January 21, 2013

What's the Meaning of the Moody's Report?

The new report from Moody's Investors Service, casting doubt on the financial state of affairs in higher education, has provoked a good deal of anxiety.

The report referenced five revenue streams affecting all public universities. Two (philanthropy and endowments) deal primarily with broad, macro-economic trends over which university leaders have little, if any, control. On endowments, Moody reasons, "The outlook for capital market returns is partly linked to the potential resolution of the federal budget deficit and any economic fallout from action or inaction taken in Washington. However, some degree of volatility is likely over the next several months as the U.S. government struggles to settle key tax and budget issues and Eurozone problems persist." Regarding philanthropy, Moody's expects "gift support to show little to no growth in the near term due to continued volatility in the stock market, which is the best indicator of private philanthropy."

It's hard to argue with this political analysis: Barack Obama will remain President through January 2017, and Republicans are almost certain to retain control of the House for the next four years. So political "volatility" likely will be with us for some time.

The report listed three more university-centered concerns. On tuition, Moody's believes that "years of depressed family incomes and net worth, as well as uncertain job prospects for many recent graduates and a slight decline in the number of high school graduates, are creating enrollment pressure and weakened pricing power for colleges and universities." At the level of state governments, "U.S. states have mixed revenue results in 2012 with many still pressured by the weak economic recovery, so state contributions to operations are not likely to rise meaningfully in the near term." And at the federal level, "the current fiscal environment offers limited possibility for stable or increased funding by the federal government."

In announcing the report, Moody's analyst Kim Tuby offered an intriguing comment, noting that during the past year, "public and political scrutiny of colleges and universities, both not-for-profit and for-profit, have escalated and that 'the sector will remain under the microscope in 2012 and beyond.'"

How should we interpret Moody's findings?

The comments about tuition are potentially most alarming. Institutionally, the most significant change in higher education over the past generation has been the explosion of administrators' positions, whose rate of growth has far exceeded that of full-time faculty. As any glance through FIRE's website reveals, the emergence of administrators has had a pernicious effect: student life bureaucracies have a well-deserved reputation for both political correctness and a hostility to free exchange on campus.

But the stated rationale behind the growth of administrators has been that a massive student life bureaucracy will enhance the typical student's campus experience, since these students are incapable of navigating the modern college experience themselves. In theory, the vision behind the student life bureaucracy sees the student as a consumer rather than a learner, someone who needs to be accommodated lest he take his finances elsewhere by transferring. (Student life bureaucracies rarely work this way, of course; most often, they focus on enhancing "diversity" by championing policies to ensure that certain groups of students never feel uncomfortable on campus.)

To the extent, then, that Moody's forecast about a possible tuition squeeze is correct, the likely impact is doubly ominous. First, the development will deny needed financial resources, especially at non-elite institutions that lack large endowments. Second, a fear of losing students will enhance the internal power of student life bureaucracies, who will argue that student retention (and preserving scarce tuition dollars) requires more student life bureaucrats.

Moody's finding regarding a diminution of state and (to a lesser extent) federal support seems likely even if the economy suddenly improves. Over the past generation, as politics have become increasingly polarized and partisan, higher education has moved consistently in one ideological and partisan direction. (At my home institution of CUNY, the faculty union is notorious for refusing even to reach out to Republican state legislators, even as the GOP controls the New York state Senate.) Universities are perfectly free, of course, to create race/class/gender-dominated faculty and adamantly commit themselves to "diversity" as their preeminent goal. But it should come as little surprise that colleges with such an agenda will tend to isolate themselves politically--meaning that, in hard economic times, as legislators have to make tough choices over what programs to fund, state governments will fund other, more politically popular, programs.

Finally, Tuby's speculation about a possible increased "public and political scrutiny of colleges and universities" might be promising: while politicians can and must respect principles of academic freedom on campus, state legislatures have an important role to play in improving higher education--at the least by ensuring that trustees do their job as part of the principle of shared governance, at the most through a more aggressive legislative oversight role, bringing transparency to campus personnel and curricular decisions that advocates of the status quo would prefer remain in the stealth.

Unfortunately, I suspect that increased public and political scrutiny will likely yield calls for colleges and universities to demonstrate that students are fulfilling stated "learning objectives," a development borne out of the business community and a call for universities to concretely demonstrate how students are learning. But the concept of "outcomes assessment" too often has been a cover either for anti-intellectual instruction that de-emphasizes content or a method to conceal politically correct curricula on grounds that students are learning "skills."

In short, there's little promising and much potentially troubling in the Moody's report.

Post a comment

Leave comments here. Unless they are vicious or obscene, they will be printed.


Published by the Manhattan Institute
The Manhattan Insitute's Center for the American University.