Policy-Induced Death Spirals - The PASSHE Story - Part 5

Last week we cited the apparent contradiction between: 1) Some PASSHE universities declaring severe financial distress, and; 2) Other PASSHE universities touting great financial success.  This week we will explain how both of those things are direct consequences of PASSHE’s current business model.

PASSHE’s Current Business Model

PASSHE’s business model has been in place since July 1, 1983—the day Act 188 took effect.  From that day until the present time some 30 years later, all key decisions affecting all 14 PASSHE universities have been made by 174 officials sitting on PASSHE’s 15 governing bodies, which includes one overall Board of Governors (BOG) with 20 members, and 14 local Councils of Trustees (COTs) with 11 members each.

The version of the bill that would later become law as Act 188¹ featured a “strong Board/weak Council” structure.  That is, almost all key decision-making authority was reserved to the Board of Governors, with very little authority granted to the local Councils of Trustees.

As evidence for the “weak Council” assertion, consider that under Act 188, Councils of Trustees get to approve all university financial expenditures—but weeks or months after they have already been made!  The greatest authority granted to Councils of Trustees may be the power to conduct annual evaluations of sitting presidents or, as vacancies occur, to conduct national searches to identify three unranked finalists for the job. But in both cases, their recommendations go to the Board of Governors for decision.

According to Dr. James McCormick, PASSHE’s first Chancellor (1984-2001), earlier drafts of the Act 188 bill had eliminated local ‘boards of trustees” entirely, even though they had previously existed at each one of the 14 PASSHE campuses for many years.  As Dr. McCormick explained it to the 14 University presidents, the decision to reinstate the 14 local “councils” (not “boards”) was made to preserve the 154 patronage opportunities that would otherwise be lost to politicians of both parties if the councils were totally eliminated.  Also, in Pennsylvania, a “council” ranks lower on the power hierarchy than a “board.”  

Act 188 Created PASSHE as Public Corporation

It is important to note that prior to the passage of Act 188 the 14 “state-owned” universities were part of the executive branch of Pennsylvania State government, with the presidents reporting directly to the Secretary of Education in the Governor’s Cabinet.  Also, prior to Act 188, the university presidents were themselves political appointees, nominated by the Governor and confirmed by the State Senate.

Act 188 created PASSHE as a ‘public corporation,’ meaning that the 14 presidents would, for the first time, no longer be political appointees. Rather, they would be selected through national searches, and would report to a Chancellor who would also be selected by means of a national search.

And while these aspects of the new law would turn out to be huge improvements, and while the law granted a much-needed taste of separation from direct political control, the public corporation now known as PASSHE would itself be governed by a 20-member Board of Governors whose membership consisted of five elected officials and 15 political appointees.

So while the presidents would no longer be political appointees, the presidents and universities would report to a chancellor who, in turn, reported to a board consisting of elected and appointed officials.

It was thought that Act 188 would provide a buffer between the 14 universities and direct political control sufficient to allow the PASSHE universities and PASSHE students to thrive.  In fairness, the law worked perfectly well for its first 19 years (1984-2002), but it has increasingly failed to work since 2002.²

But that failure did not occur because the law was changed—because it wasn’t—but rather because the Board of Governors since 2002, with its slowly evolving membership, has decided not to deliver the Act 188 statutory purpose of the PASSHE universities: “High quality education at the lowest possible cost to the students.”  Instead, the Board of Governors since 2002 has adopted a policy to maintain the lowest possible tuition (i.e., sticker price) rather than the lowest possible cost to the students (i.e., bottom line). 

This failure by the BOG to follow the law as written—when combined with the steady 30-year decline in State funding—has essentially starved the PASSHE system of universities for the funds needed to deliver PASSHE’s Act 188 statutory purpose, largely accounting for the BOG’s failure to deliver that purpose.
 
But the “Allocation Formula” which distributes the pool of State appropriation to individual universities basically sets the funding shares to the 14 universities so as to match their respective enrollment shares.  So if a few universities are able to grow their enrollments, they will effectively impoverish those that can’t, speeding up their mission failure and financial demise, and only temporarily postponing their own.  The data show unequivocally that without steadily increasing enrollments—which are not sustainable—each and every PASSHE university is headed for mission failure and bankruptcy in the near term. 

Punctuated Equilibrium

Since it began in FY 1984, PASSHE has enjoyed three decades of “policy stasis,” even as the underlying facts on the ground were dramatically changing.  Consider, for example: 1) FTE enrollments increased by 58%; 2) State funding per FTE student fell by 50%; 3) the State’s share of PASSHE’s budget fell from 63% to 25%; and 4) the share paid by students, parents and alumni donors shot up from 37% to 75%.³ 

During those three decades, PASSHE’s Act 188 policy framework was arguably one of the few things that didn’t change during that period.  And like steadily grinding tectonic plates, this ‘policy/reality disparity’ is a grinding inconsistency that portends powerful sudden change.

Pennsylvania’s key elected officials are not only deciding (legitimately) that State appropriation funding to PASSHE must be reduced, for valid demographic and economic reasons, they are also deciding (quite illegitimately) that PASSHE tuitions must also be kept low, for purely political reasons.

Taken together, these two decisions have created the “death spirals” that five PASSHE universities have recently encountered, and that the other nine will find it increasingly unable to avoid.  

¹ https://www.keepandshare.com/doc/6772880/act188-pdf-405k.

² https://www.keepandshare.com/doc/6794551/privatization-without-a-plan-chart-9-and-caption-january-23-2014-pdf-387k.
³ http://www.amazon.com/Privatization-Without-Plan-Leadership-Pennsylvania/dp/1491295244/ref=sr_1_1?ie=UTF8&qid=1407466669&sr=8-1&keywords=angelo+armenti.