Pennsylvania State System of Higher Education to seek consultant to deal with deficit

Facing a projected $79 million deficit as state budget negotiations are about to begin, the Pennsylvania State System of Higher Education is seeking help from outside experts to realign operations that Chancellor Frank Brogan last week called unsustainable.

The deficit comes to about $750 for each of the 105,000 students enrolled in the 14 state-owned universities, including California, Clarion, Edinboro, Indiana and Slippery Rock universities in Western Pennsylvania. It represents $49 million in added contract costs, $20 million in additional health care and pension costs and $10 million in anticipated increases for utilities, development and financial aid programs.

Officials at the agency that oversees state-owned universities expect to hire a consultant for a sweeping study of the system and its stakeholders this month.

State System spokesman Kenn Marshall said officials are reviewing proposals from consultants who responded to a call to gather data and analyze issues including the number and location of universities, programs and personnel necessary to meet the mission of providing “high quality education to students at the lowest possible cost to students.”

Citing exemptions in the state’s Right to Know law, Marshall declined to identify the consultants who submitted proposals.

Those close to the State System say demographics that fueled declining enrollments coupled with stagnant state subsidies and increasing costs, left it few options.

Sam Smith, who retired from the General Assembly as speaker of the House two years ago, chairs the council of trustees at Indiana University of Pennsylvania.

“Most everyone agrees the universities are facing significant challenges. It makes everybody a little nervous, but somebody needed to do this,” Smith said. “You can’t grow yourself out of these financial difficulties. It’s hard to talk about it because it sounds like you’re against your institutions, but it’s good that they’re doing it.”

Smith, who also sits on the board of Temple University in Philadelphia, said it is a matter of the state system taking the lead or being told what to do by the Legislature. He worries that failure to engage the Legislature could make the report a hard sell in Harrisburg.

Faculty leaders say they, too, want to be part of the process.

“It’s always our position that our universities are filled with very talented people, and the system ought to first check the resources at its disposal before venturing out to hire consultants,” said Ken Mash, president of the Association of Pennsylvania State College and University Faculties.

Jeff Deneen — who heads the higher education practice at Bain and Co. in Atlanta — hasn’t been involved with state-system universities, but he has studied the numbers nationwide and said the Pennsylvania schools aren’t alone.

“Many people thought after the great recession, everything would bounce back and it would be fine. But we did a study in 2012 and found one-third of the nation’s universities were on an unsustainable path,” Deneen said.

He said state systems of higher education in Georgia and Louisiana have merged campuses to address the issue.

“It makes a lot of sense driving down administrative costs, but I also worry there’s not enough strategy driving devaluations. There has to be a broader view of strategy,” he said. “At the system level, you have to think about, ‘What are we trying to achieve for the people of Pennsylvania?’ and, ‘What role should each of the campuses in our portfolio play in helping us do that?’”

Michael Poliakoff, executive director of the American Council of Trustees and Alumni in Washington, D.C., said university systems in Florida, Maryland and Arizona have shown that student success rates can increase as schools move to cut costs.

Even the wealthiest private universities have moved to reduce costs recently, Poliakoff said.

“The shared course initiative at Columbia, Cornell and Yale uses interactive video to maintain courses in low enrolled foreign languages that could not be maintained otherwise,” he said. “The state system is an extraordinary resource for Pennsylvania. And right now it is at a point where it needs to be looking at different way of delivering resources to students.”