Administration, AAUP spar on financial differences

By Jen Maldonado and Lauren Santye

The faculty union and the administration have been conducting an indirect debate this week over how to interpret the financial state of the university.
On Feb. 13, the American Association of University Professors (AAUP) released the results of an 11-year financial analysis that contract administrator Dr. Jeffrey Halpern said showed enrollment, retention and fundraising are among Rider’s main challenges, but overall the financial status of the university is solid.

“We’re comfortable with the financial stability of the institution,” he said. “There was a lot in capital investment but I think everyone agrees that was a good and necessary thing. Although we’re still in the black, that poses some challenges. We’ll be fine if we can stabilize recruitment and enrollment.”
Julies Karns, vice president of finance and treasurer, partially agreed.

“Much work has already been done at Rider to both contain and reduce spending and to build new revenue sources,” she said. “In fact, over the last few years Rider has implemented cost containment measures that produced more than $10 million in base budget savings. More needs to be done, and will be done. Facing the issues realistically, proactively and collaboratively is important to ensuring Rider’s long-term ability to achieve its mission of providing a high quality educational experience for our students.”

Since both sides are working from similar numbers — data the university provides to the U.S. Department of Education, called the Integrated Postsecondary Education Data System (IPEDS) — the difference comes down to a matter of interpretation, noted Dr. Michael Brogan, who presented his own study of Rider finances in December 2013.

“There have been three reports that were independently generated that roughly all say the same thing in terms of trends,” he said. “We’re using the same data that some people are disagreeing on how it’s analyzed but that’s not as important as the underlying trends. I think the trends are more important because it suggests that there are real concerns, but are they as bad as they’re being presented? I don’t know. I think there’s more to the story.”

Utilizing money

While Rider faces its challenges, the AAUP report said the university’s most significant trend in recent years has been a large shift of stocks and cash into new and improved facilities.
“We changed a liquid asset into a capital asset,” Halpern told The Rider News after a meeting with union members in which he interpreted the findings.

“It doesn’t make you poorer — if you look at net assets, the university is getting wealthier over time.”
Karns stated in a written response that “reserves funding has been used to both improve the physical plant and to expand the pool of scholarship funding available to support students.”

Although reserves have shrunk, in turn affecting the university’s flexibility when it comes to borrowing, this “is not a great problem,” according to Halpern, since the university will not need major facilities upgrades for a number of years.

The capital investments significantly changed the physical look of the campus, with the construction of the Student Recreation Center, North Hall, Hank and Bonnie Moore Hall, and West Village, plus major improvements to the Bart Luedeke Center Theater, Daly’s, Memorial Hall, athletic facilities and other buildings. The Cullen Center at Westminster Choir College and the tri-gen plant on the Lawrenceville campus are under construction.
Although these additions and renovations were necessary to meet students’ needs, they cost millions.

“We need those facilities because we’re here to serve students so holding on to the money and not having the facilities students need, doesn’t make sense,” said Halpern, who has worked at Rider for 37 years.
There are three ways to pay for these projects: contributions, borrowing and dipping into reserves and current funds. Primarily, according to Halpern, the university borrowed relatively little so “we’re not burdened with future big debt payments.” The university did not receive any big capital gifts or raise a lot of money to fund these projects so it took liquid assets, meaning cash, stocks and bonds that had been saved or accumulated from operating surplus (money that wasn’t spent during the academic year), according to Halpern.

Viewpoints
In its analysis, the union examined the university’s finances from 2002-13 using audited financial statements that the university reports to the IPEDS.

The analysis shows that the university’s net income has remained in the black from 2002-13. The net income, which refers to the amount of money the university has left after expenses and charges are paid at the end of the year, has been on a bit of a decline after reaching a high in 2009.
“Revenues were hurt by the loss of all appropriations from the state of New Jersey,” according to the report.

In 2012, the net income did bounce back at $7.9 million.

The lower revenues include depreciation, which does affect the university’s net income, causing a decline, but doesn’t change the university’s “cash situation,” according to Halpern.

“With depreciation, no money changes hands just because you listed depreciation on a financial statement,” he said. “It’s a representation of the reducing value of things that reduce in value.”
The administration took issue with the AAUP report.

“I am concerned about certain conclusions,” said Karns, who challenged the methods of the report’s author, Dr. Rudy Fichtenbaum, an economics professor from Wright State University in Ohio and current national president of the AAUP.

“Fichtenbaum based his conclusions about Rider’s finances on a scoring system used by the Ohio Board of Regents to evaluate the state’s public colleges and universities, as well as the ‘Fichtenbaum-Bunis Composite Score’ he developed. The report is not specific about what institutions the author is comparing Rider to when making his conclusions on the key financial ratios. The relevance of the narrow data set Fichtenbaum appears to have used is not clear, especially when more commonly used and publicly accepted data is readily available.”

Karns said that Rider uses the financial analysis approach of Prager & Co., KPMG and Attain “to evaluate college financial health that has been in use by the higher education community for more than 20 years.”

“This methodology calculates four core ratios that are designed to measure an institution’s financial strength and flexibility,” Karns said. “Unlike the Fichtenbaum report, each of these indicates that there are legitimate concerns about Rider’s current finances, which I am confident we can address.”

According to the Prager/KPMG publication, Rider’s overall score shows that the university needs to “re-engineer the institution,” something that came about because of the deficient spending the university took part in, but “does not create a serious risk,” according to Karns.

Enrollment Stability
Another contributing factor that impacts the university’s net worth is the percentage of income that comes from students. According to Halpern, Rider gets about 90% of its net income from tuition, room and board, and other fees.
“That’s a little higher than the average of private colleges, which is 80%,” Halpern said. “The number of students matters and what they pay matters.”

Karns countered that in the most recent Moody’s comparison, schools in Rider’s Baa1 ratings category averaged 85.7% of their revenue from students.

Since Rider relies heavily on income from students, retention needs to be a focus.

“We have to work together on having the types of programs, facilities and faculty that make students want to come here,” Halpern said. “Once they’re here, we have to do what we can to help them to graduate and improve our retention rate.”

This is something Karns agrees with.

Rider’s yearly revenue growth has slowed as the regional enrollment decline made an impact, as well as the increased financial aid.
“The university devotes significant effort to building enrollments and to donor cultivation and gift solicitation,” Karns said. “Both will be important to improving Rider’s finances, but not sufficient. Proactive steps will be needed to also reduce university expenditures, and those efforts will also be ongoing and collaborative. We have been successful in doing so in the past, and I’m confident we can balance Rider’s budget through a combination of revenue and expense strategies.”

Halpern believes that in order for the university to prosper, Rider needs to be helping students to graduate on time.
“Five years is not acceptable — that’s just too much extra money,” Halpern said. “With that fifth year, even if we wanted to, we can’t give you any money because the federal government will cut all of our aid.”
“Although, that money does help the university, in the long run it does hurt us.”
However, Karns, Provost DonnaJean Fredeen and Jamie O’Hara, vice president for Enrollment Management, said in a statement that if students do end up continuing their undergraduate study into a fifth year, they are “eligible for Rider need-based financial aid and external financial aid.”
Halpern believes the university would benefit by doing a better job in getting the word out, recruiting and having a more robust fundraising program.

“If you look at private institutions, they get resources from a number of places,” he said. “We did a little better fundraising than in the past, but we need to do a lot better.”

According to O’Hara and Jonathan Meer, vice president for University Advancement, Rider has plans set to help increase enrollment numbers and retention, as well as fundraising.

“Rider is in process with a campaign to raise current-use and endowed scholarship funds as part of its planning for the university’s sesquicentennial celebration next year,” they said. “We are seeing early success, with new donor commitments approaching $1 million, and the goal is to do significantly more. Applications for the 2014 class are running about 15% ahead of last year, and the admissions staff is doing active follow-up to enroll the class.”
However, those are not the only plans set in place. They are also looking for more ways to increase retention numbers.
“The enrollment management council is developing an array of strategies to help aid retention, including new programming at orientation and additional support for students that have no declared a major,” O’Hara and Meer said.

Faculty
With tuition continually on the rise, many want to know where all that money is going. Brogan’s financial report from December 2013, contended that while there was an overall increase of employees, there was a larger rise in administration.

According to Halpern, administrative positions, especially managers, are trending up.
However, Karns stated that the increase in employees was done in order to better provide for the students and the university.
“Rider has changed substantially since 2001,” she said. “The incremental positions through this period were strategically added to address enrollment growth, operational and student service needs, the expansion of campus facilities, and the need to build new sources of net revenue to support Rider’s core mission.”
According to Karns, 12 positions were added after the creation of Rider’s Auxiliary Services. These positions are paid for through revenue that is received from camps, conferences and study tours.
She also pointed out that the Enrollment Management Division was not in existence at Rider in 2001.
“Ten new positions across the admissions, enrollment and financial aid offices improved student services, enhanced Rider’s market position and helped Rider achieve a more than 500 student growth in total FTE enrollment between 2004 and 2011,” Karns said.
As Rider continued to grow, so did programs and staff. According to Karns, 11 positions in Residence Life, Student Affairs and Public Safety were created in 2007. This was in direct response to recommendations from the Presidential Task Force on Alcohol, Personal Responsibility and Student life.
Furthermore, with the increase in technology and equipment available at Rider, nine positions were added to information technology since 2001. This was because the university only had six servers to maintain back then, as opposed to the 38 in 2012.
But when it came to the rise and fall of enrollment numbers, Human Resources Action Committee (HRAC) adjusted the number of positions available at Rider.
“Over the period of declining enrollment, HRAC eliminated 20 non-faculty positions, contributing more than $1.1 million of salary savings,” Karns said. “I don’t think this have been widely understood, but these wage savings and a number of non-faculty benefits changes have helped Rider maintain balanced budgets over the last few years.”

Upside
Although Rider is faced with many challenges, Halpern believes that the university will be able to manage it.

“For almost 150 years, students have come to Rider,” Halpern said. “I think what we do here, we do very well, we add tremendous value to our students. Unlike some folks, I am absolutely confident that we are going to recruit students and retain them. If we can figure out how to talk to them, we will get them in the future to make contributions to the institution. Do we have challenges? Sure, but we always have challenges. None of these are challenges that would make me worry about investing in the institution. Our future is solid.”

This is something that Karns agrees on.
“I am confident that Rider can effectively meet its challenges,” she said. “Through the open sharing of information, the continuing dialog within our community and our history of collaborative problem-solving, we will find solutions that are right for our institution.”

 

This story was revised Feb. 25, 2014 to include the following clarification:

The university did not receive any big capital gifts or raise a lot of money to fund these projects so it took liquid assets, meaning cash, stocks and bonds that had been saved or accumulated from operating surplus (money that wasn’t spent during the academic year), according to Halpern.

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