My previous post, “Higher Ed’s Liquidity Crisis,” highlighted the findings of a new report, “The Financially Sustainable University,” that details the rising spending, increasing leverage and deteriorating finances of American colleges and Universities. While 40% of higher-ed institutions remain in reasonably good shape, a third are in trouble, according to the report.
The report allows readers to access limited data on the performance of individual institutions between 2006 and 2010. The publishers, Bain & Co. and Sterling Partners, withheld the juiciest numbers, presumably in the interest of generating more consulting business. However, the data provided for Virginia public universities, summarized below, suffice to whet the appetite.
The following chart displays unfavorable changes to equity and expense ratios that put schools at risk. As I read this, an increase in the expense ratio is a bad thing, indicating that expenses are rising expressed as a ratio of assets. An increase in the equity ratio is a good thing, meaning a higher percentage of equity and a lower percentage of debt on the balance sheet. (Bad indicators are shaded with yellow.)
Thus, the record of public Virginia institutions appears to be a mixed bag, with a bit more bad than good. If I have interpreted these numbers correctly, Christopher Newport is a stand-out, significantly whittling down its expense ratio while also improving its equity ratio. VCU is the only other university to show an improvement in both measures, but those gains were marginal.
By contrast, ODU, VSU and Mary Washington bear close watching, showing deteriorating expense and equity ratios. As an added concern, none of these three have large endowments to fall back upon should enrollments and tuition revenue begin to falter.
Maybe it’s time for their Boards of Visitors to start asking some tough questions.
— JAB
