Policy-Induced Death Spirals - The PASSHE Story

A Matter of Definition

 
The term “death spiral” is used in many different contexts including finance, accounting and aviation, to name a few. In this blog post, we will use that term to describe what can happen—and in fact what has been happening—to six universities so far that are part of a system of 14 “public” universities known as the Pennsylvania State System of Higher Education (PASSHE).
 
The PASSHE universities include Bloomsburg, California, Cheyney, Clarion, East Stroudsburg, Edinboro, Indiana, Kutztown, Lock Haven, Mansfield, Millersville, Shippensburg, Slippery Rock and West Chester.

In finance, the term “death spiral” is used to describe a situation in which certain provisions in the debt financing agreement can cause a company’s stock price to fall dramatically, often leading to bankruptcy.

 
In accounting, the term “death spiral” describes a situation in which a company eliminates some of its product line to “save money” but creates excess capacity in the process.  Unless the company also reduces its fixed overhead, additional product cuts become necessary, and the death spiral continues.
 
In aviation the term “death spiral” describes a situation in which a pilot, deprived of visual clues as to the actual location of the horizon, becomes deceived by his vestibular (inner ear) system into thinking the plane is still flying level when, in fact, its wings are becoming increasingly vertical as it spirals rapidly downward, in tighter and tighter horizontal circles, much like water spinning down a drain.
 
For universities the term “death spiral” refers to situations in which those institutions perform ever more negatively in response to policy decisions that are mistakenly believed to improve a problematic situation when, in fact, those policy decisions actually make the situation in those universities worse!
 

The Aviation Death Spiral

Additional insights into university death spirals may be found in the long-studied and well-understood causes of the aviation death spiral.  In that case a pilot who for whatever reason, can’t see the horizon notices that his altitude is falling and, mistakenly believing that the airplane’s wings are level, does what would normally increase the plane’s altitude—if it is flying level—just pull back on the stick!

 
But whenever a plane’s wings are not level, the flight path is not straight but follows a turning motion, or circling, which is also accompanied by a loss of altitude whose rate of descent increases with wing tilt. So if the pilot mistakenly pulls back on the stick in such a situation, rather than making the plane climb, that action steers the plane into an aviation death spiral in which the radius of the turning motion gets smaller and smaller, the tilt of the wings gets steeper and steeper, and the rate of descent gets faster and faster.  Unless the plane returns to level flight before pulling back on the stick, calamity ensues.  
 
That reportedly is what caused the crash that killed John F. Kennedy, Jr., his wife and sister-in law in July of 1999.  Kennedy was qualified for Visual Flight Rules (VFR), but was not qualified for Instrument Flight Rules (IFR).  So in a flight scheduled for a sunny afternoon, various delays caused takeoff to be delayed until after sunset, in what then turned out to be a night flight over water, with reported conditions of haze and poor visibility, which obscured the horizon and likely overwhelmed an inexperienced pilot.
 

The PASSHE University Death Spirals

In the four month period between August and December of 2013, five of 14 PASSHE universities— Clarion,¹ Edinboro,² Mansfield,³ East Stroudsburg⁴ and Slippery Rock⁵—publicly declared financial distress, ballooning deficits and layoffs of tenured faculty.  On July 4, 2014, Cheyney University⁶ announced the abrupt retirement of its president, with news reports quoting official sources stating that Cheyney’s deficit had more than doubled to $14 million in the last seven years.

A similarity in media accounts of these six PASSHE universities—and especially a similarity with regard to their ballooning debt—suggest a similarity in the root causes of their financial distress.

 
An analysis of the fundamental expense patterns of the 14 PASSHE universities over the fiscal years 2004 to 2010 showed⁷ that PASSHE’s financial business model was unsustainable in the following sense: 1) If all 14 PASSHE universities maintained constant enrollments, all fourteen would encounter unavoidable mission failure and financial bankruptcy in the near term! And,

2) One or more of the 14 PASSHE universities could avoid near-term mission failure and financial bankruptcy, but only by growing their enrollments year after year.  Only in that case could one or more universities temporarily forestall their own bankruptcy, while impoverishing sibling institutions laboring under fixed or declining enrollments, while thereby hastening their financial bankruptcy.

 
The financial death spirals that have already claimed six PASSHE universities, and will eventually claim all fourteen, is caused by a defective business model that, in turn, is caused by years of well-meaning but destructive policy decisions at the System level that drive PASSHE’s flawed business model.
 
Like the pilot who can’t see the horizon, the authors of those damaging System-level policies who think what they are doing will make the situation better when in fact they are making it worse, are exhibiting a different kind of “horizon blindness,” not a physical blindness based on faulty signals from an inner ear, but on “political blindness,” the willful disregard of fiduciary duties and the realities of demographic and economic forces, for the sake of currying favor with the elected officials who appoint and reappoint them to their positions of power.          
 
¹ http://www.pennlive.com/midstate/index.ssf/2013/08/clarion_university_restructuri.html.  Penn Live, August 16, 2013.
² http://www.post-gazette.com/education/2013/09/11/Edinboro-University-plans-faculty-program-cuts/stories/201309110152. post-gazette.com, September 11, 2013.
³ http://www.pennlive.com/midstate/index.ssf/2013/09/mansfield_university_becomes_t.html. Penn Live, September 26, 2013.
⁴ http://www.post-gazette.com/news/education/2013/10/30/East-Stroudsburg-is-fourth-state-owned-Pennsylvania-university-to-announce-cuts/stories/201310300139. post-gazette.com, October 30, 2013.
⁵ https://www.keepandshare.com/doc/6756902/tribune-review-december-24-2013-slippery-rock-university-facing-10-million-deficit-possible-l. Tribune-Review, December 24, 2013.
⁶ http://www.philly.com/philly/hp/news_update/265762741.html.
⁷ http://www.amazon.com/s/ref=nb_sb_noss?url=search-alias%3Daps&field-keywords=angelo%20armenti.