A new report released to Kutztown University faculty Tuesday evening, promises to cause headaches for PASSHE administrators and university presidents who have used a narrative about a State System “budget crisis” to jack up tuition rates, gut faculty, and close academic programs. A group of Kutztown University faculty members pooled their own resources to commission Howard Bunsis, a Professor of Accounting at Eastern Michigan University, to conduct an independent audit of Kutztown University and PASSHE’s financial health. Rather than finding a State System of Higher Education that is on the brink of collapse, Bunsis’s analysis concluded that both Kutztown University and the PASSHE system are “both in solid financial condition” based on “high levels of reserves, positive cash flows, and an increasing Commonwealth appropriation.”
That analysis is diametrically opposed to the “gloom and doom” budgeting university administrators have used to impose draconian cuts to faculty, staff, and academic programs and to demand significant increases in tuition. While faculty and staff members have been subjected to yearly “the sky is falling” budget presentations and students are told that they are just going to have to suck up more debt to attend Pennsylvania’s working class colleges, Bunsis’s analysis found that PASSHE has an “unrestricted liquidity” – the pool of resources that university administrators can choose how to allocate – of (wait for it) $1.3 billion. That’s “Billion” with a “B.”
Does this mean that PASSHE administrators and university presidents are sitting on giant piles of money? Not exactly. University presidents and their financial officers put money aside for future projects, building upgrades, new facilities, and so on. In other words, they choose what to do with these unrestricted funds. Then, they put together a budget representing those choices. So far, so good, right?
This is where the smoke and mirrors come in. Some might call it creative accounting. See, a “budget” is a projection – a “philosophy” as one university financial officer has been known to call it. Others, myself included, see a budget as a moral document – practical choices that reinforce priorities, choose winners and losers, and reflect an institution’s actual values. That is, if you really want to know what an institution actually values, look at where it allocates its resources, not the lofty statements it makes in its mission statement.
Bunsis’s report shows that PASSHE and university administrators have been using their budgets to justify the need to cut faculty, gut staff, and increase tuition as a means to divert more resources to those unrestricted reserves. According to the report, PASSHE maintains a reserve of 58% of expenses. That is, if all state funding suddenly stopped, all PASSHE universities could continue to operate for about 7 months. Kutztown University maintains reserves in excess of $87 million, or 48% of expenses. Bunsis states that a solid level of reserves is considered to be about 25%, while 50% is considered “extremely high.” OK, so PASSHE administrators like to keep a big rainy day fund. What’s wrong with that?
Nothing, if it’s not raining. But what happens when it starts to pour?
And this is the crux of the issue laid out in the report. PASSHE and university administrators have chosen to prioritize increasing the size of their financial reserves at the very time deep cuts were being imposed by the State of Pennsylvania. The truth of the matter is that State legislators have been slow-walking cuts to public higher education in Pennsylvania for decades as the Pennsylvania Budget and Policy Center has shown,
In 1984, state funding paid for 62% of costs for the Pennsylvania State System of Higher Education (PASSHE) and tuition paid for 38% of costs; by 2008, state funding accounted for only 38% of costs, with 62% coming from tuition and fees. Today, tuition and fees accounts for nearly 72% of PASSHE funding.
The gradual defunding of public higher education in the state was accelerated in 2011, when newly elected Republican Tea-Party Governor Tom Corbett, proposed a 50% cut to PASSHE. By the time his first budget was passed, the cuts were reduced to about 20% – still historic by any measure. It is this post-Corbett world that the Bunsis Report covers.
If it had been drizzling for a few decades, Corbett’s cuts clearly represented a downpour. So, what did PASSHE administrators and university presidents do? Well, based on the report, they used a very real budget crunch as the vehicle to deepen their financial reserves on the backs of students, faculty, and staff. For example, since 2009, Kutztown University has cut 70 faculty lines, about 13% of the total faculty, according to the report. The university has also cut its secretarial staff by about 20%; its maintenance staff by over 20%; its skilled craft employees by over 25%; and its tech/paraprofessional staff by over 25%. And while the university has also decreased by 12 the total number of top managers, it has also increased by 6 the number of “professional/non-faculty” members – the ONLY group to see an increase during the period.
Kutztown University did see a significant decline in enrollment between 2008 and 2017, which one would think would have a significant impact on university funding. In 2008, Kutztown University had 10,295 students. By 2017, that number had dropped to 8,513. That’s nearly a 17% drop in enrollment – most of which was expected as the so-called “echo generation” – the children of the Baby Boomers – had passed through college.
However, during that same period, revenue from tuition and fees increased by $10,325,254, about 1.2%. Likewise, total university revenue increased by $11,448,917, or about 1.1%. That’s interesting in its own right, but the situation with Kutztown’s reserves is the telling part of this story. Since 2008, Kutztown’s reserves grew from $59.331 million to $87.475 million. That’s an increase of $28.144 million, almost 1.5%.
So, let me walk you through what this means.
- Kutztown University (and PASSHE in general) has chosen to keep an extremely high amount of reserves.
- Those reserves represent funds that may be earmarked (by choice, not necessity) for on-going or future projects in their budgets. The Bunsis Report is based upon the actual audited financial statements, which allows us to see how much money actually has been spent (their actual cash flow) compared to how much money the universities actually have available to spend as they wish – their “financial flexibility.”
- A high degree of financial flexibility (high percentage of reserves) can be valuable to an institution when there is an unexpected or sudden change of its financial situation. That is, those reserves can serve as a “rainy day fund.” Financial officers, university presidents, Chancellors can choose to divert funds from desired future projects to protect the core mission of the institution.
- In the face of a dramatic budget cut in 2011 (i.e. a freaking financial storm) in a context of gradually decreasing state appropriations (drizzle, drizzle), Kutztown University and PASSHE chose to privilege their future budgeted projects and hobby-horses by cutting faculty and staff, eliminating programs, and increasing tuition and fees for students.
- In other words, university and PASSHE administrators made the choice to grow their reserves and revenue during this period by NOT using their rainy day fund to keep tuition affordable and support the faculty who are responsible for making good on the core mission the university: providing high-quality education at an affordable cost.
Administrators’ choice to invest in their reserves and not their faculty and students becomes more sinister when you consider their public statements about the causes of the budget crisis and the main “problems” contributing to on-going (fictional) financial woes.
If you want to know who PASSHE and university administrators blame for their “financial woes,” look no further than how Moody’s, the bond rating agency, describes PASSHE’s financial challenges in PASSHE’s 2017 audited financial statements. Under “challenges,” the statement says:
- High number of faculty and staff that are subject to collective bargaining agreements, which pressure operations and limit cost management efforts;
- Significant pension and OPEB liabilities along with increasing required contributions
The Bunsis Report makes note of how odd the statements about collective bargaining are in this context. “Moody’s seems incredibly bothered by the union environment and the fact that the faculty are unionized,” writes Bunsis.
I have not seen a bond rating that mentions unionization in public higher education, and certainly not in such a negative light. It is very likely that the PASSHE administration has a very negative view of unionization and faculty, as the administration meets with Moody’s as these ratings are assignment.
In the case of Kutztown University, Bunsis found that the anti-faculty/anti-union sentiment is written into budget projections in ways that seem outright deceitful. The report notes that Kutztown’s audited financial statements show that Kutztown consistently lists benefits costs that are significantly higher than what the university actually pays out. Take for example the “benefit rate”: that’s fringe benefits as a percentage of salaries. Kutztown says that the benefit rate for all employees at the university is 59% (that includes administrators). However, Bunsis found an $8.5 million gap between what the university claims as the benefit rate and what it actually is. The actual rate is closer to 47%. Or take retirement plans by themselves. Kutztown University claims they have to pay 34% of payroll into the different retirement plans. However, as Bunsis’s analysis shows, the university only actually paid 19.7%.
And that’s the smoke and mirrors of it all. Kutztown has routinely used the higher numbers for benefits and pensions in calculating their budgets. If you show in your budget documents that you are paying 34% of payroll into retirement plans, but you are actually only paying 19.7%, that leaves you 14.3% of payroll left over to do with what you will. And from the way it looks, the university is socking that money away into its reserves for a rainy day that will never come. We see similar dynamics when it comes to tuition (underestimating tuition revenue) and salaries (overestimating faculty salaries).
Bunsis summarizes Kutztown’s approach to budgeting as follows:
Budgeting by the Kutztown administration is very pessimistic, as revenues are under-estimated and expenses are over-estimated. This analysis [The Bunsis Report] focuses on the actual results rather than budgets, as actual results are audited by an outside independent party, and tell us what really happened. Budgets are projections made by the administration, and are not audited by an outside independent party. The budget presentations of the Kutztown administration are filled with gloom and doom.
Gloom and Doom. That’s funny because those were the nicknames the faculty union leadership gave to two of Kutztown’s budget and finance officers a few years back.
From Raging Chicken’s perspective, the Bunsis Report does not serve as a new, explosive revelation. We have been reporting on misleading and deceptive budgeting schemes at PASSHE, Kutztown University, East Stroudsburg University, and other state institutions since we launched in 2011. Rather, the Bunsis Report provides evidence that even in the face of university president corruption scandals at California University of Pennsylvania; administrative whistleblowing at West Chester University; draconian cuts at Edinboro Univerisity and Clarion Univerisity; historic tuition increases at Millersville and other PASSHE universities rolled out with double-speak PR campaigns; and questionable bond schemes used to build luxurious buildings and hide debt; top-level administrators have not altered course. They seem committed to shock doctrine austerity policies, financed on the back of students, faculty, and staff.
The only question that remains is how faculty, staff, and students will respond to this report. In the fall of 2016, Pennsylvania was treated to one powerful model for reclaiming public higher education: APSCUF members went on strike for their first time in the history of the faculty union. The power of that model comes not from simply the fact that faculty went on strike. The power of the model comes from the deep bonds of solidarity, joy, and possibility that were formed on the picket lines among faculty, students, staff, and the community. For three days in October of that year, Pennsylvania got a glimpse into new possibilities. We saw a material counterweight to the discourse of doom and gloom that has monopolized our public discourse and public spaces for so long. “There’s Nothing We Can Do” and “There Is No Alternative,” gave way for a moment to chants “Whose Streets? Our Streets!” “Whose Campus? Our Campus!” “Whose Future? Our Future!”
That future is still within our grasp. We will not grasp it by parying for goodwill from administrators or hope that a new PASSHE chancellor will change everything. Our strength lies in organizing and exercising our collective power to demand a better future.