Return on investment in faculty rarely captured by university CFOs

“Mr. President, We are not employees of the university. We are the university.”

With these words, Isidore Rabi, a distinguished faculty member at Columbia University, interrupted Dwight Eisenhower, who had started off a speech by addressing the faculty as “employees of the university.” Generation after generation of faculty members has repeated this inspirational anecdote from the early 1950s, though they know very well that their universities are increasingly becoming about everything other than the faculty. And the situation appears to be worsening. To the professional managerial class that nowadays run the neoliberal version of post-secondary education, the faculty is often seen as merely the source of the university’s problems. So, before too many of my colleagues get used to being seen as a cost, not something that provides net positive value to the university, I would like to use charter accountants’ speak to argue that investment in university research excellence could be and should be viewed as a possible driver of future revenue.

All the indicators point in the same directions. And at the risk of sounding like a Bill Clinton, here is my summary:

Students enrollment (mostly international) is up, the number of professional programs is up, the number of managerial staff is up, the number of capital projects is up, investments in information and management systems are up, dedicated cash for “innovation” is up, funds for athletic facilities is up, unsustainable resources for “sustainability projects” is up, communication and PR budgets are up, external consultants’ cost is up,  internal and external debts are up, but research funding and faculty positions are … down.

Here is the picture from UBC.

Screen Shot 2014-04-22 at 10.14.35 AM

Note that the fact that Faculty FTE “increases” are below institutional growth, is considered as gains in efficiencies, hence the title of this post.

Actually, this topic was initially inspired by the Twitter feed of the UbysseyNews. It was reporting on the latest UBC Board’s committees meeting, which happened to be the first after my term as Governor ended.

Ubyssey News ‏@UbysseyNews  Apr 1 UBC projecting a balanced budget for 5th year, but faculties planning to spend $27 million of reserves #UBCBoG

Ubyssey News ‏@UbysseyNews  Apr 1 Due to decrease in government funding, UBC is looking to increase international enrolment, start new programs #UBCBoG

Ubyssey News ‏@UbysseyNews  Apr 1 Farrar: UBC will have to look at “non-traditional learner” through new professional programs to balance budget #UBCBoG

Ubyssey News ‏@UbysseyNews  Apr 1 “Further cost reductions are unavoidable” – may include attrition in faculty and staff positions #UBCBoG

Ubyssey News ‏@UbysseyNews  Apr 1 Q from Board: what would happen to the budget if arbitration with the faculty association awards higher wages? #UBCBoG

Ubyssey News ‏@UbysseyNews  Apr 1 Increase in faculty wages is a “real risk.” A one per cent increase awarded in arbitration is $4 million extra UBC has to spend #UBCBoG

Ubyssey News ‏@UbysseyNews  Apr 1 Meeting now going into closed session for the rest of the day. #UBCBoG

I know that what is discussed in Board meetings is usually white noise compared to the total picture, and Twitter broadcasting of its proceedings is not the most illuminating medium, but what we know is already good enough to understand a few trends.

A relatively new budgeting process at UBC assigns 58% of the budget to the eleven Faculties according to a certain formula that accounts for domestic and international enrollment in these Faculties. The remaining 42% stays with the central administration. The following slide is meant to reassure.

Screen Shot 2014-04-22 at 10.18.09 AM

The first tweet explains that the Faculties, which are at the core of the University’s mission, are running $27 million in deficit. Considering that their budgets are mostly tied in faculty and staff salaries, now you know why they are squeezed.

On the other hand, the $600-million-plus budget of the central administration, which supports buildings and maintenance, administrative compensations, alumni, student services, but also several new and nascent “priorities” such as information and management systems, flexible learning, “innovation”, and development, seems to be balanced.

Screen Shot 2014-04-22 at 10.16.26 AM

Today’s broadcast letter from the President stresses that “eroding public funding continues to present very serious pressures” on items that are primarily within the purview of the central administration’s budget.

“Buildings and their maintenance remain significantly underfunded, and some classroom infrastructure is not adapted to current curricular needs; Several information and learning management systems must be renewed and our faculty need better support as we implement more “flexible learning” initiatives; Student services are over-subscribed, in terms of wellbeing programs, international student support, counseling, health and disability services, graduate student support and undergraduate professional skill development; and in some areas, tuition does not support the desired level of experiential learning.”

And what do the tweets tell us about what the Board’s conversation suggest for handling these budgetary problems?

  1. Attrition in faculty positions.
  2. Introduction of new professional programs.
  3. Increase international enrollment.

I do hope that the Governors saw the irony in what was being suggested and asked how can we accomplish 2) and 3) when we are applying 1) ? I had seen this movie before from my front seat at the Board. Faculty compensations and the dreaded cost of salary increases are often described as the ultimate financial liability, the most prominent of risk factors to the future of the university. Other serious expenditures on items that seemed less consequential (at least to me) never had such a top billing in the recurrent horror picture show of risk management.

While I totally agree with the president about the need to address core capital projects such as Geography, Mathematics, and the Engineering “rust belt,” I for one, will be following with great interest how our major investment in IT services and flexible learning will pan out. After all, it has been only 3 years since I first raised alarm bells at the Board’s table about our readiness vis-a-vis a potential advent of online learning. I never imagined then that this call for diligence would lead to a commitment of an additional $140-million in that direction for the next 7 years. Note that 21% in staff growth is in IT “to enable flexible learning and efficiencies.” To put this in perspective, the distributed medical program across the province accounts for 19% of that growth. For goodness sake, are we angling towards buying “Accenture”?

And what about the newly allocated $6-7 million per annum from the general operating funds for “innovation”? Don’t we have enough government programs for that?

Let’s now try a couple of financial calculations, which hopefully can justify the title of this post.

The Board often hears about notions of “good debt vs. bad debt.” Good essentially means ones that can generate revenues, at least in the long term. For example, spending $100-million on updating energy distribution lines is good debt because of the projected savings incurred on energy bills over the next 50 years, say.

Another scheme –often hailed as a brilliant illustration of how a “good debt” could work for you– is to borrow money from the endowment in order to build student housing. The students pay for their rentals, the endowment makes 5.5% return, more than half of which goes back to the operating funds of the university. Not bad at all –modulo of course the question of affordability for the students.

Here are however other investments that don’t seem to be present in the calculation of management, yet they effectively offer higher yields.

A rough calculation shows that 3-4 excellent researchers could generate enough tri-council research grants to earn the university an additional Tier I Canada Research Chair from the federal government. Why doesn’t this 25%-33% return on investment count enough to warrant a consideration by our financial wizards?

Another calculation shows how the recruitment of excellent faculty could also be a money-generating scheme. Based on 2012 data from a much lower ranked university (alas I don’t have UBC’s) the average amount of external funding per individual researcher in biology, chemistry, and physics is $219,000. The university gets almost 20% in indirect costs on Tri-council grants that new outstanding researchers could bring, notwithstanding the importance of these grants for supporting graduate students, technicians, postdoctoral fellows and lab infrastructure. I say that this is a pretty good potential return on investment in excellence, though I still remember when the Board was told that “the cost of research is a drain on university resources.”

The great North American provosts of the last century were the ones who had the conviction, the ability, the will, and the authority to ensure that the return on investment in faculty was captured by their institutions’ budgets.

As to the end of the Eisenhower tale, people assumed he might have taken offense by the somewhat confrontational remark of Rabi. Instead, the latter became his closest friend on the faculty – “and when Eisenhower became President of a somewhat larger organization than Columbia, he appointed Rabi to a number of influential positions.”

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4 Responses to Return on investment in faculty rarely captured by university CFOs

  1. Pingback: Dalhousie Faculty Association » Return on investment in faculty rarely captured by university CFOs

  2. Alla says:

    Excellent and unfortunately timely piece.

    One minor addition: I think you are not putting enough emphasis on the budget coomponent where research excellence comes into place the most, albeit indirectly, university reputation. The reputation is a huge factor in student attendance choices and it in turn is largely dependent on research excellence (publication counts, citations, etc…). This correlation between reputation and research is these days repeatedly reinforced by the variety of university rankings published by numerous institutions.

    Faculty attrition by default means losing those faculty who have good other options – these are the people who typically are best researchers and whom the university can least afford to lose. What the CFO types seem to not understand is that while the impact of less research is not immediate, it will be inevitably felt in the rankings and reputation in a few years down the road and will drastically hurt enrollments and thus the budget in the long run.

  3. southwerk says:

    Reblogged this on Pilant's Faculty Senate Page and commented:
    This is a brilliant take on the “faculty as a disposable burden while technology must be funded” narrative we hear so often in higher education.

  4. Pingback: Somewhere else, part 138 | Freakonometrics

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