News / Education

New Book Cites Author’s 2010 Prediction of Imminent PASSHE Bankruptcies as Slippery Rock Becomes the Fifth PASSHE University to Declare Financial Distress

Angelo Armenti, Jr., the former Villanova University Dean and 20-year President of California University (Cal U), recently announced the release of his new book, Privatization Without a Plan: A Failure of Leadership in Pennsylvania Public Higher Education.

According to Armenti, the book describes in detail what the combination of privatization plus politically-motivated policy decisions is having on the students and the 14 PASSHE universities in Pennsylvania, which include Bloomsburg, California, Cheyney, Clarion, East Stroudsburg, Edinboro, Indiana, Kutztown, Lock Haven, Mansfield, Millersville, Shippensburg, Slippery Rock and West Chester.

Media stories published between mid-August and late October 2013 reported that Clarion², Edinboroᶟ, Mansfield⁴ and East Stroudsburg⁵ had, in that order, announced plans to cut tenured faculty positions and to take other actions in order to close large budget gaps ranging from $5.5 to $12 million.

On December 24, 2013, Slippery Rock University⁶ became the fifth PASSHE university to declare financial distress, specifically, a projected $10 million deficit for 2014-15, accumulating to $29 million by 2015-16.

Despite PASSHE’s totally unsustainable financial model, according to the book, university bankruptcies might be avoided for a period of time until the huge fund balances accumulated by some of the PASSHE universities, totaling over $500 million, got consumed. That Slippery Rock University declared financial distress sooner than some of the other PASSHE universities with much smaller fund balances is quite surprising, according to Armenti since, as of FY 2011, Slippery Rock had⁷ the second largest fund balance of the fourteen PASSHE universities in dollars ($44,645,546), and the third largest as a percent of annual revenue (33%).

According to the book, PASSHE universities retain five financial means to deliver their purpose while balancing their increasingly strained budgets: 1) State Appropriation; 2) tuition and fees; 3) privately raised funds; 4) personnel productivity and energy conservation increases; and 5) alternative revenue generating ventures. Fund balances are not included on this list because they are “one-time” funds which, once spent, are no longer available to be spent in the future. Also, because of their already strained annual budgets, there is little possibility of current PASSHE university budgets spinning off large future annual surpluses that would help replenish their rapidly depleting fund balances.

Since PASSHE’s creation in 1983, according to the book, the share of PASSHE’s budget provided by State Appropriation (paid by the taxpayers) has fallen from 63% to 25%; the share provided by tuition and fees (paid by students and parents) grew from 37% to 70%; and the share provided by privately raised funds (paid by private donors, primarily alumni) grew from 0% to 5%.

Cash reserves (a.k.a., fund balances) are a great way to cover short term funding crises, according to Armenti, but the funding crisis that PASSHE universities face is fundamental, inexorable, and long term—that is, an ongoing crisis that no “normal” amount of cash reserves could forestall indefinitely.

The reason, according to Armenti, is that personnel costs alone at the 14 PASSHE universities consume 70% or more of each university’s operating revenue, meaning that recurring deficits as large as those cited at Slippery Rock could only be made up for by cutting recurring—as opposed to one-time—costs. And since furloughs of PASSHE employees can take a year or more to carry out, one-time fund balance funds would suffice only in the short term to avoid bankruptcy while recurring costs related to personnel cuts were still being processed.    

PASSHE’s financial model, according to the book, is currently aligned to produce two outcomes, depending only on whether student enrollments are increasing, steady, or decreasing: 

1) Individual PASSHE universities with increasing enrollments can survive financially, while impoverishing the other universities, but only as long as they continue to grow their enrollments each year. When enrollment growth stops, those universities face imminent mission failure and bankruptcy. 

2) Individual PASSHE universities with either steady or decreasing enrollments face imminent mission failure and bankruptcy.

According to the book, until the huge fund balances accumulated by some of the PASSHE universities get consumed, totaling over $500 million, university bankruptcies may be avoided a little while longer, although furloughs, layoffs and other bankruptcy-avoiding measures are certain to become regular news items in the future.

¹ Privatization Without a Plan: A Failure of Leadership in Pennsylvania Public Higher Education is on sale now, available from Amazon.com in paperback and e-book. http://www.amazon.com/s/ref=nb_sb_noss?url=search-alias%3Daps&field-keywords=angelo%20armenti.

² http://www.pennlive.com/midstate/index.ssf/2013/08/clarion_university_restructuri.html. Penn Live, August 16, 2013.

ᶟ http://www.post-gazette.com/education/2013/09/11/Edinboro-University-plans-faculty-program-cuts/stories/201309110152. post-gazette.com, September 11, 2013.

⁴ http://www.pennlive.com/midstate/index.ssf/2013/09/mansfield_university_becomes_t.html. Penn Live, September 26, 2013.

⁵ http://www.post-gazette.com/news/education/2013/10/30/East-Stroudsburg-is-fourth-state-owned-Pennsylvania-university-to-announce-cuts/stories/201310300139. post-gazette.com, October 30, 2013.

⁶ https://www.keepandshare.com/doc/6756902/tribune-review-december-24-2013-slippery-rock-university-facing-10-million-deficit-possible-l. Tribune-Review, December 24, 2013.

⁷ https://www.keepandshare.com/doc/6758271/official-passhe-data-on-unrestricted-net-assets-for-fiscal-year-2011-july-14-2012-pdf-315k. Official PASSHE Fund Balance Data - July 14, 2012.

ABOUT THE AUTHOR

Dr. Angelo Armenti Jr. served as President of California University of Pennsylvania (Cal U) from 1992 to 2012. Before that, he was a Dean at Villanova University, a professor of physics, and author of The Physics of Sports (American Institute of Physics, 1992). During his career at Cal U, Armenti is credited with establishing numerous funding sources for student scholarships and for campus revitalization projects, efforts made in part to address the problems that he describes in Privatization Without a Plan. In June of 2012, Armenti founded a non-profit corporation entitled The Pennsylvania Association of State Colleges and Universities (PASCU) whose mission it is to preserve the purpose of public higher education in Pennsylvania. He also writes for his weekly blog at http://angeloarmenti.blogspot.com/.