Sunday, June 05, 2016

 

Buildings and People


“Many point to the gleaming new buildings rising on campus and ask why the university targeted its lowest-paid teaching staff as a way to save money” -- Boston Globe, 6/2/16

Last week UMass Boston announced that it may have to cut loose as many as 400 adjunct faculty to meet a budget shortfall, having recently completed a construction binge.  Over the last month, Burlington College, Dowling College, and St. Catherine’s College announced they were shutting down; in each case, significant debt from construction and/or land purchases was a major factor.  Having tried too quickly to expand, they collapsed.

These aren’t community colleges, but much of the same logic applies.  Frustratingly, some of the loudest critics don’t understand the budgetary logic behind those decisions.  Also frustratingly, some high-level leaders don’t understand how a favorite old strategy has suddenly become a problem.

So, in the spirit of translation, here goes.

For a long time, colleges rode demographic tailwinds.  When they expanded their capacity, students showed up to fill it.  “If you build it, they will come” worked.  An entire generation of leaders came up when that was true.  

From a budgetary perspective, it’s standard practice to divide budgets into “capital” and “operating” expenses.  Construction of new buildings falls under “capital.”  Depending on the system, maintenance of those buildings is sometimes split between capital and operating.  The salaries of the people who work in those buildings fall under “operating.”

It’s much easier to raise money for capital expenses than for operating.  And sometimes the monies can’t be mixed.  In the public sector, “capital” funding often comes from bond issues, and those bonds come with conditions.  Sometimes the bonds are floated for statewide bundles of projects, as in New Jersey’s Chapter 12 program; sometimes they’re floated for specific buildings in specific places.  But either way, the money used for construction is earmarked specifically for construction; it cannot be redirected to salaries.  The logic is that a building is, at least in theory, a salable asset.  If all else fails, it could be repossessed or sold.  That doesn’t apply to people.

At that level, then, the objection that “the administration is spending money on buildings instead of people” is off-point.  If it tried to spend that money on people, the money would go away.  The funding isn’t fungible like that.  It comes with strings.

The more compelling objection, to my mind, is the animating assumption that supply creates demand.  Just because it often did, or seemed to, doesn’t mean it always will.  And when it doesn’t, you have a bigger problem on your hands than if you hadn’t built at all.  You have the maintenance and utility costs of the new building that will come mostly from the operating budget, and (sometimes) you have debt service on the bonds.  If you added staff to cover the new programs, you have those costs, too.  What looked initially like a chance to grow your way out of a fiscal problem becomes a fiscal problem in its own right.

In the past, too, enrollment growth necessarily entailed greater demand for physical space.  That’s not always true now.  At many community colleges, enrollment growth in online classes is happening alongside enrollment decline in physical classes.  The aggregate number can mask a decline in demand for physical spaces.  Dual enrollment programs can be similar; to the extent that they’re taught in high schools, they don’t make the same demands on the physical space of the college campus that other FTE’s do.

Context matters.  For colleges in places with population booms, building can make sense.  Building can make sense for high-demand programs with specialized needs, like Nursing.  On the other side, it’s true that sometimes colleges supplement bonded, granted, or donated money with operating dollars.  And depending on the system, the whole “salable asset” thing can be tricky.  In Massachusetts, for instance, community college buildings are owned by the state through an agency called DCAMM, and they can only be sold or disposed of by DCAMM, even if a campus itself wants to divest.  In that system, a college borrows against projected revenue streams to purchase an asset it can’t sell.  It’s...complicated.

Still, in the parts of the country where enrollment is likely to be flat at best for an extended period, I wouldn’t be surprised to see more colleges fall into the same trap that caught Burlington College and UMass Boston.  When those debt service payments come due -- from the operating budget -- and the revenue isn’t there, the math isn’t pretty.  The next generation of leaders needs to confront the new truth that even if you build it, they may not come.

Comments:
What you say is true, but only up to a point.

In my state, there are two sources for capital construction. There is money appropriated by the Legislature (line items for each project) and there is money borrowed by the college. In both cases the money can only be used for capital items such as buildings and furnishings, including equipment. However, in the second case, the general revenue you use to pay off the loan COULD be used for people. It is fungible. Ditto for the money used to manage and maintain it.

The "free" money from the state seems to go mostly to K-12 construction and universities, so we borrow more than we used to. That can be risky for the reasons you mention. An initiative that doesn't cover its loan payments can weigh down the entire school. But even "free" money has costs, including managers for the new facility as well as the operating expenses you mention. Both are hard to trim if you can't fill the building with students taking classes.
 
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