At first glance, it might appear that the University of Oregon has lost control of its costs. Oregon's in-state tuition has risen 52 percent since 1999-2000, compared with a 16.5-percent increase in the Consumer Price Index.
But if you ask Frances L. Dyke, vice president for finance and administration, she will tick off a few of the ways in which Oregon is, in fact, making good use of its resources: The university is a founding partner in the Orbis Cascade Alliance, a four-year-old consortium of academic libraries that share books, allowing Oregon to forgo purchases of some pricey monographs. The university just hired a new chief technology officer who is encouraging professors to replace old but still-functioning computer monitors when newer models can result in energy savings. And Oregon keeps a building contractor on retainer, to look for stumbling blocks in new designs before work crews break ground and repair costs soar. "The University of Oregon is very serious about controlling its costs," Ms. Dyke says.
Yet it is being squeezed by the same factors that have sent tuition soaring at colleges through the country over the past decade. At nearly all colleges, costs rise far faster than those in other sectors of the economy because most of the dollars in campus budgets go for personnel, and keeping talented people generally requires salary increases that exceed inflation. Meanwhile state support for higher education has not kept up with enrollment growth. At Oregon, state support now accounts for only 13 percent of revenue, down from 20 percent in 2000 and more than 30 percent in the 1980s.
"One thing that we in the public sector worry about is that the conversation confuses tuition with costs," says Ms. Dyke. "In Oregon the reason tuition escalated so quickly is because state support has fallen so quickly."
Even so, most consumers and outside observers of higher education — including students, parents, and state and federal lawmakers — focus on the bottom line: The sticker price for college is higher than ever. In addition to the public outcry over tuition increases, colleges in recent years have struggled with sharp increases in the costs of health care, energy, and construction. That puts considerable pressure on campus officials to find ways to economize in all of their operations.
Not long ago, colleges were seen as models of inefficiency. Their presidents let budgets grow unchecked during flush times, only to institute across-the-board cuts — whittling the good along with the bad — when times became tight.
Now college officials are becoming increasingly creative in finding ways to reduce costs. They're outsourcing nonaca-demic activities, collaborating with other institutions to share goods and services, and absorbing greater financial risks when long-term savings seem likely.
The one area in which cost cutting would go the furthest in making college more affordable, however, is also the one area that colleges seem unwilling to touch. Salaries and benefits account for about 70 percent of college budgets, on average, a fact that goes a long way toward explaining why the Higher Education Price Index, an annual estimate of how inflation increases the price of goods and services needed to operate colleges, has risen by roughly 1 percentage point more per year than the Consumer Price Index over the past decade. Annual inflation has averaged less than 3 percent during that period, which means that the increase in the cost of operating a college has exceeded core inflation measures by 35 percent or more.
"Anything that has high rates of labor is going to be more expensive than the Consumer Price Index," says John S. Griswold, executive director of the Commonfund Institute, educational arm of Commonfund, which manages investments for nonprofit institutions. The institute bought the Higher Education Price Index from Research Associates of Washington in 2004.
Few college presidents are interested in cutting faculty jobs or salaries to save money. By contrast, in The Chronicle's recent survey of 763 college presidents, "inadequate" faculty salaries ranked as one of their top concerns.
Harold W. Hewitt, vice president for administration and finance at Occidental College, says his institution must provide raises that exceed the inflation rate to compete for top faculty members against other small, private institutions, including Pomona College and Swarthmore College. Their endowments exceed $1-billion, more than three times Occidental's $290-million. What's more, Occidental has no interest in eliminating faculty positions. Doing so would be "contrary to our basic mission," Mr. Hewitt says.
"Private colleges are very inefficient," he says. "Our customers expect very high degrees of staffing in order to keep the student-faculty ratio low."
The Lumina Foundation for Education, which sponsored a conference in November on curtailing college costs, has come up with some big-picture recommendations that could make college more affordable. Among its suggestions: Colleges should partner with and invest in secondary schools, to better prepare students and reduce remediation costs at the college level. It also suggested that state systems rely more heavily on community colleges, which offer the lowest-cost model, perhaps by converting some midlevel four-year institutions into community colleges that provide training in fields that are in high demand.
But institutions and state systems of higher education may be best served simply by focusing on ways to save money with their current operations. For state institutions, such efforts, if successful, might be augmented by greater support from legislators. At least that is how it has worked in Maryland, according to William E. Kirwan, chancellor of the University System of Maryland.
At a conference held in November by the TIAA-CREF Institute, the research arm of the giant pension fund, Mr. Kirwan said Maryland's legislature agreed to raise the system's appropriation by 6 percent per year in both 2005 and 2006, after witnessing its success at saving $40-million over two years through various cost-cutting measures.
Outsourcing — contracting with private companies outside the university — has become an increasingly common way for colleges to save money. The trend, which started with bookstores, food service, and vending, is growing in payroll, printing, transportation, grounds maintenance, facility management, and on-campus housing.
Some colleges, however, believe that they can achieve the greatest efficiencies by banding together with other colleges rather than seeking out corporate partners. In Oregon seven colleges formed their own health-care consortium, gambling that they could provide more cost-effective service by eliminating the insurance company. And five colleges in western Massachusetts snubbed Verizon's high fees for broadband Internet service, choosing instead to build their own fiber-optic network connecting all of the campuses. Members of the consortium expect the investment to pay off within eight to 10 years.
A November 2004 survey of 800 college officials by Educause, a higher-education-technology consortium, found that 39 percent were planning to reduce information-technology costs by using consortia or shared purchases. Less than 18 percent said they thought outsourcing could reduce information-technology costs.
An increasing number of colleges are willing to shoulder greater financial risks, provided that doing so is likely to lead to savings over the long term. Occidental, for example, saw its annual premium for workers'-compensation insurance rise from $250,000 to $1.7-million over the five years ending in 2002. Rather than pay such a premium, the college sought out a different deal with a higher deductible, requiring Occidental to cover the first $250,000 of any claim, up to a maximum of $2-million per year. Raising the deductible reduced the premium by $1-million, to $700,000.
"That's a huge savings for a small private college," says Mr. Hewitt, the vice president for administration.
The University of Virginia is taking on greater risks with its borrowing, hoping to save money through lower interest charges over time. In the past, the university issued only fixed-rate debt, so that it could be sure of its repayment obligations years into the future. Recently Yoke San L. Reynolds, vice president and chief financial officer, has been adding variable-rate debt, which now accounts for about 40 percent of the university's borrowing. Variable-rate debt costs less but adds risk because it is tied to volatile short-term interest rates. So Ms. Reynolds set aside some of the savings from the cheaper borrowing as a buffer in case short-term rates spike, as they did recently.
"I felt that with the University of Virginia's resources, we could take on more risk," she says. "Even with the buffer, we are seeing a reduced cost of borrowing."
Construction costs have risen sharply throughout much of the United States, forcing colleges to plan carefully if they hope to complete projects within budget. Colleges spent $13.7-billion on construction last year, up from just $6.1-billion 10 years ago, according to College Planning & Management, a trade publication. The journal found that the median cost to build student unions, libraries, and science buildings was above $200 per square foot in 2005.
WTW Architects, of Pittsburgh, and the University of Nevada at Reno are using several strategies to control costs on a 170,000-square-foot student-union building designed by WTW. The entire $40-million project will be bid to a single contractor and will leave that construction firm — rather than the university — on the hook if costs rise. The design will include some additional features that the university would like to incorporate, but they will be added only if the contractor can do so under budget.
One element that will be included is a series of sunshades on the building's mostly glassed-in southwest side, which will face the mountains. The permanent shelves and ledges will cast long shadows when the sun is high during the summer months, helping to cool the building. During the winter months, when the sun is lower in the sky, the sunshades will allow most of the sunlight to enter the building, helping to heat it.
"We're not sure how to do this most economically," says Paul F. Knell, a senior partner at the company, "so we'll show the contractor the basic design intent and let the contractor design and build that."
Kennesaw State University took energy efficiency into account during a $2.5-million renovation and expansion of its recreation center. Some students were lobbying for a climbing wall, but the idea didn't fly with administrators, says Earle B. Holley, vice president for business and finance.
The proposed climbing wall needed a 40-foot ceiling, which would have sharply raised heating-and-cooling costs. The university opted instead for climbing machines, which use a moving wall that is never more than a foot or two off the floor.
"Except for the thrill of being higher," Mr. Holley says, "the challenge is the same."
More colleges are willing to shoulder greater financial risks, provided that doing so is likely to lead to savings over the long term.
PHOTO (COLOR): William J. Rival, a shift supervisor at the U. of Pennsylvania, looks at the top monitor to ensure that electricity use stays under a target set to save money. Article on Page B12
PHOTO (COLOR): Yoke San L. Reynolds of the U. of Virginia has added variable-rate debt as a tool to save money.
By Ben Gose
