On November 14, 2013, Inside Higher Ed reported that National Labor College had planned to close on account of chronic financial challenges. Its financial challenges resulted from a combination of factors including an ambitious campus renovation initiative that added to the College’s debt burden, subsequent inability to sell the campus as it converted to a strictly online model, and dependence on one or two sources for a disproportionate share of its funding. At the time of its announced plans to close, the AFL-CIO had become its largest funder, accounting for 40% of its operating budget. The College’s financial challenges were noted repeatedly by its accreditor, the Middle States Commission on Higher Education (MSCHE).
In the larger context, financial difficulties can arise for a number of reasons including, but not limited to changes in macroeconomic conditions, debt/interest rate exposure, fundamental changes in enrollment, and fiscal challenges at the state and federal levels of government. An institution’s strategic financial flexibility depends, in part, on its ability to rely upon a diverse revenue stream, so that unfavorable changes in one source of revenue can be offset, by one or more others. Another important element entails careful and ongoing monitoring of its cost structure.
In the Middle States region, Standards 2 (Planning, Resource Allocation, and Institutional Renewal) and 3 (Institutional Resources) are most relevant. Details concerning those standards can be found in MSCHE’s Characteristics of Excellence in Higher Education.
A look at accreditation outcomes over the past five years (2009 through 2013 self-study cycle) is useful for highlighting areas in which colleges and universities tend to have difficulty. Those areas concern planning/projections, alignment of the budgeting process and budgets with the institution’s strategic plan, steps needed to strengthen the institution’s finances, and monitoring (assessment) of budgets and finances. The below table highlights the specific areas that are most commonly cited in requests for follow-up reports:
One of the more specific measures cited for improving an institution’s financial viability is the request that it develop alternative funding sources or measures. In addition, a new request appeared for the first time during the 2013 self-study cycle related to financial risk management. During that cycle, two institutions were asked to develop a comprehensive financial contingency plan.
In the end, an institution’s strategic flexibility—its capacity to pursue opportunities and/or address challenges—depends, in part, on its financial flexibility. The issues commonly cited by MSCHE can provide a starting point for strengthening an institution’s financial capacity.