Sunday, October 11, 2009

Breaking Even

Two recent articles got me wondering about college economics when facing tight budget years, a news story in IHE about San Joaquin Delta College, pointed to by Dean Dad, and an off-hand comment by Dean Dad claiming "My cc loses money on every student."

This, and much of the discussion about Delta, made no sense to me at first.

How can you lose money by enrolling more students?

Then I discovered that Delta College only gets $26 per credit hour in tuition (in a semester system)! Mind bogglingly low. Almost free! Based on that, I could begin to believe statements like the one Dean Dad made. Nonetheless, that funding system is so alien to me that it is no wonder that people can make blanket comments that look like total nonsense to educators in one state while seeming quite reasonable to those in another state or region. At my CC, we profit from extra students and take a serious private-college-like approach to attracting and retaining those extra students.

Why the difference between Dean Dad's school and ours?

Well, I don't actually know if there is a difference - because Dean Dad has never produced even a crude outline of his college's income structure within something like the normalized college budget I suggested and then modeled with a sample budget for my CC. However, I do know what is going on at Delta College:

Out of every 10.0 million dollars in the budget, they get 5.9 million from the state, 2.7 from local property taxes, 0.5 from tuition, and the other 0.9 from a variety of sources that includes 0.5 from the federal government. Compare that to our budget: 5.9 from the state, 3.9 from tuition, and 0.2 from other sources.

That explains quite a lot!

I won't give our specific tuition level, but suffice it to say that it is more than twice what Delta students pay. Based on what I can discern from obscure collective bargaining documents, their full-time faculty are paid quite a bit more than ours are (but not enough to make up for the housing differences) while their adjuncts make somewhat more (but not much more) than ours do. The faculty salaries explain the very high classroom body counts, but those are sunk costs that are (like ours) covered by state funds. They don't impact the cost of adding an extra 100 students to the college's enrollment.

What does matter is the ratio between adjunct pay and tuition. If we have to add a section, our tuition appears to more than pay for the adjunct's salary once we get 12 to 15 students enrolled. (I don't know what other per-class costs, such as copying exams and the like, add up to. I do know that FICA and Medicare adds almost 10% to it, however.) My guess is that Delta needs more than 32, getting close to their normal load of 39, to break even on salary for a typical adjunct. But that is just salary! Add in FICA and other direct costs, and they lose money even with a full class. Working on the margin, when you might open a class with only 20 students during the last week of registration, they lose money and we profit.

Worse, their state income is set by enrollment but capped at a fixed value. That means they can get less but can never get more. Our state funds are based on a far more predictable formula.

PS -
If you are interested in some data related to the rising cost of tuition vis-a-vis state funding, you might look at this old article based on actual data for an R1 university. It is only one story of many, but it shows that very little of the growth in tuition (only $1500 of the $7000 increase) is due to reduced state funding (in constant current dollars).


Dr. Lisa said...

I'm also at a California CC. The tuition was raised to $26 from $20 this past summer to help deal with the state budget crisis. One thing to recognize is that the CC in CA are still organized (for historical, outdated reasons) under the K-12 system and fees are set by the State legislature. As such, there are programs that we are mandated to provided, but they are getting under- or defunded. It's the best deal in higher education for the students, but it's getting harder for us to provide it.

Doctor Pion said...

Thanks for that info.

Wow. At $20 per credit you would lose money big time if you went over the enrollment cap. That explains other things I have seen about "last chance" enrollment because a student has been shut out of other CCs. In our state, we never close our doors.

Our state legislature also sets tuition, but it does it for both universities and colleges and at a more reasonable level. (It actually sets a cap, and many CCs are below the cap.)

Perhaps for similar reasons, our CCs have some legacy of growing out of K-12. We are governed by K-12 fire codes, for example, not university ones. Makes sense for all those dual-enrolled HS kids, but not for a university level organic chemistry lab.

Fortunately, we don't have any of the K-12 rules requiring fingerprinting and IDs for all visitors to the campus.

Dr. Lisa said...

It's the enrollment cap that really hurts. We turned away students in droves this semester, but we're right at the cap at enrollment from the state. I'm so proud to be in an environment that gives students the financial advantage, but it's rough when the state doesn't do its part! (Especially when the state hasn't bothered PAYING the CCs on time in awhile. But that's another rant.)

Continued good luck to you at your school!