ACTA is an independent, non-profit organization committed to academic freedom, excellence, and accountability at America's colleges and universities.

ACTA is an independent, non-profit organization committed to academic freedom, excellence, and accountability at America's colleges and universities.

ACTA is an independent, non-profit organization committed to academic freedom, excellence, and accountability at America's colleges and universities.

Calculating and Cutting Costs: A Q&A on ACTA’s Project on Administrative Costs

July 26, 2017 by ACTA

Since “The Great Recession,” both public and private colleges have been feeling a financial squeeze. Consequently, reformers are asking important questions about improving efficiency and fiscal accountability. ACTA has long urged trustees to assess their institution’s financial expenditures to ensure that a quality education is affordable for students and taxpayers. To that end, ACTA has just released a new guide, How Much is Too Much? Controlling Administrative Costs through Effective Oversight, which aims to help trustees compare their own institution’s expenditures to median ratios of administrative and instructional spending analyzed from over 1,200 colleges and universities. ACTA’s Vice President of Trustee and Legislative Affairs, Armand Alacbay, supervised the direction of the report and answered some questions about this new resource for trustees.

What is the goal of the new guide, How Much is Too Much?

The goal is to help trustees be better equipped to grapple with matters of cost and efficiency at their institutions. How Much is Too Much? gives trustees a framework to compare their institution’s finances against national median ratios at comparable institutions. We believe that this guide adds missing context to the discourse over growth in administrative costs and provides information to trustees that they can use to make decisions that benefit students.

How are we defining “administrative costs” and “instructional costs?” What’s included in these terms?

Our analysis specifies administrative costs as what universities report as “institutional support,” according to the federal definitions set by the U.S. Department of Education. This is a narrow category that covers day-to-day operations of the institution including general administrative services, executive management, public relations, and legal/fiscal operations.

Conversely, our analysis used an expansive definition of instructional costs as what institutions report to the Department of Education as both “instruction” and “academic support,” which includes librarians and academic administrators such as deans and provosts  What is not included in these numbers are auxiliary expenses such as parking, dormitories, and dining halls.

Where does the data come from?

The data used in this report comes from the U.S. Department of Education’s National Center for Education Statistic’s (NCES) Integrated Postsecondary Education Data System (IPEDS). IPEDS is a database that houses information about postsecondary institutions, from finance to human resources information. All institutions that receive federal funding directly or through subsidized student loans are required to report this data to the federal government.

What ratio of administrative to instructional spending is considered cause for concern?

Trustees should not look to this guide for definitive targets of administrative spending. Rather, they should use it to identify significant outliers as potential “red flags” that budgetary priorities may be out of line with the institution’s mission. Although there could be a financially sound reason for apparent excess, boards will benefit from being fiscally prudent and scrutinizing overhead and administrative costs.

Economies of scale contribute to variances in the numbers. And schools that rely on philanthropic support may report higher administration costs because development offices are included in administrative spending. Realistically, there’s no magic number. But that doesn’t mean that it’s not important to benchmark and to ask difficult questions about institutional spending priorities. Trustees should be concerned about administrative spending when it greatly exceeds the median for its size and type of institution—the guide provides a framework for doing that.

What are some of the reasons colleges experience a change in the ratio of administrative costs relative to instruction?

Restructuring affiliated organizations—like the university foundation—can result in an apparent growth in administrative costs even though the restructuring wouldn’t result in a substantive change in real terms. On the other hand, if a college is hiring administrative staff at a faster rate than the hiring of faculty, this would also change the ratio.

What does ACTA recommend trustees do if their institution sees administrative spending that outpaces instructional spending?

Trustees should familiarize themselves with trends in administrative costs to develop financial dashboards with at-a-glance metrics, ensure that data is reported in a consistent way, and take steps to consolidate under-utilized and redundant programming where possible. Proactive trustees will work with the institutional research staff to ensure that their institution reports data to the federal government in a consistent and accurate manner. Trustees should then look for justifiable explanations for this increase, such as increasing the size of a development office. But these explanations deserve scrutiny and boards should consider consolidating administrative functions across departments and across campuses.

Are there any success stories we can point to where colleges have used ACTA’s research to cut costs?

The University of Wyoming’s board of trustees commissioned an independent audit of its spending priorities after learning its administrative spending growth relative to instructional spending growth was well above the median level for its peer-institutions. This investigation will increase transparency and will help the trustees be more effective in their oversight of the university. We hope there will be many more to come as trustees and leaders continue to look closely at the issue.

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