Monday, April 27, 2015

 

Louisiana


The proposed cuts to Louisiana’s higher education sector are breathtaking, but not only for their size.  According to yesterday’s IHE piece, they could be over 80 percent drops in a single year.  Both parts of that description matter: “over 80 percent” and “in a single year.” They offer a sort of object lesson.

In looking at cuts, two major variables control the impact of a cut: size and volatility.  The Louisiana cut looks like the worst of both worlds.  It’s enormous, and its prospective magnitude keeps changing.  At a certain level, it looks like some folks aren’t planning for it because they simply don’t believe it can happen.  

It can, of course; Arizona took its state funding for larger community colleges to zero.  But Arizona telegraphed the punch over several years.   Arizona State University has decided, in essence, to replace the state as a partner with edX.  The merits of that are open to question, as is the usefulness to students, but I can understand the impulse.  Simply put, any port in a storm.   

Even more than Arizona, Louisiana is in free fall.  Free fall is, among other things, disorienting.

Abrupt cuts hurt much more than planned ones.  At least with planned ones, it’s possible -- not fun, but possible -- to have conversations in advance about how best to handle them.  In some cases, you can pursue grants, philanthropy, or other alternative revenue sources to blunt the impact.  It’s easy to overstate the likelihood of that working at scale -- heaven help the college that puts tenured faculty on term-limited grant funding -- but it can buy some breathing room in non-personnel areas, like equipment or professional development.  (One of my nerdier dreams involves finding private donors who want campus wifi networks named after them.)  If you’re willing and able to overcome denial and inertia, and you have some breathing room, it’s possible to make cuts less damaging than they otherwise might be.

With so much volatility in state appropriations, though, intelligent planning is essentially impossible.  And people on campus know that, so they’re likely to go to one extreme or the other: either head-in-the-sand denial or outright panic.  In neither case are they likely to do their best work.  If the crisis atmosphere continues for any length of time, people with options elsewhere will probably start taking them.  At that point, you’re left with people nobody else wants, which means you’ve managed to cut your way to less efficient spending.  Ouch.

And that’s before even considering costs of severance packages, unemployment insurance, overtime, or lost revenues from classes and programs that don’t run.  

My sense of Louisiana’s economy -- and I’m open to correction on this -- is that it’s sensitive to oil prices.  High prices help the state, and low prices hurt it.  Given how volatile oil prices are, I would guess that the state’s revenue shortfall will be temporary.  That may be an argument for colleges and universities to consider using reserves, if they have them, to blunt the impact of short-term cuts.  That said, though, the political atmosphere there seems likely to be hostile to public higher education for some time.  When the oil revenue comes back, most of it may be diverted to other uses.  

In the meantime, I’m sending well wishes to my counterparts there.  I hope some of them take good notes; when the dust settles, there’s a great book waiting to be written about managing in free fall.

Comments:
You left out one really nasty problem. What do you think bondholders are thinking right now? Apparently they had to cancel a bond sale to build new dorms at LSU.

Google turns up lots of news and seeming objective analysis, but this looks like it might give you a taste of some of the issues.

http://www.labudget.org/lbp/2015/04/the-2015-legislature-a-tough-balancing-act/

It would appear that they cut taxes more than they realized (especially in corporate incentives) and are now stuck between low-tax rhetoric and a Governor who wants to be President. Temporary fixes and surplus funds only go so far.

BTW, there should have been some books written about the good, bad, and ugly of dealing with the free-fall of the Great Recession. Probably too early.
 
Looking around a little, I can't find anything entirely definitive, but this (http://www.nola.com/politics/index.ssf/2013/10/louisiana_government_relies_mo.html) suggests that oil and gas royalties accounted for about 14% of the budget in 201213. and prices (and so royalties) haven't declined since then (so far as I can tell). In fact, oil and gas royalties accounted for only 7% of State tax revenue in the late 1990s.

This appears to be just another part of the drive to defund public education, especially in the south. So, if this happens, and oil/gas royalties rise, don't expect the money to come back.
 
MOVE. OUT. OF. FLYOVER.

 
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