volume 42, number 1
Temple UniversityFaculty Herald

Temple's Secret Tax on Tuition (June 2, 2011)

By Philip Yannella, CLA

     Marina Angel, Beasley School of Law

 

Dear Editor:

   Like many other faculty, we have wondered where Temple’s Administration was getting the more than $300 million to fund a number of major construction projects while it claims that it is facing serious financial shortfalls which it proposes to address by tuition hikes, faculty hiring freezes, increased class sizes, and the like. The construction projects, which can be viewed at http://www.temple.edu/2020/projects/, are part of President Hart’s vision in her “Temple 20/20” plan.

   One project, a 20,000 square foot fitness center for which a cost is not listed, has already been completed. A second project is a $48 million, 140,000 square foot addition to Pearson and McGonigle Halls that is intended “to provide new retail on Broad Street, and enhanced campus recreation facilities.” A third is a $147 million “Residence, Dining, and Retail Complex”; its size is not indicated on the website, but it will be very, very large. The total cost of these three projects is more than $200 million.   

   Two much-needed academic buildings are among the projects:  a $10 million, 45,000 square foot building for the Department of Architecture and a $100 million science and research center of undetermined size (it is in the design stage). These two buildings, it is said, are to be entirely funded by the State of Pennsylvania.

   In an interview in the May 27 issue of the Temple Times, Anthony E. Wagner, President Hart’s Executive Vice President, Chief Financial Officer, and Treasurer, said that there are “four pots of money” available for the “Temple 20/20” construction projects: 1) an annual capital appropriation from the state, an appropriation distinct from the state’s appropriation for our educational efforts (this is the money for the academic buildings); 2) gifts from donors; 3) bond sales to investors; and 4) money, or “reserves” in the language of accounting, which comes from “our operating margin, which is in the 3-4 percent range.”

   The first three “pots of money” are entirely conventional. The fourth “pot of money,” the money from the operating “margin” (as in “profit margin”) is an entirely unconventional source. We have never heard it referred to at Temple prior to Mr. Wagner’s interview, nor have we heard of it as a part of construction funding at other universities.  

   Temple’s operating budget was about $836 million in 2010-11. $186 million of that $836 million came from Temple’s state appropriation to support the education of our students and $602.8 million came from the tuition and fees paid directly by those students. When Mr. Wagner said that the fourth “pot of money” was in the “3-4 percent range,” he was saying that the Administration took $25-33 million out of the University’s educational budget to help pay for its “Temple 20/20” plan.  

   How can our Administrators justify using the tuition money paid by students and the taxpayers supporting those students for construction projects that have , at best, a tenuous relationship to education? We do not believe they can.

   Tuition is universally defined as “the charge or fee for instruction.” What is it called when tuition is used as a “pot of money” to fund projects that have little, if anything, to do with the instruction of the payers? It could be called, we think, an illicit, secret tax levied on students and taxpayers without their knowledge or consent. It is a tax that apparently recurs and will, Mr. Wagner promises, continue to recur annually.

   We suppose that the Administrators who levy the tax on tuition understand that the best thing about their fourth “pot of money” is that it need not be in the “3-4 percent range” but could be any percentage of the operating budget that they wish it to be. That is so both because there is no oversight, no rules on how much the educational mission of the University can be shorted, and also because the tax, or “margin,” as Mr. Wagner calls it, is not an item in the University’s detailed operating budget, or any of its annual financial reports, or its IRS tax return, but is, rather, under the table. Even if the state or donors or the bond market are unable to provide the construction money, it must seem to our Administrators that there will always be that golden pot of tuition money to dip into.

   A month ago, “On the Budget, Part II” was published in the Faculty Herald. It raised questions about how undergraduate tuition money was used by the Administration, noting that only about one-quarter of it went for instruction and asking how the rest was spent. It answered, “Some certainly must have been used to make up for recent declines in state appropriations. Some went into the library, instructional technology, laboratories, student activities, and so forth. But some also went to the expansion of administration and to the high salaries of our top people and middle managers.” Now, as the result of Mr. Wagner’s interview, we have learned that a considerable amount of it is also going to help construct the Hart Administration’s vision of a brave new Temple.

   Americans have become increasingly aware of the failures of higher education because in recent months and years there have been a number of books and articles documenting those failures. It is no longer news that many, many students graduate (or drop out) with high amounts of debt, that in many instances the college experience has not added much to their knowledge, that many are ill-prepared for careers in anything remotely like their majors. It is no longer news that the cost of a college education has been driven up by frills like campus recreation centers and retail shops (such as the “Temple 20/20” plan envisions), huge salaries for coaches and administrators, beautification projects, and whatnot.

   Temple students, as the last few issues of the Temple News indicate, are quite aware of Temple’s basic problems. An article on April 19 complained about the Administration’s secretiveness on its uses of tuition and remarked on how Temple has shifted from aspiring to be “Harvard on the Delaware” to becoming the “profit-/loss-oriented bureaucratic machine it is today” (p.5) Other articles in that same issue looked at the use of tuition money to subsidize athletics. In an article on April 26, reporter Joel Faltermayer raised the rhetorical question, “After all, what’s more important: making the campus appear hip and edgy to the parents of prospective students, or providing an education that’s not founded upon disgruntled instructors and consumer aesthetics?”  The article also remarked on how another tuition increase would further reduce the chances of minority students to get a Temple education (pp. 5-6). Reading through these issues of the News, we get the clear understanding that the writers are very angry not at the Governor or Legislature because of their budget proposals but at Temple’s Administrators because of their upside-down priorities.   

  We have thought long and hard about what to do at this juncture, and we would like to make three simple proposals:

1) The Administration should immediately print in the Temple Times a year-by-year list indicating exactly how much money has been removed from the operating budget by the Hart Administration for construction.

2) To immediately move us in the right direction, toward properly educating our current and future students, the Administration should immediately un-freeze instructional and research hiring. That is, the money taken out of the operating budget for the Hart Administration construction plan should be put back in for academics.

3) If the Administration decides to raise the tuition of our students, it should give them an itemized accounting of how much of their 2011-12 tuition will be utilized to pay for the Hart construction plan. In addition, because so many serious questions have been raised in recent months about Temple’s priorities, it should also inform students about how much of their tuition money will be spent to pay the salaries of administrators, to subsidize athletics, and to pay for other non-instruction items.  

Sincerely,

Professor Philip R. Yannella, CLA

Professor Marina Angel, Beasley School of Law

 

 

The Irrational World of Temple University Finances: Health System Deficits, Operating Surpluses, Major Tuition Increases, and Continuing Construction (July 11, 2011)

By Philip Yannella, CLA

    

 

Dear Editor:

  In early June, Professor Marina Angel and I published our letter on “Temple’s Secret Tax on Tuition” in the Faculty Herald. A few days later, I had a long, detailed, informative conversation with a colleague who I have long admired and respected because of his knowledge of the University. My colleague thought that Marina and I had gotten it right about Temple’s use of tuition and taxpayer money for construction projects. But he thought that our analysis was incomplete and that, more importantly, we did not convey some basic facts about Temple’s finances.
  As Marina and I wrote, Vice President and CFO Anthony E. Wagner recently claimed that Temple was financing its construction projects with four “pots of money”: an “annual” capital appropriation from the state, gifts from donors, bond sales to investors, and money from an “operating margin” (i.e., the money “saved” from instruction, what we called the “secret tax” on tuition). To our comments about these money sources, my colleague correctly added the following:


      - State capital funds are not and never have been automatically appropriated annually, nor are

      they easy to get because they must first be appropriated by the Legislature and then, second,

      released by the Governor; moreover, in hard times, with a fiscally conservative new Governor,

      it is not at all clear that there will be significant State investments in college campus buildings.


      After our conversation, I looked at State forecasts of its capital expenditures, discovering that

     even in the last years of the Rendell Administration the forecast was not expansive for

     education or for other purposes (see p. 843 of the “Governor’s Executive Budget 2010-2011” at

     http://www.post-gazette.com/downloads/20100209rendellbudget2010-11.pdf).


      - No recent Temple construction project came close to meeting its budgeted goals for donations

     and, consequently, operating funds (largely derived from tuition revenues) had to be used to

     make up the difference between projected and real donations.

     After our conversation, I looked at the information on recent donations contained in the financial

     statement of President Hart’s “Report from the President Fiscal Year 2010,” which is on p. 22 of

     http://www.temple.edu/president/documents/TU-AR-R5-v2-FINAL.pdf. For a university the size

     of Temple, the figures are not impressive: there was $33 million donated in 2005, $49 million in

     2006, $62 million in 2007, $65 million in 2008, $45 million in 2009, and $52 million in 2010. I

     would gather that very little of this money was given for construction.


     The 2010 President’s “Report,” incidentally, also indicates how poorly Temple’s $244 million

     endowment compares to the endowments of her “selected peer” institutions (the University of

     Pittsburgh has $1.8 billion, Penn State has $892 million, Boston University has $892 million,

     SUNY Buffalo has $408 million, and so forth).

     - Funding construction through the sale of bonds to investors will increase Temple’s debt and the

     principal and interest have to be paid back annually to those investors.

     Temple’s long term debt, I later discovered, was $718 million in 2009 and increased by $129

     million to $847.7 million in 2010. The amount of long term debt grew by 23% since 2005, when

     it was $603.4 million.

   Like Marina and me, my colleague was, then, profoundly concerned about Temple’s construction plans. He was also profoundly  concerned about the huge losses being sustained by the Temple University  Health System. He pointed out that in  2010 the  System lost  some $69.5 million;  its “patient  care  activities”  generated  $1.08 billion  in  revenues   against  $1.15 billion  in  expenses. Those figures are on p. 3 of Temple’s most recent audited financial statement at http://www.temple.edu/controller/treasurer'sreports/Fiscal2010.pdf. The long term debt statement I mentioned above is on p. 2. Temple University and the Temple University Health System are separate entities, but the audited financial statement consolidates the finances of the two and thereby allows us to see the whole picture.
    I later studied the audited financial statements for each year from 2006-09 (each can be accessed on the Temple website – go to “About Temple,” then “Public Information,” then “Budgetary and Financial,” then “C”). In each year, the Health System’s “patient care activities” ran a deficit: $89.8 million in 2009, $74.8 million in 2008, $12.9 million in 2007, and $54.7 in 2006. The total loss from 2006 and 2010 adds up to $301.7. That huge amount of money is about as large as Temple plans to spend on its current construction projects.
    How long can Temple continue to run huge Health System losses? Does the Health System have reserves that can cover such losses? What happens when the Health System can no longer cover its deficits through its own reserves? Barring a government bailout (how likely is that?), will the University step in and cover them through University funds? Will the Health System go into bankruptcy? Each of those scenarios is scary.

   I work on the Main Campus. The financial well-being of the Health System is not my everyday concern. Rather, like many faculty members and administrators, my everyday professional life is impacted by the financial well-being of the University’s educational enterprise, especially its undergraduate enterprise. Like everyone else, virtually every year I receive the messages from my Dean, who receives them from the Provost, that we are once again broke, that we need to cut back more, that there will be freezes on this or that, larger class sizes, pared course offerings, and whatnot. I think I have been disciplined to regard our educational enterprise as threatened, as very tenuous, as teetering on the brink of disaster.
    But, in actuality, Temple has had and continues to have plenty of money. Exactly how much is not a matter of dispute. For even after its huge Health System annual deficits are taken into account, and even after its average annual $13 million “Auxiliary Enterprise” deficits are taken into account, Temple still reports that there are large operating surpluses. Those surpluses – they are titled “Excess/(deficit) of revenues over expenses” – are reported on p. 3 of the audited financial statements. In 2010, the surplus was $61.2 million, in 2008 it was $49.2 million, in 2007 it was $98.4 million, and in 2006 it was $31.6 million. There was one year, 2009, in which there was a deficit of $14.1. The total surplus from 2006 through 2010 was $226.3 million, an average of $45.2 million per year. This is the money, paid as tuition, as the “charge or fee for instruction,” that Temple takes as a “pot of money” to pay for its construction projects (and perhaps a few other things, too). Readers can use their own imaginations to picture the enhanced undergraduate academic programs we could produce with an extra $45 million each year.

   Let me summarize what Temple’s own reports show. It has a Health Care System that runs huge deficits. It is poorly endowed. It gets relatively meager annual donations. It annually loses a lot of money on its Auxiliary Enterprises. It takes $45 million out of the operating budget each year, money largely paid by undergraduates as tuition, uses it for construction projects, and, as a result, it constantly squeezes its colleges and departments. For a staterelated institution, for many years, it has had very high tuition rates.
    What rational steps would such an institution take in the summer of 2011, when the nation faces hard times and many economic uncertainties? Many rational institutions such as Harvard have in the past three years shelved construction plans. In March, upon learning of the enormous cuts to higher education being proposed by Governor Corbett, Penn State’s trustees immediately froze $138.5 million in construction. Across the country, rational institutions have tried hard to minimize tuition increases: an article in the July 10 Chronicle of Higher Education, titled “Few Finance Chiefs Are Optimistic in Face of Slow Recovery,” reported that two-thirds of CEOs said that their institutions would raise tuition by 3% to 6% this year, while 21% said the increase would be more than 7%.
    This past week, we learned that Temple’s state appropriation for this year will be cut by 19%, a large number but dramatically less than the 50% cut that was proposed by Governor Corbett in March. Last year, the state appropriation was $186 million, so the 19% cut amounts to about $35 million. Temple has announced that, in response to the appropriation loss, it will cut its operating budget by $36 million, mostly by “reducing administrative expenses.” But it also announced that it will raise undergraduate tuition by 9.9% for state residents and by 5.4% for out-of-state students. Those increases place it among the institutions with the highest tuition increases in the nation. I assume, of course, that none of those other institutions have operating surpluses, deficit-producing Health Systems, or plans for major construction during this bad economy.

   By my calculation, the undergraduate tuition to be paid in 2011-12 should be about $32 million more than was paid last year. My calculation assumes that, excluding Temple Japan, there will continue to be 27,197 fulltime equivalent students and that 73% will be state residents (those were the September 2010 numbers). The arithmetic is simple: 19,853 state resident students will each pay $1172 more, which multiplies to $23.3 million, while 7344 nonresidents will each pay $1170 more, which multiplies to $8.6 million. The total, then, is about $32 million. As readers will notice, the tuition increase essentially wipes out the state appropriation cut. Regarding the promised “reduced administrative expenses,” I propose that we all adopt President Reagan’s “trust and verify” approach.
    Will that $32 million in new tuition revenue be used for the instruction of undergraduates? No, I do not believe so. I expect that, as in prior years, the increased revenue will be used to subsidize Temple’s construction projects and, perhaps, a few other things.

Sincerely,
Philip R. Yannella
Professor of English and American Studies

 

 

A Letter to the Editor (July 12, 2011)

By Mark Rahdert, Beasley School of Law

    

Dear Editor:

   I have read with great interest and some concern the very careful analyses that Philip Yannella and Marina Angel have provided regarding the funding of Temple’s 2020 construction program. I believe they make a very strong case for the view (contrary to assurances the administration has given in the past) that (1) operating budget funds are in fact being used (in fairly substantial amounts) to fund the university’s building program, and (2) those funds are being paid through program cutbacks and student tuition increases. I believe that the time has come for the university administration to respond in detail to Professor Yannella’s and Angel’s analysis.

  I believe there is widespread support among the faculty for the general thrust of the 2020 plan. There are many places where Temple needs new facilities. Many of us share the feeling that to be a truly dynamic institution we need to be constantly building, so that new buildings are a sign of progress. But that can be misleading. The year 2020 could see some great new buildings at Temple, but if we are not careful it could also see a lot of red ink, spiraling tuition, an accompanying loss of student economic diversity, and declining academic programs.

  Our support for an ambitious building program should depend on how much it costs and how those costs will be paid. We cannot afford decades of crushing debt that cut into our resources for instruction, and our students cannot afford years of mounting tuition and student loan debt. We already have several construction projects under way, and I assume there is no real way to cut back on those existing commitments. But before any other projects in the 2020 plan are undertaken, I believe we need a frank – and more fully informed – conversation among faculty, students, administration, and trustees about the likely present and future budgetary and tuition implications of our building program.


Mark Rahdert
James E. Beasley School of Law