Tuesday, July 3, 2007

Anatomy of a Deficit (Part Three)

Business Econ 101

{This is the third in a series on the college's financial difficulties. Flagstiffed has relied on reports from people with knowledge of the situation. Some sources have confirmed other sources but Flagstiffed has not asked the college's administration for comment.}

At a town hall meeting for employees, later in an email to employees, and after that in an article in a local newspaper, the president’s story about the college’s deficit kept changing. One version of events provided by the president (the deficit is the product of the college’s success with growing enrollments) can be easily discounted with a simply lesson in business economics, which has been provided for us by a business economist whose analysis was sent to us by one of our readers:

Putting an additional student into an empty desk for a single 3 credit course adds more than $225 to the college’s revenues. Yet, the marginal cost associated with that additional student is relatively insignificant---unless there are no empty seats to be had. However, that's not the case at the college. Very few classes are full (i.e., without a single empty desk in the room). So, in the vast majority of cases, adding another student to a class will generate a fair amount of revenue without incurring any significant additional costs.

Can you imagine a CEO in the business world telling shareholders that a firm's financial problems stem from having too many paying customers? Who would accept such nonsense at face value? Yet, that's exactly what the college’s president has done. If an organization's marginal revenue greatly exceeds its marginal cost at its current level of output, is it likely that it would lose money by expanding output a bit more? Given this scenario, shouldn't we suspect waste or fraud---or, at least, managerial incompetence---if an organization DID lose money under these circumstances?

We don't really know how much of a student's tuition the college gets to keep. But, given the minimal marginal cost of adding a single student to a particular class (i.e., providing a syllabus, a Class Schedule booklet, a student email address, and some "employee" time processing the registration and payment), it's a certainty that the college should be coming out ahead. A brand new student who goes through placement testing and counseling would be more expensive; but most of them end up with full loads, so they'd each generate $900+ in revenue their first semester.

What readers should find amazing is that in Fall, 2002 (less than five years ago), the college was charging $40.46 per credit hour for tuition. And they didn't seem to be going broke. They’ve raised tuition more than 79% since then (to $72.50 per credit hour)---and now they can't make ends meet! Where is all that "extra" money going?

If an organization has plenty of customers but still gets into financial difficulty, mismanagement is the likely cause. Fifty-three of the lowest-paid college employees had their hours cut with virtually no advanced warning. Some of them live paycheck-to-paycheck. Now we learn that summertime adjunct faculty will not get paid until July 1. Could you make ends meet if your take-home pay was cut in half tomorrow or you paycheck delayed by half a month? Administrators will never know. And there are many administrators at the college.


Next time: Swing a Cat, Hit a VP

6 comments:

Anonymous said...

Don't think "Star Trek: The Movie". Instead, think "Independence Day."

Predatory aliens move from planet to planet plundering resources before moving on.

Is resistance futile?

Anonymous said...

Ponzi was selected over the recommended Presidential choice even though the Chancellor knew he had baggage with a trail of lawsuits and out of court settlements. To answer the question "Who does the Chancellor report to?" That would be the Secretary of Education who was appointed by Gov. Tim Kaine. When will this tempest in a teapot spill over to the media?

Anonymous said...

Folks, wake up and smell the coffee. This isn't about a college we love. This isn't about a college where some of us have given two or three decades of our careers. This isn't about the students we serve.

This is about executive careers and the cronies who scratch each others backs to advance each others careers.

The chancellor knows what's going on down here. I have that on very good sources in Richmond.

How did a guy who the faculty senate and the support staff organization said was Unacceptable get the job? His crony from San Antonio Texas community colleges was state secretary of education.

Why does he keep his job? His crony that used to be secretary of education is now head of the regional accrediting agency. The local board has members of his fraternty. He is the only minority president in the system.

Do you get it now?

But wait theres more. He's hired cronies at our place: a vice president from his Spokane days, a former vice president now an associate vice president from his Peralta days, a student services dean (and those are just the ones that we know about).

Do you wonder why some departments don't seem to be accountable and can screw up over and over again without finding themselvs on the street (as many people have over the past three years)?

Our college is just a stepping stone on the way to something biggter and better for thse people.

Senate said...

The secretary of education spoke at graduation. He was the guy who endedhis talk by juggling soccer balls.

And you expect this guy to come to our aid?

Flagstiffed said...

Flagstiffed's readers email us from time to time. Here's a sampling from the ole mailbag:

"Where is the chancellor and why doesn't he step up? Has anyone tried to contact him. I know an attorney from his office threaten a blogger with slander on a posted blog. Is this the way they handle problems? Who is the chancellor's boss?"

Good questions. Maybe other Flagstiffed readers can answer your questions. Write us!!!!

Anonymous said...

Your business economist is right on the money!

The college's enrollment numbers apparently have been a lot of smoke and mirrors.

Largest percentage increases in the system? Largest enrollment in the college's history? It's all dual enrollments it turns out and they don't bring a penny in. Regular old vanilla enrollment is flat.

But while regular enrollment is flat we have offered a record number of course sections which dilutes the student-teacher ratio and reduces productivity.

We're spending more to teach the same number of students.

so long productivity, hello deficit