimal declines. But FTE count at the other 11 schools fell a total of 21.8 percent led by Cheyney’s 40 percent drop, followed by Clarion, Edinboro, Lock Haven and Mansfield at 25 percent or more.

And for the future the situation gets worse because projections of high school graduates from most areas of the state—the overwhelming sources of enrollees at PASSHE schools—show a long term declining trend from current levels.  In short, the enrollment problem for the schools already suffering major declines is going to get worse. And the truly excruciating dilemma:  as enrollment falls, it gets ever harder to maintain degree programs and course offerings and the best faculty begin to seek alternative employment, making the schools increasingly less attractive to potential students. In sum, several PASSHE schools are facing a self-reinforcing downward spiral.

Note too that several schools are facing the additional problem of having major drops in the number of students from the lower division compared to the upper division.  Bloomsburg’s ratio of upper division count to lower division is lowest at 42 percent. Several others are well under 50 percent. By contrast, Slippery Rock and West Chester ratios are 64 and 65 percent, respectively.   The inability to retain students points to even greater problems in the future as potential freshman enrollees from Pennsylvania continue to decline.

And adding to the crisis—and embarrassment—for the PASSHE schools, enrollment at Penn State has continued to grow climbing by 11,160 or 14 percent over the last five years. Temple FTE is up 2,692 or 7.8 percent. Enrollments at Pittsburgh and Lincoln are essentially flat.  In sum, the state-related schools (Penn State, Pittsburgh, Temple and Lincoln) have added almost as many students as the combined 14 state-owned schools lost.

Faced with their severe enrollment problems, several PASSHE universities have adopted very lax entrance requirements, accepting virtually everyone who applies.  This clearly aggravates the dropout problem as well as imposing needless costs on students and taxpayers.

Meanwhile, during the same period in which the FTE student count fell 18.9 percent at the 12 universities that lost students, total instructional staff, including full time faculty, adjuncts and graduate assistants at these schools, fell just 6.3 percent from 4,429 to 4,152. This does not bode well for cost per student.

Compounding the unfavorable comparisons with state-related schools, class sizes are smaller and faculty cost per student higher at the state-owned universities than at the state-related schools (Penn State, Pittsburgh, Temple and Lincoln). For purposes of the class size and faculty cost comparisons, Lincoln and Cheyney are excluded because of their very small size relative to the other schools in their group and their being far outside the norm for their groups’ class size and cost statistics.

For lower division students, as classified by the Joint State Government Commission report (presumably mostly freshman and sophomore), average class size at state-owned schools was 29 students. At the state-related schools the average was 31. For upper division students the PASSHE schools’ classes averaged 19 students per while state-related universities averaged 25.

At the same time, faculty costs per student at the PASSHE schools are on average slightly higher for lower division students compared to state-related schools ($3,076 to $2,850). There is a wide variation in costs in the state-owned schools, ranging from $2,500 to $4,000. Most of the schools (excluding Cheyney) are close to $3,000 or a little higher. For upper division students the average faculty costs per student were much higher at the PASSHE schools than at the state-related schools, $5,409 compared to $3,932.

Employee costs other than wages and salaries are also quite high for the combined State System schools.  In the year ended June 30, 2016, non-salary costs were $523 million, equal to 59 percent of the $880 million paid in salaries and wages. For 2014, the percentage was 52 percent. The two year increase was due to a $72.6 million or 80 percent jump in pension payments by the universities. This was necessary to cover the leap in the employer match requirement for SERS and PSERS. Then too, combined employee and retiree health expenditures were $253 million, equal to 29 percent of salary cost in the year ended June 2016.

Plainly stated, faculty cost efficiency in terms of class size and cost per student in the PASSHE schools are on average no bargain compared to the state-related schools with their many satellite campuses.  This is opposite of the situation one would have expected.

And as far as the funding argument is concerned, bear in mind that state instructional appropriations per student in the 2016-17 academic year were much higher for PASSHE schools than for the state-related schools ($4,504 compared to $3,292). Per student state appropriations ranged from a high of $16,839 at Cheyney to a low of $3,400 at West Chester.  Meanwhile for the state-related schools, Lincoln got the largest per-FTE appropriation with $7,581 and Penn State the lowest at $2,540.

Clearly, in light of these data most PASSHE schools face severe financial and enrollment problems. Two recent studies looked at the schools to determine the problems and how to fix them. The NCHEMS report from July 2017 presented a description of the problems at the schools but failed to offer any real solutions.  Indeed, the report amazingly identified the root cause as “inadequacies of the governance structure for coping with converging pressures.”

Moreover, NCHEMS made two astoundingly counterproductive recommendations.  One; “No institution should be closed and there should be no mergers of any institutions. Second; (make) “no attempt to undermine collective bargaining agreements or processes.” This after noting that the just-signed faculty union contract calls for $52 million more compensation than the old contract for the already cash strapped university system. In short, the NCHEMS report was essentially useless from a solutions standpoint.

Recently, a Rand Corporation report commissioned by the Legislative Budget and Finance Committee was released.  The report reviewed the enrollment decline as well as the governance issues explored by NCHEMS. However, Rand offers some pointed criticism of the recently approved faculty union contract and provides five options for reorganizing the PASSHE schools.

According to Rand, “Interviewees noted that factors contributing to this strained (union –management) relationship include the contract provisions and their enactment, as well as the collective bargaining agreement negotiation process.”

Faculty salary scale and assignment restraints were of particular concern, first, “The current scale is uniform, does not take disciplines into account, and does not allow for market-based adjustment” and second, “faculty cannot be required to teach online classes unless it is in their letter of appointment.”

And there are more provisions that are beyond understanding; two stand out. “Institutions cannot hire new faculty without the approval of all faculty in the department. And “Institutions cannot retain highly rated faculty over more-senior faculty.” Little wonder university officials view these restrictions as both costly and an obstacle to efforts to do needed restructuring of academic programs.

In general, the contract’s provisions make it hard or impossible to use managerial discretion to undertake cost savings, to hire the best people in some fields, change course delivery methodologies and to move personnel to the institution’s greatest advantage.

Rand proposed five options for dealing with the management structure issues as well as the underlying enrollment issues.  These include the following from the report:

  • Option 1: Keep Broad State System Structure, Including Current Individual Universities, but with Improvements
  • Option 2: Keep Broad State System Structure with Improvements Accompanied by Regional Mergers of Universities
  • Option 3: Merge State System Universities and Convert to State-Related Status
  • Option 4: Place the State System Under the Management of a State-Related University
  • Option 5: Merge State System Universities into State-Related Universities.

Obviously, each of these options would require a lot of legislative changes in terms of the governance structure. Those involving mergers of schools would also require legislation to specify which schools would be merged, what the new names would be and the process for handling personnel and programs changes necessary to accomplish the mergers.

There is little chance of folding PASSHE schools into the state-related schools.  That would almost certainly require closures of several schools in order to reduce overlapping student feeder regions. Then, too, the absence of labor bargaining agreements at Penn State and the University of Pittsburgh—despite ongoing union organizing efforts—would make integration extraordinarily difficult.  Pay scale differences and faculty limitations on management would create insurmountable obstacles.

Notwithstanding the difficulties of closing or merging one or more of the PASSHE schools, it is clear that major actions need to be taken.

Even though it will be politically difficult, the Legislature must do what is best for the state’s taxpayers and the education of its students.

First, it should take away the right to strike of employees at state-funded institutions and outlaw provisions in contracts that require using seniority over excellence in layoff decisions. Second, recognize that Cheney and perhaps Mansfield with their enormous declines in enrollment are far too small to offer adequate programs to be assigned university status.  Close them or merge them with other schools.

A more promising approach to addressing the problems of most PASSHE schools would involve arranging program degree offerings among the universities in a way that would have each school achieve a level of faculty excellence and reputation in a few specific fields that would generate student interest. This would eliminate having cookie cutter duplication of degree offerings across the system. It would also limit the need for closings or mergers and would allow each school to reach an optimal size. This will present difficulties because the number of instructional staff will continue to decline with falling enrollment and some faculty might have to be reassigned to other schools.

One thing is certain; letting the system continue on its current path will waste huge amounts of money, lead to sub-optimal educational opportunities and outcomes and be a source of terrible anxiety for everyone involved.  Corrective actions by the Legislature and governor are extremely overdue.

Shortcomings in the State University System Report

Summary: On July 27, the National Center for Higher Education Management Systems (NCHEMS) released its report on the Pennsylvania State System of Higher Education (PASSHE).  The group had been asked by the 14 state owned university system to analyze its problems that for some schools have reached very serious levels. The group was also asked to offer recommendations to alleviate or solve the problems. This review of the report finds it was adequate or good in some respects but severely lacking in others.

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The NCHEMS report lays out the underlying causes of PASSHE’s serious issues including demographics and financial imbalances, but then blames it all on what the report calls a “root cause,” to wit:  “inadequacies of the governance structure for coping with converging pressures.”

To be sure, there are a lot of useful data and statistics in the report. The report points to several underlying issues that are posing enormous problems for the system and several schools in particular. These are well known but bear repeating. Enrollment (FTE) is down systemwide falling 6.8 percent from the 2009-10 school year to the 2014-15 school year.  In an earlier Policy Brief (Vol. 17, No. 13) we noted that:

Over the five academic years between 2010-2011 and 2015-2016 combined enrollment in the 14 universities fell 12,452 or 11.1 percent. All schools except West Chester experienced declines in percentage terms ranging from less than one percent at Slippery Rock to a 43 percent drop at Cheyney.  Eight schools had decreases of 15 percent or more while four saw enrollment down over 20 percent.  Mansfield and Clarion recorded huge losses with enrollment down just shy of 30 percent.

 In terms of numbers of students, the 13 schools with declining enrollment had an average loss of 1,100 FTE students over the five year period. The largest losses occurred at Clarion (1,936), Indiana (1,830), California (1,559), Kutztown (1,515) and Edinboro (1,481). Enrollment at four other universities was down around a thousand students.

The later data indicate an even steeper drop than the NCHEMS report shows. The report points out that declining—and future projected decline—of Pennsylvania high school graduates are a big drain on these universities that rely extremely heavily on in-state students for their enrollment. And as we noted in the Brief, there are a large number of state-related schools (Penn State and its satellite campuses, Lincoln, Pitt and Temple with their satellite campuses) as well as many private colleges in Pennsylvania competing for these graduates as well.

Two additional important and relevant measures are included in the report.  First, spending per student (FTE) has risen dramatically in the schools with the largest enrollment decreases, including five that are up more than 20 percent—Shippensburg, Mansfield, Millersville, Clarion (almost 30 percent) and Cheyney (over 30 percent).   Slippery Rock, Bloomsburg, Lock Haven, Indiana, West Chester and East Stroudsburg held spending growth to five percent or less.  What is more interesting and not mentioned in the NCHEMS report but cited in our March Brief is that “for upper division students the PASSHE schools have substantially greater faculty costs per FTE student than the state related schools ($5,055 vs $4,167).”

Second, the report comments on the pervasiveness of very small class sizes. Fourteen percent of lower division course have fewer than 10 students and many classes have four or fewer. Meanwhile 41.5 percent of upper division courses have fewer than 10 students and 30 percent had fewer than five. And when compared to the state–related schools, the March Brief noted that “there is a large gap in (average) class size for upper division students; PASSHE 19, state-related 27.”

Obviously, the spending and class size findings are connected. The NCHEMS report speculates that there are far more faculty positions at PASSHE schools than current enrollment can justify. It is especially noteworthy that it costs these schools more to teach upper division students than it costs the state related schools, two of which are far more prestigious universities (Penn State and Pitt).

Another key finding of the report is that the latest collective bargaining agreement (arrived at under strike duress) was far too generous. It calls for $52 million dollars more compensation than under the old contract, a figure that the cash-strapped schools can clearly not afford.

NCHEMS also noted there is a lot of distrust among the various stakeholder groups, students, faculty and administration and among the institutions themselves.

The report states in the introduction, “the State System’s institutions individually and collectively face a fiscal future made bleak by converging challenges.” Chiefly, the demographic changes and financial problems.

NCHEMS’ explanations for some of the system’s problems are primarily focused on governance issues and make several recommendations that contain very few clear cut action steps. A lot of governmentese-sounding items such as “adopt a strategic financing model that is better fit for varied circumstances,” or “reorient the Board and Office of Chancellor toward greater responsibility for policy leadership.”  “Retain and ensure sustainability.”  And on and on like that.  Some specificity as “steps to take” would be good.

One of the report’s biggest problems is the list in a section called “what not to do.” These include:  “No institution should be closed; no mergers of any institutions; no attempt to undermine collective bargaining agreements or processes.”

In other words, some of the dramatic actions needed to create a more robust and viable system are off the table, including taking a harder stance toward the faculty union. The union went on strike in 2016, the first time in the 34 year history of the system.  University faculty strikes are extremely rare in the U.S.  A Google search reveals that most have occurred in California with two in New York, Springfield, Ill., and Green River College in Washington State, basically over the period form the late 1960s. Several have happened in Canada.  Once a strike works to get better wages and benefits along with more favorable work rules and intrusion into management prerogatives, it is reasonable to expect more at the state system and other schools as well.

Public employees should not have the right to strike, period. It leads to all sorts of fiscal problems as we see in heavily unionized states all across the country. Faculty strikes at a college or university, like public school strikes, will happen during the school year.  It makes no sense for the faculty to go out when there are no classes to disrupt.   As insidious as public school strikes are, university faculty strikes are even worse because of the hardships and anxiety imposed on students.  Public university faculty should never be allowed to strike during the academic year. It is a moral failing of the state to permit state employees to create financial and undue academic stress on students. If faculty members are unhappy enough to walk off the job, they should find a new job. There are plenty of people who would take the positions vacated.

Unfortunately, in Pennsylvania that Rubicon has been crossed and the chances of returning to a non-unionized faculty are nil. It is now, and will be, one of the largest obstacles to solving financial and other problems.

Finally, there are two glaring omissions in the report.  First, the study team completely neglected to report on the declining or non-existent entrance requirements at some of the 14 schools.  Accepting graduates who performed poorly in high school and on college entrance exams in hopes they can do college level work is the height of folly. It requires many students to attend remedial classes. It leads to downgrading the rigor of college courses and leads to lower standards. It lengthens the time to graduate and is accompanied by high dropout rates.  It wastes a lot of time, it causes students to incur debt they cannot repay, and it wastes tax dollars spent subsidizing students who have no business being in college.

Nor was there any follow through to see what kind of jobs graduates from the 14 PASSHE schools were able to get and how much starting salary they received. Those data are available.

The situation at Cheyney, which is a calamity, is not dealt with except indirectly in the recommendation not to close or merge any of the 14 institutions. Enrollment at the school has fallen by half since 2007 to stand at just over 700 students.  It ranked last of 106 institutions in PA for graduation in four years (about 10 percent). It receives $18,000 per student in state support, far more than the other 14 schools and three times the amount the commonwealth spends per student for K-12 students. By any standard, academic or financial, Cheyney is a failed institution.  But there is no recommendation in NCHEMS report on how to deal with that school.

Other schools such as Clarion and Mansfield have seen enrollments drop precipitously over the last five years, falling around 30 percent. Not surprisingly, the costs per student have jumped sharply.

In the face of further declines in high school graduates in Pennsylvania and the intensification of competition for these students, there ought to be some specificity in the study as to how the growing difficulties at several schools should be dealt with.   It will take far more than recommendations such as “recommitting to a robust shared governance process.”  Indeed, downsizing, mergers, reorganizations of degree offerings and tighter entrance requirements should clearly be on the table.

The solutions for these problems will almost certainly have to be dealt with legislatively. There is no way the PASSHE governance can or will take the dramatic steps necessary to right size the system or insure that taxpayer dollars are spent wisely unless ordered to so.  Of course, this will be comparable to military base closing at the federal level. It will be very hard. But until they are remedied, the PASSHE problems will fester and grow worse with more inter institutional rancor and more calls for tax dollars.

Sadly, like the pension problem, this problem will in all likelihood get “kicked down the road.”

State University System: Problems and Possibilities

Summary: The Pennsylvania State System of Higher Education (PASSHE) faces a number of acutely serious problems that have prompted the system’s Chancellor to begin a thorough review of the difficulties with the intention of developing solutions. This Policy Brief suggests possible reforms.

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PASSHE is a state owned group of universities made up of 14 schools ranging in size from Cheyney University with just over 700 students to West Chester University with more than 15,000 fulltime equivalent students (FTE) as of the 2015-16 academic year. (All statistics taken from the Joint State Government Commission report of February 2017).

Over the five academic years between 2010-2011 and 2015-2016 combined enrollment fell 12,452 or 11.1 percent. All schools except West Chester experienced declines in percentage terms ranging from less than one percent at Slippery Rock to a 43 percent drop at Cheyney.  Eight schools had decreases of 15 percent or more while four saw enrollment down over 20 percent.  Mansfield and Clarion recorded huge losses with enrollment down just shy of 30 percent.

In terms of numbers of students, the 13 schools with declining enrollment had an average loss of 1,100 FTE students over the five year period. The largest losses occurred at Clarion (1,936), Indiana (1,830), California (1,559), Kutztown (1,515) and Edinboro (1,481). Enrollment at four other universities was down around a thousand students.

In short, for PASSHE, the last five years have been a time of struggle.  Competition for students is intense. The number of high schoolers graduating each year in Pennsylvania has plateaued and is projected to fall.  Because Pennsylvanians make up the lion’s share of enrollment at PASSHE schools a falling pool of potential attendees is a very unwelcome development. Moreover, there are 260 or so postsecondary education and training institutions for Pennsylvania graduates to consider for further education. Granted many of these are private and attract students from all the country and the world. Still, many of the small private schools likely depend heavily on Pennsylvania for the bulk of their enrollment.

Without question, PASSHE schools face major competition from the universities that are state related including the University of Pittsburgh, Temple, Penn State and Lincoln. These four universities (with their satellite campuses included) combined had 2015-2016 enrollment of 158,702, nearly 59,000 more than the PASSHE school total of 99,911.

Penn State, the largest state related school, had 87,756 FTE students in 2015-2016 with the University Park campus accounting for nearly 50,000 and the rest in the 20 satellite campuses across the state and a “World” campus offering online courses. Penn State was the only state related university to experience significant gains over the five years with enrollment up nearly 9,000. Pitt, with its four satellite campuses, was down slightly and stood at 33,988 FTE students in 2015-2016 while Lincoln’s FTE count tumbled six percent. Enrollment at Temple with its two satellite campuses was essentially flat.

In short, except for Penn State and West Chester, the enrollment picture for PASSHE and state related institutions of higher education schools ranges from basically flat to extremely poor.

Enrollment is not the only issue of concern. Despite PASSHE schools having significantly lower tuition and fee costs than the state related universities, faculty costs per FTE undergraduate at PASSHE schools are on average about the same as the four state related schools ($3,631 PASSHE vs $3,741 for state related). However, for upper division students the PASSHE schools have substantially greater faculty costs per FTE student than the state related schools ($5,055 vs $4,167). Indeed, three had upper division faculty costs of over $6,000 per student led by Edinboro at $6,752 followed by Shippensburg ($6,187) and East Stroudsburg ($6,130). Penn State and Pitt by comparison had faculty costs per upper division student of $4,395 and $4,704.

Meanwhile, the faculty costs per masters’ degree student are higher on average in the four state related schools ($5,969) than at PASSHE schools ($5,417) principally because of the $6,591 cost at Penn State. The average faculty cost per student at the other three state related schools is only $4,848 and significantly lower than the PASSHE average.

Class size is also important in this discussion. For PASSHE schools and the state related schools, class sizes for lower division students were quite close at 30 and 31 respectively. However, there is a large gap in class size for upper division students; PASSHE 19, state related 27. For all undergraduates, the state related schools class size was at 29, PASSHE 25.

The much smaller upper division class size at PASSHE schools is undoubtedly a major factor in the substantially higher faculty cost per student.

Graduation rates are also an issue of possible concern in some of the PASSHE schools.  While most of the schools with the notable exception of Cheyney have graduation rates that are in line with or better than the national average rates for both four-year and six-years, the graduation rates at several schools are far higher than are expected based on the academic readiness of enrollees at the schools.  Does that mean the schools have far superior instruction compared to other schools across the country or are the curricula and courses not sufficiently rigorous?

Graduation statistics are compiled and produced by College Factual, an organization that tracks the key statistics covering costs, graduation rates, salaries of graduates, average SAT scores of enrollees, student debt, faculty to student ratio, male to female student ratio, fulltime faculty, etc.

Bloomsburg University has a four year graduation rate of 43.3 percent (one of PASSHE’s three highest) and a six year graduation rate of 64.8 percent. College Factual puts the six year figure at 20 percent above their projected graduation rate based on the academic preparedness of enrollees. Other schools with graduation rates much higher than expected include Slippery Rock at 19 percent, California University at 17 percent and Millersville and Mansfield, both over 14 percent.  All other PASSHE schools except Cheyney have graduation rates higher than anticipated ranging from 5 percent at West Chester to 11 percent at Kutztown.

College Factual also ranks 94 Pennsylvania colleges and universities offering four year degrees based on heavily weighted factors including student readiness for college as measured by SAT and ACT scores, freshman retention rate, six year graduation rate, student loan default rate and on other factors with lower weights including; faculty salaries, starting salary by major compared to national figure (cost of living adjusted), and the institution’s expenditures per student. Thus, some private schools that do not make data available for all categories of evaluation factors were not included in the 94 ranked schools.

The ranking procedure was not kind to PASSHE schools. West Chester at 32nd was the highest ranked and Cheyney at 91st was the worst. Millersville ranked second best at 49th followed by Slippery Rock at 52nd. Unfortunately, seven schools besides Cheyney ranked 70th or worse with three of those at 80th or lower. Three others were in the range of 54th to 67th.      

The average ranking of the 14 universities out of the 94 ranked schools was 67th.  To be sure, there is a lot of tough competition with such schools as Penn State main campus at 13th and Pitt main campus at 15th.   But to be completely fair, the 26 satellite campuses of Penn State, Pitt and Temple were not ranked.  Meanwhile, many prominent private schools such as Gettysburg, Bryn Mawr, Swarthmore, Bucknell and Haverford are ranked very high. That is to be expected perhaps given their cost and ability to be very selective in accepting students. Haverford for example costs almost $50,000 per year and has combined SAT scores on reading and math 400 points above the national average.

PASSHE schools, with one exception, have seen enrollment decline, some very dramatically, over the past five years. Importantly, the enrollment drops have been accompanied by very high acceptance rates. Ten of the schools accept 80 percent or more of their applicants, with five of those accepting over 90 percent. In short, most of the schools are extremely easy to get into.

To sum up; PASSHE schools present a mixed but generally unhealthy picture with nearly half the schools facing serious difficulties.  Acceptance rates are very high (80 percent or higher) at most schools while enrollment is still falling. Faculty costs are high while class size for upper division students are low compared to the four state related schools. All this points to a need to rethink the PASSHE model.

First of all, the situation at Cheyney simply cannot be allowed to continue. The state provides over $18,000 per student in instructional support, four times PASSHE schools average per student instructional funding and far above what the state spends per k-12 student on basic education. With enrollment dropping precipitously, the university is too small and too costly for taxpayers to be sustainable. The system and the Commonwealth need to announce that no further students will be admitted and students currently attending will be allowed to transfer with all course credits and no penalty to a state owned university offering their degree major where they can complete their degree on campus or online if need be.

Alternatively, why not explore the sale of Cheyney to another predominantly African- American university or group of investors who could purchase Cheyney for a dollar and assume all responsibilities for its operation and upkeep. Current student aid programs from the federal government would remain in place and its historical role would be preserved.

Besides Cheyney, the situations at Edinboro, Clarion and Mansfield with student declines of over 20 percent are also worrisome. Indeed, four western schools (Clarion, California, Edinboro, and Indiana) account for 54 percent of the state system’s enrollment drop over the last five years. Schools with sharply declining enrollments will also have, or soon begin to see, significant reductions in the number of degrees granted, which is the basic objective of the university.

It is reasonable to say that the severe problems faced by several of PASSHE schools cannot be solved absent a large increase in the number of graduates and improvement in the academic readiness of graduates leaving the state’s high schools.  It is unreasonable to think either of those desirables will occur any time soon. Thus, it becomes incumbent on PASSHE to begin reducing capacity and/or consolidating degree programs. There is no defensible purpose in having each of the universities offering the same wide range of degree majors. It would be far more rational to have the schools use a more focused approach in degree programs and become very good and well known for their limited offerings.

Perhaps a couple of schools could become two year feeder schools for the other four year schools.

To be sure, with all the tenured faculty, alumni and entrenched interests at each school meaningful change coming from the system itself is very unlikely. Without question it is time for the Legislature and the Governor to start looking for meaningful system reforms. It will take a lot of time, so they should begin now. In fact, the state related satellite campuses that receive state funding ought to be included in the government’s study as well.

Pennsylvania’s Higher Education System’s Woes

When the Pennsylvania’s State System of Higher Education’s (PASSHE)  board of governors met in early October, the hottest topic was state funding, or more specifically, how it has been declining over the years and how they intend to request a sizeable increase from Harrisburg for the upcoming year.

 

While state funding has been weaker since 2010 and state system universities have been raising tuition and fees from students to balance their budgets, not much attention has been given to the expenditure side of the ledger.  Also, there was not much discussion of the system’s enrollment drop.  As the new school year began, it was revealed that the combined enrollment for the fourteen schools comprising PASSHE[1] was down for the fourth consecutive year.  These are clearly important issues facing PASSHE; they will be examined in detail in this Policy Brief.  Using PASSHE’s single audit (combined all school information) reports, we can look closely at the financial and enrollment problems.

 

For the 2008 academic year, PASSHE realized $637.9 million in net tuition and fees (net of scholarships, financial aid, and waivers).  In the most recent academic year available, 2013, that amount had grown to $809.3 million—an increase of 27 percent.  In fact, the annual increases were steady, ranging from a low of just under one percent in that last academic year to 8.7 percent from 2010 to 2011.

 

Meanwhile, state appropriations, after rising 4.7 percent to $532.8 million in 2009, stood at 427.1 for the 2013 academic year.  Thus, state appropriations slipped a net 20 percent from 2009 to 2013.  The largest decline occurred from 2010 to 2011 when the appropriation fell 16 percent from $504.7 million to $422.5 million during the state budget crisis. Not coincidentally the sharp increase in tuition revenue from 2010 to 2011 mentioned above was most likely necessarily done to offset this reduction in the state appropriation.  All told, tuition and fees climbed $171.4 million during the 2008 to 2013 period while the state appropriation fell by $81.8 million.

 

Investment income also struggled over this period.  In the 2008 school year PASSHE realized $35.4 million in investment income, however, by the 2013 school year it had fallen to $26.2 million—a 25 percent drop. The low point came in 2010 when investment income was only $24 million for the system.  Of course no one needs to be reminded that the great recession stunned many financial portfolios and revenue streams—including PASSHE’s as well as the Commonwealth’s—and the subsequent sluggish recovery hasn’t brought revenue back to pre-recession levels.  In fact these two categories, investment income and state appropriations, are the only two revenue sources to have decreased over the six year period.  Other line items such as auxiliary enterprises (up 18 percent or $51.4 million) and gifts, grants, and contracts also increased (19 percent or $53 million) over that span.

 

That being said, total revenues for PASSHE went from $1.772 billion for the 2008 academic year to $1.975 billion in 2013—a total increase of $203 million or 11 percent.

 

On the expenditure side, the two largest categories are instruction and institutional support.  With the exception of a small two percent decrease between the 2010 and 2011 academic years, the spending on instruction has risen steadily over these six years.  Instructional expenditures stood at $631.3 million in 2008 and came in at $721 million in 2013—an increase of $90 million or 14 percent.  Meanwhile, the expenditures for institutional support experienced no annual drop off during the period but instead moved steadily higher.  In 2008 the amount of institutional support expenditures was $240.3 million before rising to $264 million in 2013—an increase of nearly ten percent.

 

Of all the operating expenditure categories, only research and public service experienced a decline over the period and each of these were relatively small amounts ($2 million and $3.5 million respectively).  Other operating line items such as student services, plant maintenance, and auxiliary enterprises all had increases.  In all, total operating expenditures increased 12.5 percent rising $222 million from $1.754 billion in 2008 to $1.976 billion in 2013.  Adding expenses such as interest on debt and “other” brings total expenditures to $2.028 billion in 2013, which is eleven percent higher ($197 million) than the 2008 figure of $1.831 billion

 

One expenditure item that needs special attention is legacy costs.  PASSHE offers three types of pension programs, two defined benefit and one defined contribution.  Some employees are in the State sponsored Public School Employees’ Retirement System (PSERS) or the State Employees’ Retirement System (SERS) (both are defined benefit plans), while still others are enrolled in a defined contribution plan known as the Alternative Retirement Plan (ARP) administered by PASSHE itself.  Over the six years  PASSHE’s pension obligation to PSERS grew from $852,000 in 2008 to $3.9 million in 2013—an increase of 358 percent. A similar burden is being put upon the system by the SERS obligation which has spiked 345 percent from $9.77 million to $43.5 million over the time span—together, a jump of nearly $37 million.  What’s more, there is no sign of abatement as these obligations are expected to continue growing at a rapid pace and will almost certainly place even more strain on the system’s budget in coming years.  The defined contribution plan, ARP, has grown at a more reasonable pace of eleven percent, beginning at $39.6 million and ending at $43.9 million.

 

All this is happening in the midst of a system wide enrollment slide with most of the universities showing fairly substantial drops. In the fall of 2008 combined enrollment stood at 112,600 at the fourteen state universities.  Student count hit a high of 119,500 students in 2010 before the steady declines set in.  In the fall of 2011 that number slipped to 118,200 and continued to drop through the most recent count of 109,600 for the current school year—a slide of eight percent since the high water mark of 2010.  During that time only one school (West Chester) had a gain in enrollment while eight had decreases of more than ten percent.  And the sliding enrollment is not forecast to turn around any time soon.

 

Looking at the State’s Department of Education enrollment data, the number of high school seniors in the Commonwealth has been declining very slightly since 2011.  That being said, there has not been a major drop for the last couple of years and the number of high school seniors is fairly close to the count in the 2007 school year.  Thus, the pool of Pennsylvania students the fourteen universities in the State System are competing over, not only amongst themselves but with other private and public universities, has not changed much and is likely not to improve in the near future as the total number of public school students in the Commonwealth has been stagnant over the last few years.

 

On a per pupil basis, state appropriations fell from $4,520 in 2008 to $3,810—a decline of slightly more than $700 or 16 percent.  Meanwhile tuition and fee revenue increased from $5,660 per student to $7,224—an increase of more than $1,500 or 27 percent.  On the other side of the ledger, total operating expenses increased from $15,579 per pupil in 2008 to $17,638 in 2013, jumping more than $2,000.

 

The implications of falling enrollment and increasing legacy costs do not bode well for PASSHE.  While tuition hikes have carried them through the last few years, these ongoing annual hikes are probably not sustainable over the longer run.  With a sluggish economy and the State’s resources being stretched thin due largely to the enormous pension shortfalls, allocating significantly more money for the state’s university system appears to be very problematic for the foreseeable future.  Thus, PASSHE will need to take a hard look at the system as a whole and the individual schools to determine the best course of action regarding how to allocate scarce resources to best serve Pennsylvania students and taxpayers.



[1] The fourteen schools in the State System are:  Bloomsburg, California, Cheyney, Clarion, East Stroudsburg, Edinboro, Indiana, Kutztown, Lock Haven, Mansfield, Millersville, Shippensburg, Slippery Rock, and West Chester.