Considering Economies of Scale In Louisiana's Higher Education Budgets

Economies of scale can be applicable to higher education as it is to the business world. Improving economies of scale is result of finding value through increased production. In the higher education world economies of scale could mean a number of different things depending if you are looking at a single higher education institution or a statewide system. The need to take a better look at economies of scale are becoming apparent in places like Louisiana that have a projected $300 million shortfall this year.

A few ideas have been thrown around amongst legislators and each will debated soon as they scramble to make the numbers work. The debate cannot be complete without a discussion of economies of scale that discover new efficiencies while pushing for higher levels of value. A laundry list of rough ideas can spark thought on which ideas may or may not be beneficial as states struggle with budgeting criteria.

Consolidate Degrees: Consolidate less popular degrees into larger degrees that are less costly to maintain. If much of the curriculum is shared and similar competencies are learned it can save money by removing redundancy throughout departments.

Collaborate on Less Popular Degrees: When programs are too expensive for a university to maintain on its own it may consider finding other universities that would like to share their time and resources on these less popular programs and/or classes to reduce costs for everyone.

Collaborate With Corporations on Research: Research is expensive and collaborating with end users may not only pick up the pace of research but also encourage greater resource allocation. The more research developed that has practical use upon completion is a benefit in raising the value of higher education institutions.

Standardize Curriculum: Core courses can often be standardized while allowing more variability in upper level courses. A basic math or writing class doesn't need to be rewritten by each professor to be successful.

Move Online: Online education offers opportunities to reduce expenses associated with facilities, parking, maintenance, staff, etc... as students can learn from home without having to attend all of their courses on campus. Online education can be standardized which also reduces expenses.

Shared Services Among Universities: Universities have an expensive support network of internal and external service suppliers. Finding places where universities can share resources and services reduces costs and helps balance budgets.

Lease Unused Facilities: The legacy cost of buildings is a growing challenge among aging universities. Leasing and sharing time in facilities that are not fully utilized by universities can mitigate expenses.

Is Higher Education on a Crash Course with State Budgets?

Credit-rating firm Moody’s Investor Service continued to keep the negative outlook for higher education into the next year (1). They cite slow job growth, an uncertain labor market, and slow revenue growth.  Such schools are fighting over revenue and have already cut greatly over the past few years leaving them little room to do more.  Personal income is not rising making it difficult with high student loan debt and interest rates to send more people to college.  According to Moody’s research spending is also expected to decline.

Some universities like Minnesota State University Moorland and University of District Columbia are pondering cutting core academic programs based upon needed budget cuts (2).  The trend is part of a need to reduce expenses in expense laden campuses. Decisions include the cutting of academic programs that once made up the core of university learning.  Some are concerned about what this trend means in the long run.

Indiana state universities are seeking to deal with a $141 million revenue shortfall and are pushing for a 2% cut in educational budgets (3).  It is hoped that the impact will be minimal and not damage students. There are some attempts to find new and creative ways around the budget crisis but no concrete concepts have come forward. Regardless, it appears that universities will suffer in the future from a lack of resources and constant questioning of their impact.

There appears to be a number of trends that are starting to be addressed and not all of them have to do with education itself. We know through the budget crisis government is under pressure to increase revenue and reduce waste. They are trying to spur economic development through trade and national development. Changes in spending are likely to impact multiple sectors of the economy in both positive and negative ways. Education will be impacted in this process.

The second major problem is the cost structure of universities themselves. They are large, have great sports teams, expensive facilities, and a limited ability to adjust to the new economic realities. Yet as state revenue squeezes, the costs rise, and their effectiveness becomes questioned in a higher technology and science oriented environment, greater pressure will come to bear upon traditional models.

Universities ability to adjust to this pressure while finding new ways of competing and pushing relevance will impact their viability. It must be remembered that changes in the university systems is not something new and has occurred throughout the life of the country.  Early education was informal and based on apprenticeship.  First colleges were religious and private but eventually moved into public universities. These public universities exploded in size and cost during the good years and may need to change again.

Change must come with quality. Recent educational reports have indicated that American students are falling behind in STEM as well as other areas. High Schools are not preparing students to become researchers, scientists, and technology workers at the same level as they did in the past. Efforts are underway to address this problem and push for changes in educational processes.

No matter what happens, we know that the current path is unsustainable. There will be change, and the decisions that are made today will impact whether this change is smooth or bumpy.  Pro-activity encourages decision-makers to think about what can be changed now and slowly adjust the system to ensure that it is keeping up with current environmental needs. Failure to be proactive means a sure bumpy ride in the near future. Perhaps an educational calamity.