Understanding the fiscal resiliency landscape in higher education

This blog summarizes key takeaways from our fiscal resiliency podcast series, episode one.

While COVID-19 has created a challenging time for colleges and universities, the current landscape also positions institutions to evolve and potentially improve their fiscal resiliency.

Resiliency is not just a matter of financial health. It’s a mindset by which higher education stakeholders can position their institution to continue to fulfill its mission while supporting long-term student and institutional success, including fiscal sustainability.

Institutions in distress

A recent study by The Hechinger Report showed that more than 500 colleges and universities were already showing signs of financial distress prior to COVID-19. These institutions, like many organizations across the country, face serious challenges with no easy answers regarding how to remain viable.

COVID-19 has resulted in complex circumstances for colleges and universities, although fiscal pressures and uncertainty have existed for many institutions for years. Factors such as affordability concerns, decreasing enrollment, increasing operating costs and the ever-expanding nature of higher education service expectations are not breaking news to colleges and universities. However, these pressures, collectively, combined with the uncharted environment created by the global health crisis, mean that now is the time for thinking differently about the “what” and “how” to achieve the institutional mission.

Positioning an institution to survive the current pandemic requires an intentional approach in order to avoid drastic consequences.

Conversations, challenges and concerns

The conversations among college and university leaders are more difficult these days. In many cases, after years of status quo decision making, leaders are considering key questions such as:

• What are we known for?
• What key programs differentiate us?
• Is there market permission long-term for the priorities we are focusing on and the programs we do best?
• What is our current academic and geographic footprint, and what should it be?
• Are we using our resources to their highest degree in support of our priorities and in alignment with our market permission?

A unique opportunity in these conversations is that the environment creates an implicit case for change. Stakeholders currently expect colleges, universities and systems of higher education to pursue alternative means and methods for connecting with students, safely engaging the expertise of faculty and enhancing accessibility and programming options. Right now, nothing is off the table.

So, what types of changes are institutions considering in the current environment?

• Shared academic programs – Students and faculty on different campuses are sharing academic programs, resources and support services.
• Inter-institution partnerships – Some universities are considering program-specific affiliations or even strategic combinations of their entire institutions, essentially bringing together their physical footprints with their academic and administrative expertise to create something new and more responsive to market demands.
• Shared back office and administrative functions – Institutions are consolidating these functions while enhancing what they currently have to achieve better service, cost effectively.
• Focusing footprint and asset allocation on core mission – Colleges and universities are eliminating programs or services that are not at the core of what they do as an institution of higher learning. Instead, they are contracting with community businesses and corporate entities to collaborate in areas outside their expertise.
• Community-based partnerships – Many institutions are leveraging their areas of expertise in creating workforce pipelines and hands-on career development opportunities with community-based partners (e.g., health systems, senior living entities, etc.) by further leveraging capital assets (physical and human) in joint ventures and agreements. 

Naturally, with any plans to change and evolve come a list of barriers that get in the way. As leaders reimagine the future, institutions encounter barriers such as:

• The cash – Change is not cheap and new programs often cost time, money and resources that don’t exist at the moment.
• The mindset – Campus stakeholders and even senior leaders sometimes do not see the benefits of making changes, particularly during an already uncertain time.
• The fear – It can be daunting for higher education leaders to make changes, particularly when so much is at stake.
• The perceived roadblocks – Common reasons given by institutions include a hesitance to change due to the “history” of existing systems, programs and even athletic conferences.

How do institutions overcome these barriers? Focus on intentional steps and stated outcomes that move them closer to achieving their missions long-term. Change in support of resiliency must consider the bottom line, and more importantly, how a shift in focus, strategic priorities and asset allocations will accomplish the desired student and institutional performance outcomes. For example, if a college must achieve higher enrollment that translates into greater net tuition per student, to what programs does market interest point? What specific academic support components should be embedded to drive consistent gains in student retention within these programs? And which community partners may be better positioned to help support students?   

The mindset during this time needs to be, “What are we going to evolve that furthers our vision or positions us more favorably?” not, “What are we trying to eliminate?”

Fiscal resiliency – where do universities go from here?

Consider two primary lenses when assessing the fiscal resiliency required to achieve mission resiliency:

1. A short-term focus on cash and liquidity concerns so many collegiate leaders right now. Making payroll can be daunting if you have endured significant room and board refunds within a short period of time like many institutions have and therefore don’t have significant reserves.
2. From a long-term perspective, the institution needs to balance its multi-year revenue with its committed expense levels, and support continued investment in new programs and approaches to remain market-relevant and interesting to shrinking student populations.   

The key question: How do we keep an eye on all the drivers of our student and institutional success, ensure approaches to inform our decisions as leaders and help our institution (and its stakeholders) succeed from mission and fiscal resiliency perspectives, both today and into the future?

Arriving at the answer to this question now will provide a big advantage. Gain alignment on what defines success from a resiliency standpoint, the steps necessary to navigate the present and a focus on creating sustainability moving forward.

For more information, or to learn how Baker Tilly higher education specialists can help, contact our team.