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A Chronicle-Moody’s survey of nearly 500 college CFO’s published last Wednesday in The Chronicle tells us that CFO’s are very worried about the fiscal future of their institutions “Fewer than one-third of college chief financial officers are more optimistic about the state of the U.S. economy today than they were a year ago…”

Economic uncertainty is rampant and any human being living in this world would be seen as hallucinating if they thought things were going well or getting better. But the same report tells us that “60 percent of the CFO’s said it was “very unlikely” that their institutions would make layoffs in the coming year—and an additional 18 percent said layoffs were “somewhat unlikely” So in the short term, the massive layoffs of state and local public employees, CFOs don’t think will affect their colleges.

The survey seems to reveal that the CFOs lack a practical solution to the problem of continuing uncertainty.  Although some States are doing better, it is self evident to the CFOs, that they will get fewer subsidies from state local or federal sources. Their solution to the problem is to look for productivity in the usual place –faculty costs per student credit hour.  The report says that “asked in the survey last month to select the one strategy they would use to cut costs or raise revenue if they didn’t have to worry about the consequences, nearly 38 percent of the CFOs chose “increase teaching loads.”

If they are talking about increases of 10-15 percent in enrollment per course (a very decent productivity increase compared with any other organization not exporting jobs) that’s what has been happening in State universities. This productivity increase has taken place over the last 3 years, as universities have not been filling positions that are vacated and the remaining faculty take up the slack. This condition is beginning to change this year as universities are hiring once again.

According to the same survey, CFOs are looking at an old foe of CFOs, an item that adds not one dollar of cost. Fortunately only 17 percent of those responding are being deluded by it. They think they will increase productivity by eliminating tenure. Eliminating tenure simply increases turnover, which while costly to a for-profit corporation, it is lethal to a university.

Like state legislatures that are going about eliminating collective bargaining while eliminating jobs, tenure is the target of choice for some budget cutters. The collective bargaining straw man translates into tenure in the college campus, although tenure does not mean the same thing as collective bargaining. Tenure does limit administrative flexibility and thus hypothetically, this lack of flexibility may increase costs, assuming university administrators would use the flexibility to improve productivity. If they only knew how.

I think it is time we discuss once again the path to productivity in higher education. There are three ways. Universities could increase the number of students each faculty member teaches. Or they could lower the cost of faculty by offering smaller salaries or benefits. Or they could make better use of the resource and cut the time to graduation back to 4 years for a baccalaureate. The first two are obvious and their negative impact is well documented even though universities are doing that.  But in the long run, bigger classes result in greater number of dropouts and thus productivity gains are short-lived.

The Chronicle notes the focus on the faculty. “That the CFO’s focused on faculty productivity is a “really good window into the reality of the business model of colleges,” said John C. Nelson, who heads the higher-education practice at Moody’s Investor Service. “That’s the last big area where there are really material efficiencies” to be had, noted Mr. Nelson. “

“Material efficiencies” is another way of saying “saving money” and this is a proper concern for a CFO, but not all of their ideas are sustainable. Even a Capitalized University (CU) focusing on teaching, that can keep up the effort for a longer period of time, eventually they too will be affected by drop-outs and disaffected students, two of the outcomes of greater faculty-student ratios, or less qualified faculty.

What we need to do, and what we seem to be moving to, is to use facilities year-around, schedule students to finish their programs in time and spread the cost over less time. The University of Massachusetts Amherst and my own campus Auburn University, will be offering a number of their regular baccalaureate degrees scheduled to be completed in 3 years.

Not only does it cost less do it this way, but the savings accrue to both the consumer and the provider and thus is a true productivity achievement, sustainable over time and resulting in (according to data from the OECD) a greater number of graduates, another productivity measure which impacts the society as a whole.

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