Timothy J. Nelson, President, Northwestern Michigan College
A fundamental question for any organization, profit or not, is, “What do we do for whom at what value?” The answers to this ultimately define the business model for the enterprise. This then informs the cost structure, the market, and the pricing and revenue practices for the organization. The current trend of students paying more in absolute and proportionate share of the cost to operate the college has limits and may postpone answering this fundamental question (College Board Advocacy & Policy Center, 2012). In community colleges, tuition alone does not generate enough revenue to create a positive net margin. There is a saying, “No margin, no mission.”
The traditional revenue model for community colleges is different among the 50 states. (Education Commission of the States, 2000) In Michigan, the original bargain was said to be one-third each for local, state, and students. Today, state funding is a combination of legacy and a funding distribution formula adopted in 2007. (Jonasson, 2013)
Local and state funds do not vary with enrollment leaving tuition alone to rise and fall with the number of students served.
Building a financial model where significant portions of revenue come from sources not tied to volume is treacherous at best and encourages planners to shift revenue to sources they can impact…tuition.
The higher percentage in this category, potentially the more stable the organization can become. Michigan institutions are relatively free to implement this shift. Other states preclude this from occurring because the revenue variables are controlled at a state system level.
In an attempt to create a positive net margin, colleges have followed business practices aimed at reducing costs and increasing productivity. We disaggregate the role of the faculty member, assigning jobs to lesser paid individuals (adjuncts), substitute technology for physical facilities, shift operating costs to employees, implement differential tuition for high cost programs, limit accessibility to programs or the college, increase our fundraising capacity, and seek outside unrelated revenue. While these tactics help to mitigate short-term fiscal issues, they tend not to create a sustainable positive margin model.
One of the largest risks our revenue streams face is that a significant portion is “subsidized revenue.” The sources of the subsidies are property taxes, state allocations, access to federal grants, access to almost unlimited loans, and private scholarships. Consider for a moment the direct or indirect impact of a reduction in any of these subsidies. Such a reduction would force us to examine the fundamental question posed at the outset. It is not only a question of who will pay how much, but for what are they paying?
To prepare for this future, leaders must clearly articulate what we do for whom at what value. If we do not, others will, and will do it poorly. We must look beyond the budget and beyond the numbers to identify the value proposition that will attract appropriate investment. We must create a culture that can absorb shocks, both internal and external, and that can adapt more quickly to changes in the operating environment. Whether we enjoy it or not, we may be caught in a conundrum. The public and the government wish to view us as a public good–non-rival, non-exclusive, and unlimited. They execute policies in this framework. In reality, our tactical moves may be driving us to operate more as a private good. It is time for us to restate our compact with our public.
College Board Advocacy & Policy Center. (2012, October) Trends in College Pricing 2012. Retrieved from http://advocacy.collegeboard.
Education Commission of the States. (2000, November) State Funding for Community Colleges: A 50-State Survey. Retrieved from http://www.ecs.org/html/
Jonasson, E. (2013). Fiscal Forum – Community College Funding. Retrieved from http://www.house.michigan.gov/
College (UN) Bound. Jeffrey J. Selingo. 2013
Trends in College Pricing 2012. College Board Advocacy & Policy Center. 2012 Is Education a Public Good or a Private Good? The Chronicle of Higher Education. January 18, 2011.
Losing Ground: A National Status Report on the Affordability of American Higher Education.
The National Center for Public Policy and Higher Education. 2002.
How America Pays for College 2012. SallieMae. 2012.
The Tragedy of the Commons. Garrett Hardin. Science. Vol. 162. December 13, 1968.
The Cost Project. Study finds increasing numbers of public colleges with differential tuition. Scott Jaschik. February 21, 2012. Inside Higher Ed. http://www.insidehighered.com