University finances: start spreading the risk

As universities rely on multiple income streams to stay afloat, private money comes with caveats and portfolios must balance profit and principle

May 11, 2017
Roulette table
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I always assume that I’m going to have less money next year than I did this year,” an Australian vice-chancellor confided recently.

He was talking about his university’s funding prospects rather than his own bank balance, but he wasn’t being defeatist – his point was that it was inevitable that state funding would decline, and that it was his job to ensure that his university’s trajectory continued in the opposite direction regardless.

The average split between public and private funding for tertiary education, in countries in the Organisation for Economic Cooperation and Development, is now 70:30, but the proportion from private sources is as high as 60 per cent in the US and is at a similar level in Australia (in the UK, it stood at 43 per cent, according to Education at a Glance 2016).

The shift to tuition fees is most significant here, but there are numerous other factors at play – some general, others decidedly local.

As an example of the latter, take the budget squeeze facing public universities in the US state of Illinois, which we examine in our news pages this week.

The funding woes of the US public system are well known, but those in Illinois have been subjected to a particularly rough couple of years, surviving on stopgap budgets that have cut state support by 80 per cent between 2015 and 2016.

This crisis – caused by ongoing wrangling between the governor and state legislature – is not just financial but potentially existential for the state’s excellent public institutions: faculty and students are choosing to go elsewhere (student numbers declined by 11 per cent over the past two years).

Elsewhere in our news pages, we report on plans in Australia to cut university funding by 2.5 per cent and increase tuition fees by 7.5 per cent – a move that commentators describe as relatively benign, given the 20 per cent cut that had previously been mooted.

In the UK, meanwhile, universities harbour deep concerns about the impact of Brexit, and the government’s intransigence on visa policy, fearing major financial implications if international students look elsewhere.

In this context, the vice-chancellor’s assumption could apply to public universities across the world’s developed systems, making the search for additional revenue streams all the more essential.

In another analysis this week, we take a close look at a group of universities that are making a virtue of these conditions, developing a distinctive identity as technology-focused institutions that are aligned to industry in a way that helps to shape, as well as fund, their research.

Some are in Asia, where this model might be expected given the youth of many universities and the focus on rapid economic expansion, but European institutions also figure heavily in our analysis.

If private money is now an essential part of the mix, and it surely is, then it’s also the case that all funding comes with strings. In the case of state investment, that may be regulatory control; with tuition fees, it could be consumerism or demands for value for money; and in the case of industry funding, the price might be restrictions on publication and scientific direction.

Another source of private income that has proved transformational for some, and much harder to harness for others, is philanthropy.

For the elite private institutions in the US, this is seriously big business – the likes of Harvard University, with an endowment of approximately $36 billion (£27 billion), sometimes look more like hedge funds with a university attached than the other way round.

Other countries have failed to match this culture of giving, although the Council for Advancement and Support of Education Europe reports that donations in the UK exceeded £1 billion for the first time last year (almost half of which went to the universities of Oxford and Cambridge).

The trick, in the end, is finding a balance. To extend the analogy of Harvard and the hedge fund, the best approach is to diversify income streams so that they aren’t too exposed in any one area. Doing so without selling out or polluting the academic process – well, that’s where vice-chancellors and their senior teams will really earn those bulging pay packets.

john.gill@timeshighereducation.com

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