Penn State Board of Trustees Meeting, July 2018: How do you increase tuition by over 6%, and claim a “Tuition Freeze”

 

Penn State Board of Trustees Meeting: July 2018

In this BLOG, we will focus on the Annual PSU Budget, and the impact on Tuition and Academics.

Other items of interest from the July meeting (including the re-election of Mark Dambly) will be covered in a separate posting.

 

The most trumpeted outcome of the July BOT meeting was the announcement of a “Tuition Freeze”.
And yet, Penn State Tuition Revenue is INCREASING by 6.3%.

How does this happen? 
What is really going on?
And what are the implications?

 

As I reported in an earlier   https://barryfenchak4trustee.wordpress.com/2018/05/21/penn-state-board-meeting-review-may-3-4-2018/ , Penn State’s annual operating budget (of $6.5 Billion) was passed by the Board of Trustees with no comments, no questions, and all  in under 10 seconds.

But read on, and in 10 minutes, I promise that YOUR understanding of the Penn State budget shenanigans will far exceed the level of understanding displayed by most of the members of your Board of Trustees.

Seriously….. and, Sadly.

 

The 2018-2019 Penn State Operating Budget can be found here:

Click to access 2018-19%20Proposed%20Operating%20Budget.pdf

 

What does it tell us?  What are the implications?

 

Let’s begin with a look at Penn State’s Tuition revenue:

Every story written about the July BOT meeting leads with the headline of:
“Penn State freezes Tuition for In-State Students at $17,416 per year.”

Now, will Penn State’s In-State undergraduate students face the same tuition charge they faced in 2017-18?

Yes, they will……. But that is just the beginning of the story – – – – and FAR from the most important part of the story.

As an aside, it bears mention that the actual annual cost of tuition for In-State students is not $17,416.   We have discussed this in detail in another post, but the bottom line is that the average tuition for In-State undergraduates is not $17,416, but rather $19,646 per year.    This smoke-and-mirrors game is accomplished by:

1. Taking mandatory expenses for every student (that are billed within their tuition bill) and calling them something other than Tuition.   This amounts to over $1,000 per year of mandatory expenses to your students – – – – but they are not reported as “Tuition”.   No different than if they separated out the portion of the tuition bill that goes to paying your students’ Instructors, and calling it “Educational Interface Costs”, and then saying that THAT part of their bill was NOT “tuition”.
   When the Administration is being that disingenuous – in trying to mislead their “customers” – red flags should be raised and warning sirens should be sounding.
   And:
2. Increasing the annual Tuition charge for students as they accumulate more credits (charging more to Juniors and Seniors).   Penn State has instituted an accelerated tuition schedule – wherein students pay higher tuition as they proceed through their academic career.   Upperclassmen now pay as much as $5,000+ MORE per year (depending on their College of enrollment) than do Freshmen.  However, Penn State – when they broadcast their tuition rates – generally cites only the Freshmen rate.
   Again: When the Administration is being that disingenuous – in trying to mislead their “customers” – red flags should be raised and warning sirens should be sounding.
   

Smoke-and-Mirrors?
Penn State Administrators are Master-Level Magicians.

Now, knowing how Penn State operates, lets take a closer look at the “Tuition Freeze”:

From SCHEDULE III of the Operating Budget linked above:

 

Tuition Revenue:

2017-2018: $1,865,177,000
2018-2019: $1,983,190,000

Increase:  $118,013,000

 

That is an increase of 6.3% in Tuition Revenues (to Penn State);
A 6.3% increase of Tuition Costs (to Penn State Students).

How does that happen in the midst of a “Tuition Freeze”?
A closer look at the Budget reveals the answers – – – – and the answers are not pretty.

As with any Business (including “Penn State Inc”), there are only so many ways to increase revenues:

Make more sales (increase the number of students)
or
Increase Prices (increase the average tuition charged per student)

How did Penn State increase tuition revenues by over $100,000,000?
The Budget gives us the answers:

From the Footnotes (Footnote “O”) to SCHEDULE III of the Budget:

Of the $118,013,000 Increase:

$6,225,000 comes from Increasing Enrollments.  Most of this is from enrolling more students year-round, and – to a lesser extent – increasing the number of existing students who take Summer Session classes (largely by requiring mandatory Summer Session from incoming Freshmen).

$1,123,000 comes from increases to Mandatory Fees that are not called Tuition (as discussed before).  This effects all students, In-State, Out-of-State, Upperclassmen and Freshmen.

$1,000,000 comes from a surcharge for International Students.

Approximately $30,000,000 comes from the increased tuition rates – largely on Out-of-State students.   Tuition rates did not “Freeze” for these students, but increased by 3.6%.

Taken together, all of these increases amount to $38,423,000…….
What of the remaining $79,590,000 increase from 2017/18 to 2018/19?

There is but one remaining option for Penn State:

Replacing In-State Students with higher-paying Out-of-State Students.

And:
This method –  swapping an In-State student (at ~ $20,000 per year in revenue), for an Out-of-State student (at ~$37,000 per year in revenue), and increasing their income per student by 85%…. is a lot more “profitable” for the PSU Administrative Bureaucracy, versus increasing In-State tuition by a few percent.

It is very important to note:
This is NOT simply ADDING more Out-of-State students to the existing numbers of In-State students.  Penn State has reached the point were total enrollment, on all campuses, is essentially static….. What we ARE seeing is the REPLACING of In-State students, with those willing and able to pay the Out-of-State costs.

Every time Penn State increases their Out-of-State composition by 1%, they fatten their purses by $17,000,000 MORE PER YEAR.

 

Over the last several years, at the University Park Campus, the Out-of-State composition of the Student Body is nearing 50%.

Moving from a 20% to a 50% Out-of-State composition would add $510,000,000 of “free money” to the Penn State Administrative coffers…… EVERY YEAR.

Now, if Penn State were some Private University, or one of the new “For Profit” Corporate Universities, one might applaud their efforts to sell off seats to the highest bidder – – – – based on ability to pay above all else.

But Penn State is NOT a Corporate University.

Penn State IS THE Land Grant University for the Commonwealth of Pennsylvania – Who’s Charter established the Mission of provided quality, affordable education to the Sons and Daughters of the Commonwealth.

Penn State’s continuing efforts to replace In-State students with Out-of-State students, based on their willingness to pay higher fees to Penn State Administrators, is not only a violation of Penn State’s Mission and Obligation as the Commonwealth’s Land Grant institution, but also has contributed to Penn State’s declining academic profile.

 

Much of the focus was on the Tuition issues, but the annual budget also provides insight into many other areas of the University.

We won’t take the time and space to review each line item, but a few of the most critical and impactful issues that SHOULD HAVE BEEN discussed by the Trustees – – – but were not:

Academic Salaries:

Penn State, as is their tradition, included a “study” of where the University ranked with regard to salaries for the Academic side of the house – Professors, Associate Professors, and Assistant Professors.

Penn State ranks with the upper half of the Big Ten Conference with regard to average salary of these three categories.
These are CRITICAL positions for any University – as the Professors are the point men (and women) with regard to fulfilling the University’s primary missions – Education and Research.
However, just as with “Tuition”, this is only the beginning of the story – and not even the most important part.

Throughout the Big Ten, salaries for comparable positions are relatively similar.
There is very little difference between the salary of a Mechanical Engineering Associate Professor at Penn State and a Mechanical Engineering Associate Professor at Purdue (or Illinois, or Wisconsin, etc).
Where there is a HUGE discrepancy, however, is between the different positions – for example, between a Professor and an Assistant Professor….. or between an Assistant professor and an Adjunct Instructor.

Here is where one can determine if the University is  prioritizing its missions of Education and Research.

Just as there is a huge “profit” to be made by converting In-State students to Out-of-State students, there are huge “profits” to be made by utilizing lower-level Academics (Adjuncts and Assistants) as opposed to more experienced, highly-qualified Professors.

Penn State utilizes a far lower percentage of full Professors – when it comes to Educating students – than many of their peers (both in the Big Ten, and the region).

For example:

Despite having 50% MORE students, Penn State has FEWER full-time faculty than the University of Michigan…… and of those faculty, those at Penn State are TWICE as likely to NOT have achieved a PhD.
The University of Pittsburgh has 40% MORE full-time faculty per student than Penn State…. and Penn State faculty are THREE TIMES more likely to NOT have earned a PhD.

 

All of those dollars being procured from the students…. Where are they going?

NOT to support the Academic and Research missions of the University… that is plainly obvious.

And – as outlined in the budget – it is only getting worse.

 

The only “cost savings” initiative in the entire $6.5 Billion budget is a line item declaring:

“Internal Reductions:  $36,490,000”

And what are those “Internal Reductions”?

They are primarily from savings projected by an Early-Retirement System – providing incentives to remove older, experienced Professors from the Academic Colleges, and replacing them with less-experienced, and less qualified Adjuncts, Instructors, and Assistant Professors….. at much lower salaries.

While, at the same time, continuing to bloat the Administrative ranks with more and more freshly created positions…. and at higher and higher levels of compensation.

It is – unfortunately – all there in black and white.

Alas.

There is much more to see in these budgets…..

1) The Total General Funds Budget increased by 4.5% (From $2,682,869,000 to $2,803,071,000)…… but the budget for Instruction and research increased by only  0.8% ($807,709,000 to $814,367,000)

2) The fact that, even with the “In-State Tuition Freeze”, Penn State ranks HIGHEST in In-State Tuition in the Big Ten.

 

 

 

3) Despite increases in this year’s budget, Penn State continues to rank LOWEST in Student Aid provided per student.

4) Penn State ranks HIGHEST in the Big Ten in Salaries paid to top Administrators…. and included even more money this year to provide “Market-Based” increases to those salaries – over and above the rates available to other, less highly-compensated, employees

I will write more on some of these specific items in future BLOGs….. unfortunately, this may be the only opportunity to discuss these issues – most of the members of your Board of trustees do not appear to have either the Knowledge, or the Ability, or the Interest to do so.

 

Also – this Budget, the one approved in July, is the Operating Budget…. NOT the Capital Budget.

The Capital Budget – money spent on construction and long-term projects – is a separate issue, with a separate budget, and different (but equally important) implications.   Particularly with respect to the long-term levels of University Debt and the long-term fiscal viability of the University.
Not to mention, a HUGE Honey Pot of cash ripe for attack from the grifters and Con-men who are naturally attracted to the opportunity to grow fat from Other People’s Money.

I will cover those issues in a future BLOG.