Last month I wrote a column arguing that the University of Kentucky's tuition increases were unnecessary. UK can balance its budget by reducing its overhead cost.
My conclusions were based on a cost and staffing comparison between UK and the other 61 Carnegie I public research universities. UK's President Eli Capilouto responded, arguing my analysis was out of context and I did not have the proper data. My data comes from the information reported by all universities to the federal government. Hence, the data I used for UK is UK's data.
In any event, I welcome Capilouto's response and I agree context is essential. That is why the original analysis compared UK's cost performance with all Carnegie I public research universities. An examination of UK's economic performance without this contrast provides no context at all, since we don't know whether a pertinent statistic is reasonable or unreasonable without the comparison. We cannot benchmark without some metric, and without benchmarking we are again considering UK's economic performance in isolation.
Capilouto makes a fair point about the impact of the hospital on administrative costs. However, if you deduct all hospital service costs from all 62 institutions, UK had the 18th highest cost per student in 2008. Further, in 2008, UK had the 18th highest full-time equivalent administrator/student ratio. UK also had 1.9 full-time administrators per tenure-track faculty member. The central question regarding the hospital is whether the hospital is self-sufficient or whether it is subsidized from the core budget? If the latter is true, then tuition and fees are subsidizing the hospital.
Here is another critical bit of context for all higher education: Administrator/student ratios have grown steadily for the past several decades. While full-time students increased by say 30 percent, the number of administrators grew by significantly more. Due to economies of scale, administrator/student ratios should decline as enrollment grows.
The only ratio that has declined is non-professional staff/student (clerical, service and maintenance). Tenure-track faculty/student ratios have grown modestly, while the big increases in faculty are among contract and part-time faculty.
In 1987, the ratio of full-time administrators to tenure-track faculty was about 1-1 at Carnegie I public research universities. By 2008, that ratio was well over 2-1. These trends hold true for public universities, masters-level public institutions, private four-year colleges and private research institutions.
In other words, the overhead problem is ubiquitous in higher education, just as it is in K-12 public education.
The growth in overhead staffing has a deeper context. It is known as "bureaucratic entropy." For example, in urban studies, the number of municipal employees tends to grow faster than the city's population, which means the employee/population ratio increases. This guarantees the cost of city services per citizen must increase, even if wages and benefits are constant (which they are not). Conceptually, the education problem is no different.
Another bit of context: During the past two decades, for-profit firms achieved a quiet revolution in overhead efficiency. Why has that revolution bypassed higher education? Administrative functions in higher education and for-profit service industries are not that different.
During the past several decades, a river of new funding flowed into higher education while costs increased faster than any other sector in the economy, including health care. Since revenues cap costs, costs cannot increase without that river of new money. Yet, the story is higher education always needs more.
The best strategy for an administrator is to get ahead of what is coming by clearly demonstrating the ability to lower cost without sacrificing quality. The only way that can be done is with leadership by example, which means serious cost-control efforts must begin from the top down.
Cut costs starting with the president's office and move progressively down all overhead functions before addressing any classroom issues. Unfortunately, the normal practice in education is to begin with faculty layoffs and/or reduced class offerings.
I am sympathetic to the problems that Capilouto must deal with. Frankly, I would not want to be a university administrator in the midst of the storm now brewing over higher education.
On the other hand, I am more sympathetic to students, families and taxpayers who must finance university operations.