Managing University Budget Reductions in Uncertain Times

Managing University Budget Reductions in Uncertain Times

Lessons from Hurricane Katrina

Higher Education is facing an unprecedented environment as it looks at potentially redefining a model that has served the academy for centuries.  For years, many universities have been addressing perplexing issues they face today, but the need to redefine the current model has been exacerbated in the face of a new environment.  What are the types of decision-making issues are we likely to see, how will it manifest itself across campuses, what might be some counter-intuitive initiatives to assist, and how might this change the role of Advancement Offices at universities?

Indeed, universities can figure out the problems, but as usual they are struggling with the plan and potential solutions.  I hear a lot about the challenges of lower enrollments, redefining class delivery systems, issues facing residential campuses, budget reductions and hiring freezes.  Yes, these are critical issues that campus leaders must address.  But I hear little if any serious discussions as to various alternatives to address revenue shortfalls.  The first and sometimes the only response is to cut, and to keep cutting.  Unfortunately, cutting can become a never-ending task which has the potential to decimate the university and its programs.

Surprisingly, in my experience, institutions do not plan or look to how they can increase revenues to address the shortfall, rather than simply cutting.

I come at this from experience during Hurricane Katrina with the colleges and secondary schools in greater New Orleans.  While Katrina was a micro-event isolated to a specific geographic area, the uncertainty and potential financial devastation we faced was similar in many aspects to the challenge’s institutions are finding with the pandemic.  When can we reopen? How should we reopen? What are the short-term and long-term financial implications?  Will we ever truly recover?

All difficult questions and decisions that need to be made. But as I look at the decisions made during Katrina, the one area I still believe that was not given enough critical thought was on the revenue side of the equation.  How do we as an institution position ourselves to address immediate cash flow needs while establishing a sound financial framework for the future, operational reductions and/or revenue growth?

During the process of making operational cuts, the politically easy and safe method, and the one that many Presidents and Boards defer to, is to make equal cuts across all divisions; even to those areas that have the potential to actually increase revenue and cash flow, notably Advancement, Admissions and other revenue areas.

I have too often seen Deans and Provosts make a passionate defense for the academic division and the implied devastation from proposed reductions, while trying to preserve weak and/or irrelevant programs and centers/institutes (disclaimer:  I did precisely this as a dean).

All this while advocating substantial cuts to those income producing areas that could help alleviate revenue shortfalls in the first place.  These are indeed the discussions taking place now, with predictable outcomes; across-the-board reductions with no plans to increase revenues. Just hunker down and hope for the best.

So, what does this mean for our colleagues in Advancement?  I believe we need to reinforce the idea that in times of budgetary crisis the prudent response is not to only make operating reductions, but to invest in revenue producing areas, helping to increase revenue.

Advancement leaders need to be aggressive during budgetary meetings and present data-driven plans to demonstrate how investments in development can increase revenues for the institution.  This should be accompanied with a singular and aggressive focus on raising funds immediately and in the future.  It should not be difficult, since it is the same argument normally made to increase staffing and budgets for campaigns.

I sometimes like to use a stock market analogy during these discussions.  Human nature has us buying high and selling low, when the best response is the opposite.  Invest to increase revenue, rather than only trying to cut your way to prosperity.

As with all challenges it will be interesting to see which institutions fail and which thrive.  My bet is on those forward-thinking institutions willing to make not only targeted budgetary reductions, but aggressive investments.