Fueled by a decline in enrollment and rise in expenses, Missouri Western was $1.4 million in the red last year and has had a $3 million deficit over the past three years.
That trend has pulled the university’s reserves down to $7.3 million as of fiscal year 2016, making such losses unsustainable. This year — Fiscal Year 2017, ending June 30 — is projected to be another $400,000 in the hole, depleting those reserves further.
President Robert Vartabedian views low enrollment as the primary cause of the university’s financial situation.
“The problem is, enrollment cycle has not been a positive one. On the up side, we were anticipating a drop [in enrollment] of about six percent, and it’s turning out to be about three percent. We are very proactively trying to change that,” Vartabedian said. “We have a series of unfunded mandatories; increased costs in areas like retirement, utilities and the Moser (retirement and insurance) system, and I think all taken together, we are not exactly rolling in dough right now.”
Student enrollment has been the leading factor behind Western’s financial problems. Fewer students in attendance has resulted in less revenue for the university, and Western’s enrollment has been steadily decreasing. Enrollment for 2016 is down three percent from fall 2015. Provost and Vice President for Academic Affairs Jeanne Daffron attributes the drop in enrollment to a decrease in the national unemployment rate.
“The category of students that we saw the largest drop was in adults age 30 and over,” Daffron said. “So, typically that has been closely related over the years to the unemployment rate. When unemployment is high, we tend to see people going to school. Those go pretty strongly hand in hand. There is a pretty strong correlation, especially in institutions who are in a metropolitan area. When one goes up, the other tends to go down.”
The fluctuation in student tuition, fees and housing has caused the university to bring in less revenue than what was previously anticipated, causing the operational budget to become unbalanced. Western’s enrollment has dropped approximately 10 percent since 2010. Under Missouri’s Higher Education Student Funding Act, the university cannot legally inflate tuition beyond the cost of living (approximately one to two percent per year).
While enrollment has gone down, scholarship opportunities and employee benefits have increased. Despite a consistent decrease in enrollment in recent years, the amount of scholarships awarded has increased approximately $800,000 since FY14. In August, Western’s Board of Governors also approved the installation of six new athletic programs: men’s and women’s indoor track and field, men’s and women’s outdoor track and field, and men’s and women’s cross country. There was also a two percent salary increase for faculty and staff to offset the general cost of living.
Faculty Senate President William Church, as well as several other faculty and staff members, were unaware of the deficit in the operational budget prior to their two percent raise.
“There was no way for any of us to have known this was coming from a deficit. If anyone on faculty [senate] was aware that the raise was coming at the expense of a deficit, I certainly didn’t know about it,” Church said.
In addition to a drop in revenue as a result of decreased enrollment, several projects during FY14 and FY15 were funded in part from the reserve funds. Vice President of Financial Planning Cale Fessler anticipated a slight drop in reserves after funds were reallocated to help finish campus renovations.
“In 2015 and 2014 we had some specific projects that were approved to run out of reserves, so we knew we were going to have [a reduction],” Fessler said.
The Percussion Studio and restroom renovation in Potter Hall were both completed by funds from the reserve.
“We’ve used some of the reserves for projects we’ve seen as necessities, but right now, considering the size of our budget, it really is still within a fairly comfortable range,” Vartabedian said.
In addition to campus advancement projects funded through reservations, areas within the operational budget such as travel were extremely underestimated. In the 2016 Fiscal Year travel expenses were $523,997 over budget. According to Fessler, travel expenses relating to international and athletic recruitment were among the more costly items within the budget.
To help alleviate the financial stress, the university has purchased a new series of fleet vehicles, costing $66,208, in order to avoid accumulating more expenses through rental cars.
“We knew we were going to have a bump up in travel expenditures,” Fessler said. “We have had expanding travel, so part of that in terms of trying to address some cost containment has been the expansion of the university’s fleet [of vehicles] to try and keep the cost down in a number of various ways.”
Investments and State Appropriations
Western views the additional athletic programs and vehicles as tools for potential recruitment that will eventually offset the university’s deficit. The university has also taken the initiative to hire Royall and Company, an outside undergraduate recruitment service, to improve enrollment.
“In many way[s], the vehicle fleet, and then in a larger way the Royall Company investment and the new athletic programs, are all really investments that will help us with enrollment,” Vartabedian said. “In the case of those additional athletic programs, it’s an initial investment, but if you have six new athletic programs thriving, and we think those six can thrive here, that will bring in a lot of very good students to our campus. We feel like it is an investment that will pay strong enrollment dividends in the future.”
For the Fiscal Year 2016, state appropriations accounted for slightly over 41 percent of the university’s operating budget. Because that is down from the 48 percent funded by the state in Fiscal Year 2006, many universities now must find alternative ways to bring in revenue to compensate for the decrease in state funding.
Western can expect a four percent (approximately $870,000) increase in state allocated funding in the next fiscal year to help offset the dip in the operational budget and has decreased the overall operational budget by approximately $200,000. However, despite precautionary investments to increase revenue, the university is still expected to use reserve funds to balance the budget.
“Our budget for 2016-17 has been put together, and from a budgetary perspective, we try to fall on the conservative side. We don’t make an aggressive estimation of revenue and we try to hit our expenses a little high. Our overall budget has been put together for the use of $400,000 worth of reserves for FY17,” Fessler said.