Category Archives: Higher Education

Capital Budgeting in the States

Source: Michael Streepey, National Association of State Budget Officers, Spring 2014

From the summary:
State governments play a central role in building and maintaining the nation’s infrastructure. Financial decisions for infrastructure, or capital projects, impact public assets such as roads, bridges, university buildings, prisons, water resources and more. Investments in infrastructure are complex and require significant resource commitments and organizational planning. The additional considerations inherent to capital goods require different budgetary plans, concepts and practices, from those used to prioritize spending on day-to-day expenses. This report delivers state-by-state comparative information on the ways budget officers develop and implement capital spending plans.

After several years of slow recovery, states have shifted some of their focus from immediate budgetary pressures to long-term structural challenges like infrastructure. This report delivers information such as:
– how states make decisions to invest in new facilities or maintain old ones;
– ways states distinguish infrastructure spending from day to day operating expenses;
– criteria for project financing strategies and options for funding infrastructure;
– efforts to mitigate fiscal risks from debt issuance, and more.

Examples of Report Findings
– Transportation is not included in the capital budget: 19 states.
– The definition of infrastructure is being broadened to include technology: 29 states include information technology in the capital budget;
– Many states are still directly investing in university infrastructure: 26 states fund higher education capital projects with general fund dollars;
– Citizen involvement in capital infrastructure can vary: In 19 states, only voters can approve general obligation debt issuance.
– Projects are required to have an estimate of fiscal impact on future operating budgets: 43 states.

As states continue to face budgetary constraints, capital budgeting and prioritization of capital needs will continue to remain important for future infrastructure investments.

Swapping Our Future: How Students and Taxpayers Are Funding Risky UC Borrowing and Wall Street Profits

Source: Charlie Eaton, Jacob Habinek, Mukul Kumar, Tamera Lee Stover, Alex Roehrkasse, and Jeremy Thompson, Debt & Society, 2014

This report examines the role of interest rate swaps in the University of California’s massive expansion of borrowing from Wall Street over the last decade. The report highlights the costs to students and taxpayers of UC’s interest rate swaps and debt-driven profit strategies. Such strategies have been called into question for Wall Street banks, let alone for public universities. Based upon our findings, we offer recommendations regarding renegotiation of UC’s interest rate swaps and the governance practices for UC’s overall borrowing program. …

Borrowing Against the Future – The Hidden Costs of Financing U.S. Higher Education

Source: Charlie Eaton, Cyrus Dioun, Daniela García Santibáñez Godoy, Adam Goldstein, Jacob Habinek and Robert Osley-Thomas, Debt & Society, 2014

…In recent years, students’ families and colleges have increasingly sought capital from three main financial markets. Public colleges faced declining state appropriations, and the average cost of tuition, room, and board increased much faster than grant aid for needy students. This pushed families to borrow increasing amounts from student loan markets to pay for college costs. Private and public colleges increased institutional borrowing, particularly from municipal bond markets for capital projects. And the rapid growth of for-profit colleges was fueled by equity investors that provided them with capital. All of this financing comes at great cost, in the form of either interest payments or profits earned to satisfy equity investors.

In this report, we estimate – for the first time – the total cost to the American higher education system of reliance on capital from each of these markets. The report covers the years for 2002 to 2012 – the only years for which adequate data are available. For student loans, we estimate the total interest paid annually on all outstanding student loans — both private and federal. For institutional borrowing, we describe total interest payments on college and university debts — the largest share of which went to funding amenities. In the case of for-profit colleges with capital from equity markets, we estimate the costs to students and taxpayers of profits made by these institutions —and the vast share of revenue they brought in from federal student aid programs — to satisfy stock shareholders and private equity investors. Except where noted, our estimates cover all colleges that received federal Higher Education Act Title IV funds and granted two-year, four-year, or graduate degrees between 2002 and 2012….

Measuring Student Debt and Its Performance

Source: Donghoon Lee, Wilbert van der Klaauw, Andrew Haughwout, Meta Brown, and Joelle Scally, Federal Reserve Bank of New York, Staff Report Number 668, April 2014

From the summary:
Studies continue to indicate that higher education is frequently a worthwhile investment for individuals and that it raises the productivity of the workforce as a whole. While the rising cost of post-secondary education has not eliminated this “college premium,” it has raised new questions about how growing numbers of students can make these investments. One solution to this problem is student loans, which have come to play an increasingly important role in financing higher education. Yet, despite its importance, educational debt is not well understood. Among the reasons is that there exist few central repositories of information on the characteristics and performance of all student loans, which currently include loans made by both government and private lenders. In this paper, we bring a new data set to bear on this important issue and present a brief analysis of the historical and current levels of student debt and how those loans are performing. We also briefly discuss the implications of student loans for borrowers and the economy.

Ending a Well-Paid Presidency Often Comes at High Cost

Source: Jack Stripling, Chronicle of Higher Education, May 18, 2014

The three highest-paid public-college leaders in the 
nation have something in common: They earned hundreds of thousands of dollars on their way out the door. The size of the parting packages given to these men—two who resigned amid long-churning controversies and one 
who quit unexpectedly—demonstrates just how expensive it can be for a college to end the presidency of a well-paid chief. E. Gordon Gee, the popular and gaffe-prone former president of Ohio State University, earned more than $6-million in 2012-13, making him the nation’s top-paid college leader for that period, a Chronicle analysis has found. Mr. Gee has maintained that he resigned of his own accord last summer, but the decision came as trustees expressed impatience and disappointment with his often-ill-considered jokes….

The One Percent at State U – How Public University Presidents Profit from Rising Student Debt and Low-Wage Faculty Labor

Source: Andrew Erwin and Marjorie Wood, Institute For Policy Studies, May 18, 2014

From the summary:
New report finds that student debt and low-wage faculty labor are rising faster at state universities with the highest-paid presidents.

State universities have come under increasing criticism for excessive executive pay, soaring student debt, and low-wage faculty labor. In the public debate, these issues are often treated separately. Our study examines what happened to student debt and faculty labor at the 25 public universities with the highest executive pay (hereafter “the top 25”) from fall 2005 to summer 2012 (FY 2006 – FY 2012). Our findings suggest these issues are closely related and should be addressed together in the future.

Since the 2008 financial crisis, executive pay at “the top 25” has risen dramatically to far exceed pre-crisis levels. Over the same period, low-wage faculty labor and student debt at these institutions rose faster than national averages. In short, a top-heavy, “1% recovery” occurred at major state universities across the country, largely at the expense of students and faculty.

• The student debt crisis is worse at state schools with the highest-paid presidents. The sharpest rise in student debt at the top 25 occurred when executive compensation soared the highest.
• As students went deeper in debt, administrative spending outstripped scholarship spending by more than 2 to 1 at state schools with the highest-paid presidents.
• As presidents’ pay at the top 25 skyrocketed after 2008, part-time adjunct faculty increased more than twice as fast as the national average at all universities.
• At state schools with the highest-paid presidents, permanent faculty declined dramatically as a percentage of all faculty. By fall 2012, part-time and contingent faculty at the top 25 outnumbered permanent faculty for the first time.
• Average executive pay at the top 25 rose to nearly $1 million by 2012 – increasing more than twice as fast as the national average at public research universities.

Is It Still Worth Going to College?

Source: Mary C. Daly and Leila Bengali, Federal Reserve Bank of San Francisco, FRBSF Economic Letter, May 5, 2014

Earning a four-year college degree remains a worthwhile investment for the average student. Data from U.S. workers show that the benefits of college in terms of higher earnings far outweigh the costs of a degree, measured as tuition plus wages lost while attending school. The average college graduate paying annual tuition of about $20,000 can recoup the costs of schooling by age 40. After that, the difference between earnings continues such that the average college graduate earns over $800,000 more than the average high school graduate by retirement age.

Sunshine, Stakeholders, and Executive Pay: A Regression-Discontinuity Approach

Source: Brian D. Galle, David I. Walker, Boston University School of Law, Public Law Research Paper No. 14-09, December 17, 2013

From the abstract:
We evaluate the effect of highly salient disclosure of private college and university president compensation on subsequent donations using a quasi-experimental research design. Using a differences-in-discontinuities approach to compare institutions that are highlighted in the Chronicle of Higher Education’s annual “top 10” list of most highly-compensated presidents against similar others, we find that appearing on a top 10 list is associated with reduced average donations of approximately 4.5 million dollars in the first full fiscal year following disclosure, despite greater fundraising efforts at “top 10” schools. We also find some evidence that top 10 appearances slow the growth of compensation, while increasing fundraising and enrollment, in subsequent years. We interpret these results as consistent with the hypothesis that donors care about compensation and react negatively to high levels of pay, on average; but (absent highly-salient disclosures) are not fully informed about pay levels. Thus, while donors represent a potential source of monitoring and discipline with respect to executive pay in the nonprofit sector, significant agency problems remain. We discuss the implications of these findings for the regulation of nonprofits and for our broader understanding of the pay-setting process at for-profit as well as nonprofit organizations.

The Role of Community Colleges in Regional Economic Prosperity

Source: Anne M. Kress and Gerardo E. de los Santos – Editors, League for Innovation in the Community College, 2014

Regional Economic Prosperity is often broadly characterized by economic growth, partnerships that cross several jurisdictional boundaries of cities, counties, and states, and expanding economic and educational opportunities and career pathways for low- and moderate-income workers. … As many research studies have well documented, educational attainment is directly correlated to income earning potential and is one of the keys to increasing economic prosperity opportunities in our communities. In many regions in North America, community and technical colleges serve a critical role in supporting, and often lead, regional economic prosperity planning and collaboration. In this monograph, leaders from League for Innovation in the Community College member institutions share creative examples of how they are helping to advance economic prosperity in their regions.

States Are Still Funding Higher Education Below Pre-Recession Levels

Source: Michael Mitchell, Vincent Palacios, and Michael Leachman, Center on Budget and Policy Priorities, May 1, 2014

From the summary:
Most states have begun in the past year to restore some of the cuts they made to higher education funding after the recession hit. Eight states, though, are still cutting, and in almost all states — including those that are have boosted their support — higher education funding remains well below pre-recession levels. The large funding cuts have led to both steep tuition increases and spending cuts that may diminish the quality of education available to students at a time when a highly educated workforce is more crucial than ever to the nation’s economic future.