STEPS TO BOOST REVENUES & CONTAIN COSTS

AT UNIVERSITY OF ALASKA

Presentation to: Audit Committee

Ashok K. Roy, Ph.D., CIA, CBAVice President for Finance & Administration/CFO

September 2013

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“It is not the strongest of the species that survive, nor the most intelligent, but the ones most

responsive to change.

------- Heraclitus, Greek Philosopher

Winston Churchill said, “Success is never final.” Success is something that is constantly reinvented.

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“The essence of strategy is to know what not to do”.

----- Michael Porter, Harvard University

“Let us in education dream of an aristocracy of achievement arising out of a democracy of opportunity”.

-------Thomas Jefferson

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“Plans are nothing; planning is everything.” ------ General Dwight Eisenshower

“The greatest danger in times of turbulence is to act with yesterday’s logic.”

------ Peter Drucker, arguably the leading management guru of the 20th Century

The time to prepare for bad weather is before it reaches you.

Resources do not constrain an organization, imagination does. No university today has the resources to pursue all aspects of

intellectual inquiry.

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The Cost model challenge: between 1988 and 2008, while CPI rose 75%,

tuition for public four year institutions increased approximately 325%. (source: College Board, Trends in College Pricing, 2009.) Clearly, this is unsustainable.

The Funding model challenge: pressure on state support for higher education. UA is an exception to this with 46% of its FY14 revenues coming from the State.

The Expenditure model challenge: At present, graduate education is subsidized by undergraduate education; and upper-division courses are subsidized by lower-division courses. We spend almost 4 times as much for doctoral education as we do for the first two years of college. The first two years of college account for 60% attrition. In other words, we see all of our failures at the lowest levels, and spend all of our money at the highest level. Problems and issues in education are often not susceptible to simple answers or binary logic.

The 3 major Financial challenges at universities:

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Revenue profile: $880.8M

State Appropriations: 46% (nationally: 10% - 30%: University of Iowa gets 12% from the state, NMSU gets 23% from the state)

Tuition/Fees: 16% Auxiliary: 5% Interest income: 0.1% Indirect Cost Recovery: 3.9% Grants: 15.5 % University receipts (endowment revenues, etc.): 10.2% MHTAAR, CIP: 1.5%

UA (FY14)

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Expenditures profile: $880.8M

Salary& benefits: 60.1% Contractual Services: 19.7% Commodities: 8.2% Equip./land/building, etc: 9.1% Travel: 2.8%

UA (FY14)

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Based on experience what follows is a virtual smorgasbord

of un-prioritized and un-evaluated options.

There is no one magic bullet. We would have to integrate a combination of options taken from the following pages:

What follows is an Anthropology of Ideas through what is called “Forward Policy guidance”.

This briefing is meant to focus our creative thinking on the spectrum of initiatives that will loosely bound the domain of our future efforts at transformation.

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WAYS TO INCREASE REVENUES

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a) Virginia Tech University took an unorthodox approach

to raising and distributing new revenue. It admitted several hundred additional students to its engineering college. The enrollment growth is designed to allow the engineering college to hire additional faculty and staff (41 new faculty) and produced $8M in revenues.

b) Identify, scaling of viable programs.

c) Expand branding, licensing & affinity (merchandise, advertising & sponsorship)

1) Think Outside-the-box:

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d) Enrollment increase-focused sports teams.

e) For capital funding think outside-the-box…….Ohio State University issued 100-year “Century Bonds” ($500M in debt that will mature in 2111 at 4.6% interest rate locked in for a century), as has University of California Berkeley.

f) Generate cash flows from underutilized space, e.g. How about leasing the UAF farm to an enterprising farmer for a high value commercial crop?

1) Think Outside-the-box:

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59% of colleges and universities have restructured their online

education programs. (e.g. University of Arkansas, Central Missouri State University, University of Minnesota).

Ramp up our online programs.

Online dual enrollment programs (articulation agreements with out-of-state community college/universities).

Turnkey home-school curriculum.

2) Restructure online Education

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Weekend course Master’s.

Stackable certificates.

Customized corporate training.

Online remedial programs.

Seniors enrichment programs (mark to market audit fees).

2) Restructure online Education

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Set up a central online course portal for all online degree

programs (e.g., University of Wisconsin, Penn State University) to have better technology synergy and efficiencies, marketing, friendly to potential students from around the world.

Most public universities around the country are charging roughly the same tuition for their booming online programs even though the costs are typically far lower according to Bloomberg News. Most universities spend $3,000 - $12,000 annually per online student depending on the program’s size and level of services according to Boston-based Parthenon Group.

2) Restructure online Education

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The University of Texas at Arlington has become the nation’s

largest public university Nursing program without expanding its faculty of circa 50 professors and 100 clinical instructors with over 5,000 students in online programs.

Arizona State University Online, a revenue-sharing relationship between Pearson and Arizona State yielded a $6M profits/ excess revenues.

In September 2012, Indiana University announced a $8M investment to design online materials across its 8 campuses; Cal State Online announced an agreement with Pearson.

2) Restructure online Education

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In 2012 , 43% of universities were looking at privatization

for long-term revenues. (e.g. dormitories and student housing).

Examples: student housing, mixed-use developments with P3 strategies; SMART classroom rental, Faculty housing co-development projects. More public-private development and tax-exempt financing are to renovate aging facilities and infrastructure and additional facilities. The private company provides 100% of the financing for the project….university retains ownership of land through life of the lease and gains title to project upon lease expiration.

3) Privatization

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Events Rentals.

Facilities maintenance and grounds keeping.

Examples of Public-private partnerships:

• West Virginia University ($90M for student housing), • University of Kentucky (601-bed $25M new dorm), • Rutgers University ($295M for combined heating, cooling

and power system), • University of Nebraska ($14M for new health center).

3) Privatization

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4) Leasing campus facilities to private entrepreneurs to

operate businesses (e.g., fast food restaurants).

5) Auxiliary Services Increase demand while reducing fixed costs.• Premium-priced food (e.g., organic food stations, library

coffee shops).• Textbook rental service.• Community interest bookstore.• Exclusive vending rights.• Payment in kind advertising.• Naming rights --buildings, grounds, halls, labs, centers, etc.

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e.g., Arizona State University (23% come from out-of-

state), Coastal Carolina University in Conway(48% come from out-of-state), Michigan Technological University in Houghton (22% come from out-of-state), Montana State University in Bozeman (33% come from out-of-state).

At Indiana University in Bloomington the 2012-13 tuition was $10,033 in-state and $31,483 out-of-state with 29% coming from out-of-state. Annually, circa 250,000 students come to U.S. universities from China and India alone. (UA out-of-state is 7% for freshmen in fall 2012).

6) Recruit more out-of-state students

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Note: None of these towns (Conway, Houghton,

Bozeman, Bloomington etc.) are large or destinations.

Out-of-state students also help the local economy (e.g., Chinese students contribute $5 Bn to the U.S. economy). North Dakota’s two universities kept tuition low and marketed themselves to potential students in more populous states such as Minnesota….as a result, despite a fall in the number of the state’s high school graduates the number of full-time students attending rose.

6) Recruit more out-of-state students

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Third-party recruiting agents

Condensed ESL programs

Foreign-born faculty recruitment trips

Community college recruitment teams.

6) Recruit more out-of-state students

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Faculty expertise database.

Since 2000, here has been a 50% increase in number of U.S. students enrolling in Canadian universities. Students want a high-quality education at a modest price – scope for UA to get more out–of-state students.

Workforce development and training opportunities.

6) Recruit more out-of-state students

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63% of universities see enrollment increases as part of long-term revenue

growth strategy. More students into classes (58% universities report larger sections).

Notes: a) UA enrollment decreased 4% from fall 2011 to fall 2012.b) According to projections, Alaska will have smaller ( 3% - 7% fewer) high school

graduating classes for most of next decade, and • 1% growth in UA enrollment generates circa $1.3M additional revenues.• 1% growth in Retention generates $120,000 in additional revenues.• 1% increase in Alaska’s annual high school graduation rate yields circa 2%

(or 70 more) increase in the fall first-time freshman at UA.• If all 70 students attended full-time (12 credit/semester or 24 credits/year),

additional revenue will be $260,000 per year.

There has to be a coordinated, aggressive marketing strategy by UA within and outside Alaska.

7) Increase enrollment

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• Market-based/ premium tuition for graduate programs which are more

expensive and popular.

• A total of 143 public universities or colleges already have differential tuition (source: Cornell Higher Education Research Institute), for engineering, business, or nursing to make the price students experience align more closely actual instructional costs, eliminating the implicit cross-subsidy that results from charging similar prices.

• Oregon legislature recently unanimously approved a bill which would allow students to attend in-state public universities at no immediate costs in exchange for 3% of their annual earning for 25 years after they graduate.

• (There are many forms of differential tuition in common use today in addition to graduate vs. undergraduate; in-state vs. out-of-state, etc.)

8) Tuition increases

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9) Increase role of soft money (grants, private donors,

foundations) .

10) Have industry partners who will share payment of salaries of faculty with university (e.g., University of Connecticut, Iowa State University).

11) Increase Summer revenues (approx. $16.2M for summer semester 2012 without tuition discounts) by giving incentive to faculty…..students will also graduate quicker.• Independent study summer sessions.• Study abroad makeup courses.• High-demand majors pre-requisites fulfillment/general education

requirements blended courses.

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12) Vacancy lags.

13) Temporary institutional fees

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Almost all universities have significant capital

campaigns (to raise a specified sum within a defined period). Increase Giving across all sectors; new million dollar contributions; new endowed scholarships, first-ever grants from foundations, etc.

36 universities (including many public universities such as SUNY, CUNY, Virginia, Indiana, Pittsburgh, Nebraska, Texas) have had successful Billion dollar capital campaigns. University of Virginia at Charlottesville recently completed a $3 billion campaign.

14) Increase Fund raising/ philanthropy significantly.

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15)Market our Printing services to outside businesses to

increase bottom line. Example, University of Missouri

16)Make money by outsourcing services. Examples:

• Ohio State University recently leased its parking for 50 years for $483M.

• Texas A&M University recently privatized its dining, landscaping and building maintenance in a contract to yield $260M in cash and savings.

• Indiana University is currently evaluating a 30-50 year lease of its parking for up front payment of $250M.

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17)Income from invention royalties by pushing faculty to

patent and commercialize. Examples: University of Minnesota, University of Iowa and others earn significant amounts. Northwestern University in Illinois earned $191M in licensing income in 2011.

18) Increase Research dollars: UA FY12 research expenditures were $136M. As funding from the NSF, NIH, and others become more “targeted”, UA should look more at “Classified” research as other universities are doing (examples: University of Delaware, University of Maryland).

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19)Try Responsibility Center Management (RCM) in budgeting. Over

50 universities use this model now. Under the RCM model (vis-à-vis traditional top-down incremental budget model in which increments are added to the current “base”), the CFO delegates to individual academic units the control of revenues in exchange for financial responsibility including indirect costs. (e.g. University of Michigan, University of Minnesota, Indiana University, University of California at Berkeley, Iowa State University, UCLA.)

20) Increase Master’s Programs. The master’s degree, often priced starting at $20,000 to $30,000, is seen by many universities as a moneymaker in time of fiscal strain. It is seen by students as a ticket to promotions or new careers. From 2000 to 2012, the annual number of Master’s degrees issued has jumped 63% per federal data.

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WAYS TO REDUCE COSTS

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1) Consolidate departments and services to avoid duplication of

personnel and efforts within each MAU and among the MAUs. Given the limited and decreasing pool of high school students in Alaska, in order not to compete and split up among MAUs the same dollars (from the state and tuition) look at expanding the “lead” MAU concept we use for nursing(such as: engineering at UAF, nursing at UAA, education at UAS). Having such “branding” will enable the MAUs to better compete for out-of-state students and eventually get ranked nationally in US News & World Report, etc. All universities try to do that because potential students look at college rankings in deciding which school to attend.

Consolidate

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2) More analysis of our procurement requirements in order to: consolidate

contracts for services that are used by multiple departments, and require use of state contracts.

3) Postpone new programs and initiatives that do not have a clear business plan for sustainability once initiative or grant funding has expired.

4) More use of web conference software to use, where appropriate, to decrease travel costs. Better utilization of Alaska Airlines miles earned (EasyBiz).

5) Increase use of term or temp positions (to be careful that hourly thresholds are monitored for compliance with BOR policy and insurance requirements related to the upcoming health care act.

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6) Outsource more services using cost-benefit analysis

(benefits of cost reduction and improve efficiency): Food operations, bookstores, building repairs and custodial/maintenance, remedial education (e.g., Kentucky Community College system turned to a private company called Smarthinking to read and evaluate student essays for its high-enrollment freshman composition classes allowing instructors to spend their time working with students, or West Hills Community College enlisting private firm Virtual-TA) , information technology services (e.g., help desk, desktop support, data center operations, website function), campus recreational centers, motor fleet, etc.

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7) Long-term lease of capital assets particularly

dormitories and dining halls.

8) Get rid of money-losing auxiliary operations.

9) 78% universities invest in more energy efficient systems.

10)15% of universities mandate furloughs.

11)Use the U.S. STEM Education Model (developed by Raytheon to strengthen STEM education and work force outcomes).

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12)Keep PCs a year longer before replacing them.

13)Share training on administrative software with similar institutions.

14)Use a third party for hosting servers, which could save a position.

15)Switch to more virtual servers and virtual desktops.

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16) Increase general faculty workload.

17)Require every administrator with a master's or doctoral degree to teach a course.

18) Increase productivity by increasing class size.

19)Review all undergraduate minors; graduate and undergraduate special-emphasis programs; nonprofessional master's/doctoral programs that are not signature programs or not ranked among the top 100 in the nation.

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20)Focus more on online education choices to speed graduation.

21)Examine decentralized and specialized student affairs programs.

22)Scrutinize space allocation, consider charging “rent” on space as some schools do for better utilization of space. Due to rapidly evolving digital competition and declining public support the stakes are rising. My first draft of recommendations:• Build no net additional square feet• Upgrade the best, get rid of the rest• Manage space and time• Rethink capacity• Measure productivity

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23)Examine academic programs with small participation.

24)Review all centers and institutes to ensure they are sustainable and serving the university's core mission.

25)Reward performance with one-time bonus instead of increase to base salary.

26)Shut down between Christmas and New Year's Day to save utilities. Ask employees to either take leave or comp time.

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27) Implement 4-day week with extended daily hours for

summer, and operate only required buildings on Fridays (dining halls, residence halls, health center, etc.). In turn provide longer hours to customers on the open days. Enables custodial staff to only clean offices 4 times per week and use extra hours to 'deep clean' things they normally don't have time to do. Grounds crew splits the four days, with some working M-Th and others Tu-Fri so that work gets done to support camps and conferences on regular time instead of overtime. Improves morale as well as cost savings.

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28)Conduct a mission-activity-end product analysis to

closely examine how each staff person's work contributes to the institution's mission.

29) Defer state approved salary increases for nine months.

30) Budget for zero new positions, zero departmental budget increases.

31) Closely examine all vacancies before filling.

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32) Freeze hiring of temporary employees, consultants

and independent contractors.

33) Consider voluntary retirement incentive plans. (e.g. about 300 longtime employees of the University of Louisville, circa 5% of it’s workforce, have accepted a buyout plan intended to reduce salary costs.)

34) Reduce travel.

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35)Examine tuition remission programs for faculty and

staff.

FY12 (Tuition Waivers)

• Employees - $1.8M• Spouse/dependents of regular employee - $3.4M• Spouse/dependents of adjunct employee - $153K • Total $5.3M.• Many universities have limited waivers to 50% or have a

credit hour limit.

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36) Increase rental revenues by encouraging local entities to use

campus recreation areas, music venues, meeting rooms, etc.

37)Close and lease remote campuses and unused buildings.

38)Lock in utility contracts.

39)Schedule all summer classes in only two buildings to save on utilities in all other academic buildings. Keep vacancies in custodial staff through the summer, and free the custodians from cleaning the closed academic buildings to work camps and conferences, which would normally have required overtime.

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40)Clean buildings at night when the job can be done

faster.

41)Slow construction projects. Reexamine capital projects that can be delayed or deferred.

42)Delay maintenance within reason.

43)Develop criteria for prioritizing academic and administrative programs.

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44) Assess all academic & administrative departments to

determine: (a) how each contributes to the institution’s overall success vis-à-vis all other programs, (b) how current programs and services align with mission and strategic plans coupled with a strategic costs and demand analysis.

45) Consider introducing 3-year programs as a faster alternative to traditional 4-year undergraduate program (e.g., Mississippi State University) for students who enter college with credit earned by Advanced Placement, Dual Enrollment, College-level Examination Program, etc.