Ohio State CFO Geoff Chatas: Higher ed adapting slower than financial climate changing

Daniel Bendtsen, Khalid Moalim
Thu, 05 Feb 2015 05:23:36 +0000
Area, Campus, Local, National, Finance, funding, Geoff Chatas, osu, tuition

OSU senior vice president and CFO Geoffrey Chatas conducts an interview with The Lantern on Feb. 4 at Bricker Hall. Credit: Khalid Moalim / Asst. multimedia editor

State support for higher education has been declining for decades, but the federal government released a study in December with a new find: As of 2012, funding for universities now comes more from tuition than it does from state funding.

This “inflection point” happened much earlier in Ohio, though. It was 2003 when tuition passed state funding at Ohio State, and the margin has only increased since.

The federal study done by the U.S. Government Accountability Office, showed that in 2003, about 32 percent of public colleges’ revenue was from state funding, while tuition made up 17 percent. In 2012, however, tuition increased to 25 percent, surpassing state funding, which was at 23 percent. In contrast, shares of federal, local and other revenue sources remained relatively stable.

Tuition surpassing state funding comes as public college enrollment is at its highest peak. Enrollment at public colleges increased by 20 percent from school years 2002-03 through 2011-12, while median state funding per student declined 24 percent. The trend is primarily driven by four-year colleges, which have experienced faster enrollment increases than two-year colleges.

The study also mentioned that the majority of its sources attribute the decline in state funding for public colleges to competing state budget priorities, like healthcare and K-12 education.

There was an uphill trend from fiscal years 2005 to 2008, the study found, but that was followed by a downward trend from fiscal years 2008 to 2012, which most of the sources for the study attribute to the two-year recession from 2007 to 2009.

OSU chief financial officer Geoff Chatas said temperamental state funding can be a difficult squeeze for the university, and it’s one that’s exacerbated by the state’s practice of planning its spending in only two-year increments.

“The governor issues a biennial plan, a two-year plan,” he said. “It’s debated in the legislature and typically, by June, you have the answer, but it doesn’t really ever go up.”

This trend presents difficulties for the university while it attempts to manage its balance sheet, Chatas said. However, the greater financial problem for the university is not a decline in state funding, but an increase in costs.

Ultimately, total revenue has increased slightly over the last decade, but the cost of college has been increasing at a faster rate than both healthcare and family income, Chatas said. It’s that problem, not the decline in state funding, that he sees as the driver of greater financial burdens for students.

“The first question we have to ask is, ‘Well, why did the cost go up by so much?’ — not ‘Was the state responsible?’” he said.

In part, Chatas said, the answer to the former is that the expectations of a modern university have gone up.

“I don’t want it to say, ‘Oh, God, it’s just Student Life,’ because it’s not just adding the RPACs and the Unions, but it’s also adding counselors and services, things (students) demand or want or expect,” he said.

Despite rampant concern over growing student debt, Chatas noted the irony that demand for a degree hasn’t gone anywhere.

“That’s sort of fascinating, right?” he said. “Despite all the debt, people want to come and want the RPACs and they want the Unions and the students voted for all of those, right? So they had elections with the students and they said, ‘Yeah, I’ll pay a fee.’”

Despite that, Chatas said the university has a responsibility to make college more affordable, because the current paradigm is an unsustainable one for students.

“If you take the supposition that these debt burdens get larger and keep getting larger and larger, at some point you’re going to have to hit the tipping point,” he said. “To say it isn’t worth it, I don’t think we’re there today. I think most people would say, ‘Hey, I don’t like the $22,000, but I like the Ohio State degree and it sets me up well to go forward, but gee, if I could do it at $10,000 debt, that would be a lot better than $22,000. But if the 22 became 100 — I mean, it won’t — but if it did, you’d have a different discussion.”

OSU Columbus campus tuition for Ohio residents for the 2014-15 academic year is $10,037. Nonresident tuition is $26,537, which includes an out-of-state surcharge. In June, the Board of Trustees voted to enact a tuition freeze for in-state students, but the surcharge for non-Ohio residents was increased by 5 percent.

To combat that risk, Chatas has taken new approaches to increasing revenue for OSU. He’s backed a privatization of the campus’ parking and utilities, sealed an exclusive contract with Huntington Bank and sold $500 million in bonds.

While utility privatization is still ongoing, the university’s parking was leased for $483 million in 2012, a deal the university credits with bringing 87 full-ride scholarships to the university.

But Chatas still doesn’t see utilities as the stopping point for the university on this front.

“We’re not done,” he said. “If you think about something like cellphones: Can we do a creative deal with a cellphone company? As long as it is not a mandatory thing and it can generate resources, then why wouldn’t we talk about it?”

There are limits, however: “We don’t want to turn Ohio State into you walk on the Oval and there are billboards everywhere,” he said.

Some of the creative revenue ideas he’s aimed to put in place have been slow-going because changing higher education is “ridiculously hard,” Chatas said.

“When I started the parking privatization discussion, (former OSU President) Gordon (Gee) said, ‘Hey, look, universities have been around since Bologna and part of the preservation is that they’re slow to change,’’’ Chatas said.

“So ironically, this round up in cost happened relatively quickly, but dealing with it is not going to be something you’re going to do overnight because culture is ingrained to not being inclined to change quickly, to study things, to review them, to analyze them, to test them. That’s the way academics are trained.”

Ultimately, Chatas said he thinks that scrutiny has a positive impact, but the slow process can’t work if universities aren’t able to effectively plan ahead when states take dramatic action. Ohio’s funding under Gov. John Kasich from State Share of Instruction dollars, which moved higher education funding to a performance-based model, is a plan no other state has taken, and makes it even more difficult to plan, Chatas said.

While the SSI model is unique to Ohio, other states have taken dramatic action which forced quick change.

“The model from the governor of Wisconsin just saying ‘I’m taking 300 million and you can’t raise tuition,’ that’ll force change — but it will force it very abruptly,” he said, noting Wisconsin Gov. Scott Walker’s recent move to slash $300 million from university funding while instituting limits on room-and-board rates.

But if such a dramatic change were to happen, Chatas said he isn’t above grandiose thinking, including testing the limits of what people think is economically possible in the university.

“I’ve also talked about, can we break the cost curve?” he said. “So bending it will lower the rate of increase. I want to know if you can lower the absolute cost and I don’t know the answer to that.”