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After the BOT mandate to cut 15 full-time equivalent (FTE) positions was announced, students began to show interest in the budget—namely, where our money is going. While the administration will not release the budget, VP Finance Mike Frandsen gave a presentation at the Mar. 15 student senate meeting that made it clear that Albion evaluates itself comparatively via a number of peer groups.
Two of those peer groups are the Great Lakes Colleges Association (GLCA)—a group of 13 private liberal arts institutions in the Great Lakes area, and the Faculty Salaries & Compensation Research Team peer group (FSCRT)—a peer group of 29 schools created by our administration to help evaluate our finances in relation to other four-year liberal arts undergraduate institutions around the country.
The use of multiple peer groups was questioned by students at the Mar. 15 student senate meeting because different groups are used depending on what aspect of the school is being evaluated, a seemingly convoluted method of comparison. If we are trying to evaluate ourselves objectively, shouldn’t we adopt a fixed base of comparison so we have an immovable common denominator, not multiple scales that can be used alternatively depending on the situation?
In order to find out more about these peer groups, using the Albion College 990 forms and the website guidestar.org, a nonprofit organization that provides data on the finances of nonprofit organizations all over the country, I analyzed tax information for Albion as well as the 34 available (of 37 total) peer institutions to see exactly how everyone spends their cash. Moreover, I have converted everything to percentages—since every school’s budget is a different size, this standardizes the relative amounts of money that go to
1. Academics Costs
2. Administrative Costs
3. Fundraising Costs.
Thus, this is a look at the 990 tax forms for Albion College as compared to our “peers,” no smoke and mirrors, just the numbers from the federal government. Let’s see what happens.
Looking first at the Albion College tax records from the 1984-85 academic year to 2007-08:
- After holding steady at ~88% of our total budget funding academics (pretty good compared to other colleges, as we’ll see), this number dropped steadily from 88.62% to 74.91% from 1997 to 2008.
- In this same time frame our percent spending on administrative costs rose from 7.70% to 20.50%—almost tripling!
- Using the enrollment numbers for each year, the per student cost that goes to administrative spending has climbed in ten years (1998-2008) from $2,083.26 to $5,516.43, while cost to academics has meandered from $19,147.51 to $20,160.50. So in 10 years the student cost increase for academics is just $1,012.99, but for administrative costs, it is over three times that much, $3,433.17.
Comparing our 2006-2008 (the years currently available on guidestar.org) data to that of the other schools in the GLCA:
- The average percent academic spending of our GLCA peers is 87.09%, ours is 72.01%–a difference of 15.08% of the total budget and lower than all of our GLCA peers.
- The next lowest percent academic spending is 77.37%, still 5.36% higher than us.
- One peer in the GLCA spent over 94% of its total budget on academics, and less than 3% on administration.
- The average percent administrative spending of our GLCA peers is 9.78%, ours is 22.95%, over twice as much and higher than all of our GLCA peers!
- We spend the greatest percent of our budget on fundraising in the whole GLCA, but we gain the smallest percent (of our total budget) in funds raised!
- We spend 5.05% (peer average 3.12% ) of our budget on fundraising, and we make 12.5% (peer average 22.03%). Does that seem right to you?
- Some peers regularly fundraise for almost one-third of their total annual budget. Some have raised over half of their total annual budget in a single year. Just fundraising.
Comparing our 2006-2008 (the years currently available on guidestar.org) data to that of the other schools in the FSCRT peer group:
- Once again, we have the absolute lowest percent academic spending of all these 27 schools. Our average is 72.01% and the peer average is 87.44%.
- Unsurprisingly, we again claim the title of highest percent administrative spending in the whole peer group with an average of 22.95% and a peer average of 9.38%.
- Not last this time! Albion spends the second highest on fundraising and only gets the third-worst return in funds raised as a percent of our total budget. Savor this victory.
Bottom line: For all the confusion that these multiple peer groups provide to complicate and blur comparisons of budget spending with other institutions, this data suggests that it doesn’t even matter. Even if these three sample years are uncharacteristic, the Albion data alone shows a trend away from academics and toward administration that is over 20 years strong. If this makes you wonder exactly what it is that our school values, good—it should. Our academic programs do amazing things with the money they’re given—think of what they could do if they received the amount of funding that they deserve.
Moreover, if the reason these number s are so startling is that Albion calculates our academic/administrative spending differently than these other schools, it still doesn’t matter. It doesn’t matter because potential donors are going to look at these numbers the same way I did, the same way you’re doing right now, and so they will arrive at the same conclusions.
We may not have access to many numbers, but the ones we do have are plain and simple. No number of mirrors, no sleight of hand, and no misdirection can change the fact that compared to every single one of our peers we spend too much on overhead and not enough on our education. So tell me, how are we planning to cut our spending again?
First of all, where are you getting this %change from? There are no documents on the Guidestar website from 1984-1985 in order to compare to today.
Second, you are looking at a very limited portion of the tax forms, most likely because you cannot understand them in its entirety. You cannot analyze a small piece of something without looking at the big picture too. Just as an example, the contributions received by Albion were just over 5M in 2007, and Kalamazoo received about twice that. Also, their revenues from program services exceeded that of Albion as well.
Kalamazoo also spent more on key employees than Albion did. It is also irresponsible to make inferences from these tax forms about schools, because YOU DO NOT KNOW HOW THINGS ARE CATEGORIZED. What may be “program services” at Albion could fall under “Management and General” at Kzoo, or Hope or Alma, etc. and vice versa. You say this is irrelevant, but it is probably the only relevant thing.
It is not some shocking realization that you think it is. And you say that people will look at the numbers the same way you did even if the reason for the skewing is the way things are categorized. You are wrong here as well. An educated person would not draw conclusions like you did. And how many alumni do you know that look up the 990 forms to make a decision about donating?…that’s what I thought.
@anonymous
You raise some good points, but could do with lowering your temper. It’s not the end of the world, my friend. While it has some flaws, it is an interesting analysis that should not be discounted in its entirety — especially in light of the nature of the BOT actions in recent weeks.
To anonymous 1: If you are going to call someone uneducated, at least try to muster up the courage to use your real name. I’d like to dispel the rumors right now: despite the fact that I am NOT a business major or a member of the Gerstacker Institute, I can in fact understand a budget, expense reports, etc. So can many other students at this institution. Gerstacker is not the be all end all of intelligent people.
@Anonymouse Donors may not look at 990s, but journalists do. They’re trained to, and donors DO pay attention to news articles. As for the categorization, this is definitely an important factor that the writer has seriously underplayed. But it’s clear something wacky is going on. You don’t look this bad in relation to every comparison group without working at it. Either Albion has been dunder-headed about categorizing its budget or it’s been dunder-headed about administrative spending. The simplest solution would be to say it’s a little of both. Unfortunately, there is outside evidence that makes poor categorization the less likely culprit. Some years back, Albion was forced to do the walk of shame in the Wall Street Journal for massaging the alumni-giving numbers. It seems unlikely that a place willing to do anything to make the numbers look good somehow forgot about their 990s. Other colleges clearly have worked hard at these numbers. You can’t claim to devote 97% of your budget to academics, as one GLCA college apparently does, without being willing to designate every grounds keeper who once chatted up a co-ed as “academic staff.” Was Albion just uncharacteristically honest in this area? We may never know, but the fact that the college has been able to cut deeply from the administration in the last three years suggests that the fat was there, a whole lot of it.
As far as comparison groups go: To fail to release the overall budget and then to complain about 990 comparisons seems to perpetuate ongoing obfuscation. The Feds at least have rules about tax filings with legal penalties attached for misreporting financial data. This information is more than the College has provided, and is likely accurate given possible legal penalties. All schools must comply with some rules or the 990s are meaningless.
As far as “temper” goes: This article is a mild-mannered, analytical and concise piece based on the best data the author could lay hands on. It’s “not the end of the world,” just the end of trust and collegiality. These are things that our College depends upon to function well, and their loss is our competitor’s gain.
Kudos to Mark for a job well done.
Donors may not look at 990s, but journalists do. They’re trained to, and donors DO pay attention to news articles. As for the categorization, this is definitely an important factor that the writer of this story seriously underplayed. But it’s clear something wacky is going on. You don’t look this bad in relation to every comparison group without working at it. Either Albion has been dunder-headed about categorizing its budget or it’s been dunder-headed about administrative spending. The simplest solution would be to say it’s a little of both. Unfortunately, there is outside evidence that makes poor categorization the less likely culprit. Some years back, Albion was forced to do the walk of shame in the Wall Street Journal for massaging the alumni-giving numbers. It seems unlikely that a place willing to do anything to make the numbers look good somehow forgot about their 990s. Other colleges clearly have worked hard at these numbers. You can’t claim to devote 97% of your budget to academics, as one GLCA college apparently does, without being willing to designate every grounds keeper who once chatted up a co-ed as “academic staff.” Was Albion just uncharacteristically honest in this area? We may never know, but the fact that the college has been able to cut deeply from the administration in the last three years suggests that the fat was there, a whole lot of it.
Because of broad guidelines and differences in reporting, comparing IRS Form 990 reports across organizations is difficult. Assuming consistent reporting within organizations, which is the case for Albion over the last 10 years with the exception of 2006, trend analysis is more relevant. The author is correct in his reporting that the trend at Albion in the period he considered was toward higher administrative costs.
It is important, though, to remember that his data end with 2007-08, Dr. Randall’s first year as president. Since her arrival, the Board of Trustees and members of the current Administration have reviewed enrollment trends, retention, tuition, and discounting and have studied the College budget and each of its elements. Recognizing the economic distress of Michigan, the decline in the College’s endowment, and structural imbalances in expenditures, the College embarked on a series of reductions beginning in the 2008-2009 academic year.
When it is filed next month, the 2008 Form 990 (which reports July 1, 2008 to June 30, 2009, our fiscal year 2009), will show that Program Service expenses increased at twice the rate of Management and General expenses, 8% versus 4%. [NB – Though the author refers to Program Service expenses as Academic Costs, the category is broader than that.] Fund Raising expenses increased at a faster rate, 10%, but this is somewhat misleading as the prior two years reflect periods of transition. Fund Raising expenses in 2008, as reported on the 990, are more than 8% below the 2005 level.
Looking ahead, entering 2009-10, more than $3 million was cut from the previous year’s operating budget, about 70% of that from non-academic areas. We continue to identify opportunities for cost savings in non-academic areas in parallel to the faculty reductions that will take place. Some of the savings will improve “the bottom line,” but some will also be reinvested, in part to correct imbalances identified in this article.
Assessment using multiple measures is good practice. Audited financial statements and IPEDS (Integrated Postsecondary Education Data System) information, where there is less, but still some, variation across organizations, provide another view of how we do relative to our competitors.
Among the GLCA schools, audited financial statements are shared with the understanding that they will not be released publicly. Of the nine schools, including Albion, who have shared 2008-2009 statements, only two report using exactly the same categories and no school reports exactly as we do. (Reporting is, in part, driven by the preferences of an organization’s auditors.) Instructional expense is a common category across all institutions. Our instructional expenses were 32% of total expenditures, which is a lower percentage than all but two other schools. The average for the other eight schools was 36%. While Albion appears to be lower than many of its peers, reporting differences make direct comparisons difficult. In seven of the eight other institutions, no expenses were reported for operation and maintenance of facilities, a category Albion includes. One common practice is to allocate that expense to other areas based on the relative expense in a given category. Allocating our reported facilities expense in that way brings our instructional expense to 41%, higher than all but two schools.
IPEDS data provide another view, and perhaps even less cross-institution variation, though still not entirely apples-to-apples. Looking at 2007-2008 (the most recent available), we spent 39% of our total on instruction. The median for the BS&BC 29 (a.k.a. the FSCRT group, developed by the faculty and administrators who make up BS&BC) is 42% and the median for the GLCA is 45%. However, if one combines IPEDS categories for instruction, research, and academic support, we spent 56% of our total. The median for the BS&BC 29 is 53% and for the GLCA it is 57%.
The changes that have already occurred under Dr. Randall’s leadership and the changes that will occur in the future are all undertaken with the goal of strengthening Albion. The College does need to alter its financial trajectory through structural/operational changes in the near-term for a more stable future, financially, academically, and otherwise.
Dr. Mike Frandsen
Vice President for Finance and Administration