Improving board capacity for strategic financial oversight

Jane V. Wellman AGB Consultant for Strategic Finance Indiana Trustees Academy August 30, 2010

Association of Governing Boards

The changed context

• • • • • • Challenge to increase degree attainment Structural shift away from public funding Greater tuition dependency, risks low-income access and success Rising public skepticism about college and university values – and value “Fractured dialogue” between college presidents, the public, policy makers, and faculty Unsustainable revenue/cost gap Association of Governing Boards

US - Estimating the attainment “gap”

Using a 60%/25-34 age group attainment goal

37.8% 1. Current % of Adults Aged 25 to 34 with College Degrees (2008) 2. Average Annual % Change from 2000 to 2008 3. 2020 % with Avg. Annual Change Carried Out 4. Projected 25 to 34 Year Olds in 2020 5.

Additional Degrees Needed to Met Goal = (60.0 - 41.9 percent)*45,065,697 6. Additional Degrees Needed Annually (to make linear progress) 7. Current Production of Associate and Bachelors (2007-08) 0.34% 41.9% 45,065,697 8,165,954 123,727 8. Annual Percent Increase Needed 2,313,233 4.2%

Association of Governing Boards

80% of national ‘gap’ occurs in these 20 states

1000000 900000 800000 700000 600000 500000 400000 300000 200000 100000 0 IN currently: 36% Association of Governing Boards

Gaps in state financials could approach 7% of spending on AVERAGE - “The Lost Decade” of state funding Source: Don Boyd (Rockefeller Institute of Government), 2009 Association of Governing Boards

Cumulative Changes in the Price of College, 1998-2008 (current dollars)

350% 300% 250% 200% 150% 100% 50% 0% 198819891990199119921993199419951996199719981999200020012002200320042005200620072008 Association of Governing Boards Public Four-Year Private Four-Year Public Two-Year Prescription Drugs Median Family Income Overall Inflation (CPI-U) New Car

Our Revenue Model is Not Sustainable

Illustration: 20 Years of Trends

1,5 1 0,5 3 2,5 2 0 Start Y1 Y2 Y3 Y4 Y5 Y6 Y7 Y8 Y9 Y10 Y11 Y12 Y13 Y14 Y15 Y16 Y17 Y18 Y19 Y20 Association of Governing Boards

AFFORDABILITY STATE FUNDS GAP

Tuition Expenditure/FTE State approp CPI

Outside inside: the fractured dialogue about college costs and the road ahead

Group

College Presidents Public State Financial Officers (and legislators) Faculty

Definition of Problem Solution

Caught in iron triangle Reinvest in higher education!

Caught between growing importance and decreasing access Protect access at all costs!

Need more college graduates Deteriorating quality of students and declining standards Increase productivity and retention!

Raise standards, improve K-12, stop talking about productivity!

The view from the outside: growing public critique about spending priorities

2010 2008 2002

Which comes closer to your views?

35% 43%

a) Colleges today mainly care about education and making sure that students get a good education b) Colleges are more like businesses and care about the bottom line

32% 60%

Which comes closer to your views?

a) The state system of higher education needs to be overhauled.

b) The state system of higher education is okay as it is.

49% 39%

If colleges cut budgets, the quality of education will be hurt

40%

Colleges could spend less and still protect quality

54%

Association of Governing Boards

55% 48% 39% 42% 53% 52% 48% 39% 40% 56%

Changing the value proposition

Value = more money • Quality = $$ • Belief in the inevitability of spending increases • Cost reduction equated with loss of quality • Doing new things requires new money Value = cost effectiveness • Revenue is finite • How the money is spent more important than $$ alone • Focus on core resources and not total budget • Attention to cost reductions and performance improvements Association of Governing Boards

The evolving Board role

Historic focus – year-to year budget balancing • Fund-raising • Annual budget review • Focus on generating revenue to balance the budget • Public advocacy Evolving focus – strategic finance • Fund-raising • Multi-year focus on fiscal sustainability • Cost and performance review • Bridging internal and external expectations Association of Governing Boards

Board tools for improving a focus on value

• • • • • Be explicit about attainment goals Set the agenda for continuous attention to investments in value: spending, efficiency and effectiveness Support establishment of institutional process for doing the deeper work Adopt appropriate metrics for benchmarking spending and performance to measure changes over time Communication! Internal as well as externa l Association of Governing Boards

Setting the agenda

• • • • • Process is key: Board needs to find ways to focus the work and bridge gaps between internal and external audiences Work with the President to frame the agenda and set goals for aspects of the work Frame the work in positive and not punitive ways Look for evidence of progress in meeting goals Continuous attention to documentation and communication Association of Governing Boards