A Metaphor for PASSHE’s Business Model
As shown last week, growing enrollments can keep a few of the 14 universities temporarily solvent, but only by impoverishing all the others.¹ This situation is occurring only because the PASSHE system as a whole has been “sinking,” financially speaking, since 2002. An apt metaphor for the few “temporarily-succeeding” PASSHE universities might be a few dogged passengers climbing on the backs of their less fortunate companions to reach the higher decks on what is, unfortunately, a sinking ship.
Years of PASSHE Money-Hoarding
It is quite obvious from official PASSHE data² that some of the PASSHE universities have been hoarding large sums of money for many years—with the tacit approval of the Board of Governors and the Office of the Chancellor—and at dollar levels and percentages of revenue that are clearly much higher than those permitted by BOG Policy 2011-01: University Financial Health.³ In fact, 12 of 14 PASSHE universities in FY 2011 showed fund balances higher than, and in some cases much higher than, 10%.
From its beginning on July 1, 1983 until passage of this BOG policy on April 7, 2011, PASSHE operated without a written policy on the amount of money that individual PASSHE universities should retain in “fund balances.” By definition, a fund balance operates the same as a savings account attached to a checking account does. So if your total deposits for the month exceed the total of checks written that month, the surplus would go into your “savings account,” or “fund balance.” If for next month the total of your checks exceeded your deposits, you would ‘dip into’ your fund balance to cover the shortfall.
In the early 1990s, PASSHE circulated a “Draft Policy” on fund balances that required the universities to maintain a fund balance between 4% and 8% of the current year’s revenue. And although that draft policy was never promulgated, BOG Policy 2011-01 formally mandated a slightly higher fund balance range—between 5% and 10% of the current year’s annual revenue.
Strangely, this same BOG Policy 2011-01 also calls for maintenance of an annual “operating margin” of between 2% and 4% of revenue. This means that presidents are expected each year to spend only 96% to 98% of their current revenue. Note the peculiar and inherent contradiction between the “fund balance” provision and the “operating margin” provision of the very same BOG policy. The first limits how much money you can save going forward; and the second effectively forces you to save every year!
Any university that successfully met the operating margin requirement each year (saving between 2% to 4% of annual revenue) would inevitably violate the fund balance requirement (keeping the fund balance between 5% and 10% of current revenue), and vice versa.
For example, a university starting with a “minimal” 5% fund balance, and a 2% to 4% operating margin would exceed the 10% fund balance limit in just two or three years! A university at the maximum 10% fund balance would immediately go over that limit the first time they recorded even the minimum 2% operating margin! So in order not to violate the maximum 10% fund balance limit, such a university would have no choice but to violate the minimum 2% operating margin requirement!
In view of the contradictions, one wonders how the PASSHE Board of Governors and the Office of the Chancellor ever intended to administer such a conflicted policy. The data suggest that they avoided all contradictions by simply enforcing only one-half of the policy (operating margins) while ignoring the other half (fund balance limits), thereby encouraging still more and more PASSHE money-hoarding.
The PASSHE BOG Ignores
the Fund Balance while Enforcing the Operating Margin Provision
Between FY 1997 and FY 2011, the total unrestricted net assets² (fund balance) for PASSHE, including the 14 universities and the entity known as the BOG-OOC, grew by a whopping 261% (from $141,693,575 to $511,028,132), meaning PASSHE’s total fund balance grew at an average annual rate of 9.61% per year for 15 years. But that was before the new BOG policy took effect.
BOG Policy 2011-01 took effect on July 1, 2011, the very first day of the 2011-12 fiscal year. While one might have expected to see at least a slowing down of the rate of growth, if not an actual decrease in the size of PASSHE’s fund balance, official PASSHE data show that during the BOG Policy’s first year, PASSHE’s total fund balance grew to $584,209,183, a one-year increase of $73,181,051, or 14.1%. This one-year increase was even greater than PASSHE’s average increase during the previous 15 years. Even at the lower (9.61%) rate of annual growth, PASSHE’s fund balance could top $600 million for FY 2013.
Direct Evidence for
the Impoverishment of the Many by the Few
Recent news articles have described a plan that would enable West Chester, Bloomsburg and possibly other PASSHE universities with more than 7,000 students to move to state-related status.⁴ A fund balance comparison for the 14 PASSHE universities for FY 2012 and FY 2013 is very telling.
Financial records recently obtained by a Right to Know request from
PASSHE⁵ confirm that between fiscal years 2012 and 2013, West Chester and
Bloomsburg universities together added
a total of $18.3 million to their unrestricted net assets (fund balances). At the same time, Clarion, Edinboro,
Mansfield, East Stroudsburg and Slippery Rock universities subtracted a total of $12 million from their fund balances. This is direct evidence for how the PASSHE
allocation formula shifts funds to a few PASSHE universities with growing enrollments,
while simultaneously impoverishing five PASSHE universities that had publicly
declared financial distress in the fall of 2013.
² https://www.keepandshare.com/doc/6758271/official-passhe-data-on-unrestricted-net-assets-for-fiscal-year-2011-july-14-2012-pdf-315k.
³ https://www.keepandshare.com/doc/7308027/bog-policy-2011-01-university-financial-health-pdf-96k.
⁴ http://www.post-gazette.com/news/education/2014/03/06/Proposed-legislation-would-grant-more-autonomy-to-state-owned-universities/stories/201403060289.
⁵ https://www.keepandshare.com/doc/6848404/passhe-2012-13-unrestricted-net-assets-march-10-2014-pdf-87k.
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