Nowhere To Go But Up

 by Chris Campion

UVM trustees are currently mulling over the annual tuition rate increases, which in recent years have gone up by about 6%.  One might note how this increase is somewhat larger than the inflation rate.  Currently 65% of UVM students are from out-of-state, and because the out-of-state students pay almost 2X what a Vermont student pays, the heaviest burden of the increase falls on the demographic that will continue to be a larger and larger percentage of enrolled students.

What the Freeps article doesn't discuss is the main driver for these tuition increases - they are costs incurred during the years 2001 to 2007, when payments in interest and principal on UVM's debt (mostly incurred for the new buildings we drive past every day on the way in to Burlington) ballooned from $5.2 million in 2002 to $175 million in 2007.  Worse, as a percentage of their overall operating revenues (meaning mostly tuition revenues), the P&I payments represented 1.8% in 2002, and increased up to 43.5% in 2007.  This means the costs were outstripping the revenue sources dramatically in the space of just a few years.

Unfortunately, UVM was planning on investment income to shore up the shortfalls in operating revenues, but as the markets failed to magically perform consistently in terms of returns, the results were layoffs and other cost reductions.  Reduced endowment income is a common theme in academic institutions these past few years.  But what's not surprising is that there will continue to be high relative tuition increases, and UVM will become more and more dependent upon out-of-state tuition as a percentage of its total operating revenues.  While this may or may not support UVM's mission statement, regarding the education of Vermonters, it does address the reality that without a significant increase to the enrollment mix between Vermonters and out-of-state students (even approaching a 20% Vermonters/80% out-of-state mix), UVM's financial model becomes increasingly untenable.

Comments

[txgordo]

I read somewhere, by someone, if universities eliminated any program with the word 'Studies' appended to it, they could all balance their budgets and lower tuitions. At UVM, you can get a B.A. in Global Studies, which either turns out victim's lawyers or baristas, I imagine.

[Chris Campion]

I would be less concerned about tuition increases if the financials of UVM looked like somebody had actually done a little math with them. I'm sure a number of folks did, but it's really up to the senior administration and Board to sign off on large scale capital expenditures. That they knowingly relied too heavily on investment income as a percentage of the overall revenues is flatly obvious, and also obviously too much of a risk. The downside to this risk-taking was evidenced in the cutbacks and layoff of staff - none of whom had a vote in the budget approval process.

[Vermont Woodchuck]

People who have a vote in the budget approval process are the ones who can vote you out of office.

Staff? The peasants get voted ta-ta.

[Bill]

Even if they had not made foolish investment assumptions, I would'nt give them a dime. Too many ISO communist indoctrination bullies running around up there. If anyone has ever stood up to them, I want to know who that was.

[Richard H. Cate, VP for Finance & Administration, UVM]

I do not know the source of the data in this story but they are incorrect. The University's debt service in 2002 was slightly less than $6 million (1.7% of the operating budget) and in 2010 it was $27.2 million (4.7% of the operating budget). The industry standard for debt service in higher education ranges from 5% to 9%.

[Chris Campion]

Richard, the source of the data is from the publicly-available financial statements of the college. My numbers do not reflect the percentage of the entire operating budget; they reflect the percentage of operating revenues - in other words, I wanted to look at how big the P&I was relative to the income stream. I would be happy to send my complete analysis to you if you're interested.

Chris