Understanding Institutional Finances

1.  What role can faculty play in institutional financial decisions?

In accord with principles of shared governance described by the AAUP and other organizations over the course of several decades, the faculty should participate meaningfully in major decisions about institutional direction and priorities. This principle applies equally to basic financial decision-making, and is elaborated in the AAUP statement  The Role of the Faculty in Budgetary and Salary Matters. Here are two key passages:

The faculty should participate both in the preparation of the total institutional budget and (within the framework of the total budget) in decisions relevant to the further apportioning of its specific fiscal divisions (salaries, academic programs, tuition, physical plant and grounds, and so on). The soundness of resulting decisions should be enhanced if an elected representative committee of the faculty participates in deciding on the overall allocation of institutional resources and the proportion to be devoted directly to the academic program. This committee should be given access to all information that it requires to perform its task effectively, and it should have the opportunity to confer periodically with representatives of the administration and governing board. . . .

Circumstances of financial exigency obviously pose special problems. At institutions experiencing major threats to their continued financial support, the faculty should be informed as early and as specifically as possible of significant impending financial difficulties. The faculty—with substantial representation from its nontenured as well as its tenured members, since it is the former who are likely to bear the brunt of any reduction—should participate at the department, college or professional school, and institution-wide levels in key decisions as to the future of the institution and of specific academic programs within the institution.

2.  How can I get data on institutional finances?

The means for obtaining data on institutional finances vary somewhat depending on type of institution; please see separate sections below addressing public and private institutions. However, there are some points that apply to all institutions.

The fundamental principle of faculty participation in shared governance applies to financial decisions as well. Meaningful participation means that faculty representatives must receive complete information before major decisions are made.

Financial information is most useful when you can look at trends over time. A report covering a single year does not necessarily provide a complete view of an institution’s financial position. Use good judgment in pressing your request for additional information, but try to get at least three years of data.

One key point that applies everywhere: “budget” documents are not necessarily the same as actual financial statements and reports. A budget is a plan. Faculty members should be involved in institutional financial planning and it’s important that they receive the complete information used in creating and monitoring budgets. However, when it comes to assessing the ongoing fiscal health of the institution, it’s important to look at several years of actual financial reports, including the most recently completed statements available. Always pay attention to the distinction between “budget” and “actual” amounts, and if that distinction is not made plain, ask questions.

Ideally, the most complete source of information would be an audited financial statement, or its equivalent. Most institutions should be producing these every year, to meet various reporting requirements.

All colleges and universities complete a series of data reports each year to the U.S. Department of Education Integrated Postsecondary Education Data System (IPEDS). The IPEDS Finance report includes sections on each institution’s assets and liabilities, revenue and expenditures, scholarships and fellowships (including tuition discounting), endowment value, and debt (public institutions only). The data are reported for the fiscal year completed prior to the current academic year, but are not generally available on the IPEDS website for several months after that; fiscal 2008 data are due to IPEDS by mid-April 2009. Every college or university should have an IPEDS coordinator; impress him or her by requesting a copy of the most recent IPEDS Finance reports—you might just get them! And although retrieving the data from the IPEDS website is not for the faint of heart, these are public data; see instructions for how to retirieve and interpret a U.S. Department of Education Data Feedback Report, including basic institutional financial information.

In addition to federal reporting requirements, many of the regional accrediting agencies now require that institutions submit regular financial reports. Because these are not government agencies, the data they collect through this process are not generally available to faculty or the public. But on the basis of principles of shared governance elaborated above, faculty members should have access to basic financial information; ask your institutional accreditation liaison for a copy of the most recent financial report to the accreditor.

3. What should I know about getting data on public colleges and universities?

The first principle to keep in mind at public institutions is that essentially all financial information is public. Although the exact definitions vary somewhat from one jurisdiction to another, this extends to all aspects of institutional revenues and expenditures, and includes salaries of all public employees. The exceptions might be what are referred to as “working papers,” but periodic reports do not generally fall under that rubric. On the basis of this principle, and in combination with the principle of faculty participation in financial decision-making articulated above, faculty representatives should insist on access to complete institutional financial information, with a level of detail sufficient to inform judgment on key issues.

At many public colleges and universities, institutional finance information is readily available on the Web. Check for an online fact book or financial reports; they may be available through offices of institutional research, finance and/or administration, or the president or chancellor. If your institution is part of a larger system, or is required to file certain reports with a state agency—which is the case in virtually every state—you may actually have better luck finding the information you need from a state agency or legislative website.

If the financial reports you need are not available on a website, ask for paper copies from one or more of the offices noted above. Again, these are public documents, and as a faculty representative you are most certainly entitled to participate in the financial planning process. Be persistent, if necessary.

4. What should I know about getting data on private nonprofit colleges and universities?

Although private institutions do have more leeway in what documents they make public, their nonprofit status means that significant amounts of institutional financial information should be readily accessible. All nonprofit institutions are required to file a Form 990 with the Internal Revenue Service each year. The 990 includes aggregate financial information on revenue, expenditures, changes in net assets or fund balance, assets and liabilities, and some limited figures on compensation and lobbying expenditures. It may also include copies of audited financial statements.

The Form 990 is a public document, so your institutional finance or business office should provide a copy upon request. This will likely get you the most recent information available.

If for some reason the administration is not forthcoming, you can obtain copies of 990 forms from either of two sources. Depending on the institution, the forms available may not be the most current.

  1. The Foundation Center, “990 Finder” . (Note that the 990-PF form is for private foundations.)
  2. Guidestar. Basic information, including 990 forms, is available at no cost, although registration is required.

Private colleges and universities also frequently have fully staffed development offices, since they are often significantly reliant on charitable giving. The development (or advancement) office may produce an annual report, which may include a more-or-less detailed annual financial statement. Although the level of detail in these statements may not be sufficient for a thorough analysis of the institution’s position, it may be useful to know what information the college or university is providing to prospective donors.

Remember, basic principles of shared governance mean that you should not need to resort to subterfuge to obtain financial documents. Your administration should provide these documents in support of the faculty’s participation in institutional planning.

5. What should I know about getting data on private for-profit colleges and universities?

For-profit institutions may be less forthcoming with full details of their financial operations, and less likely to provide mechanisms for faculty participation in decision-making. (Indeed, for-profits have very few full-time faculty.) Even so, for-profit institutions are subject to IPEDS Finance reporting requirements (albeit with less detail) and those of their regional accreditor, if so accredited. In addition, if shares of the institution are publicly traded, annual reports including financial statements should be available.

6.  What should I be looking for in reviewing institutional financial information?

Ideally, faculty representatives and institutional financial administrators will collaborate in an ongoing review of institutional financial information, and they will be provided complete data and sufficient explanation to enable all parties to participate in significant decisions.

Faculty members with some experience in accounting, business, or economics may be able to use these Accounting Guidelines for Analysis of Financial Exigency along with data from financial statements obtained as described above to begin a thorough analysis of the institution’s financial position.

Even if complete information is not available, or if faculty representatives do not have sufficient financial analytical capabilities, there are key pieces of information for which to look. In each case, it’s very important to get data from more than one year; many financial indicators are useful only when tracked over time. And assertions about “national averages” or “typical” practices are no substitute for the real data from your institution!

    (a) State and local operating funds – For public institutions, support from state and/or local government is often a significant revenue source. Calculate state/local funding as a percent of total revenues. Note that an “appropriation” is only a projected amount, and in some cases represents an upper limit rather than actual revenues.

Pay attention to the dollar amount of state and local funding as well as the percentage. If state and local dollars are increasing, but they make up a decreasing percentage of total funding, that may be an indication of inappropriate spending choices. Insist that these funds be used to support core functions—instruction and research—and that spending cuts be made elsewhere first.

It’s also important to know that funds from state and local government sources are generally not designated for certain types of expenditures. Although funding may follow a “formula,” the institution usually has significant discretion in how the funds are spent. (Unfortunately, however, it is often true that “capital” funds for buildings and land acquisition are restricted. That doesn’t mean those capital projects are the best use of funds, however.) Ask for the details, and be a little skeptical.

    (b) Tuition dependence – Especially for private institutions, tuition and fees are a substantial proportion of annual revenues. (Enrollment figures are important for many public institutions, as well, but the effects on funding are often less direct or immediate.) Calculate tuition/fees as a percent of total revenues. Be sure you know whether the tuition figures are “net” of discounts and/or financial aid. Ask for details on enrollment projections used to forecast tuition revenues; faculty members should be a part of decisions on changes to basic admissions policies that will affect the institution’s direction and financial health.

    (c) Endowment income – Earnings from institutional endowment and/or investment funds may be a significant source of operating revenue, especially for private colleges and universities. However, institutions vary widely in the contribution of these revenues to the regular operating budget. Just because “the market is down” doesn’t mean that your institution’s operating budget must be cut; find out specifically how much investment income was anticipated in budget planning for the year.

    (d) Expenditure on instruction - Calculate spending on instruction as a percent of total expenditures. In many institutions, this figure has been declining for several years. If that’s the case at your institution, ask why that is the case. Instruction is a core function, and that should be reflected in institutional spending decisions.

Although exact dollar figures may not be available, it’s also important to look at the number of faculty employed, preferably by full-time/part-time and tenure-track status. At many institutions, the proportion of faculty members employed part-time or in full-time non-tenure-track positions is increasing. This, too, is a reflection of a decision on priorities, and it should be a matter for shared decision-making.

For a sample financial analysis, see "Analysis of the Financial Condition of the University of Illinois System." (.pdf)

7. How can I get information on the number of administrators and their salaries?

A common observation among faculty at many institutions is that the number of administrators has grown more rapidly than the number of full-time (especially tenure-track) faculty over the last decades. This observation is borne out by national data assembled by the AAUP.

As with other financial information, aggregate figures on the number of employees by job category and employment status (full-time/part-time) should be available to faculty representatives participating in shared governance. Ideally, you should examine trends over time.

Information on the number of employees by category may be available in institutional fact books or other standard reports. These may be available on the Web, or from offices of institutional research, human resources, and/or finance and administration. In some cases these may be filed with a system office or state agency.

Each institution is also required to file an IPEDS Human Resources report with the US Department of Education each year, which includes counts of employees, full-and part-time, by category. One drawback to this report is that academic deans, including associate and assistant deans, are most often counted in the “instructional” category along with faculty, rather than in the “executive/administrative/managerial” category. You can ask for a copy of this report from your institutional IPEDS coordinator.

Salaries for administrators are available in different ways, depending on the type of institution. At public colleges and universities the salaries of all employees are public information. However, the availability of this information varies widely from state to state and institution to institution. The IRS Form 990 filed by private non-profit colleges and universities includes two different sections that might potentially provide salary figures for administrators. ( For information on obtaining 990s, see Question 4 above.)

The Chronicle of Higher Education has assembled salary information on presidents of both public and private institutions for several years, and in February 2009 issued a new report listing the highest-paid employees at 600 private colleges and universities. Most of the Chronicle’s data come from Form 990s. In addition to an annual report on presidential compensation, the Chronicle has maintained a searchable online database available to subscribers. The complete new report on highest-paid employees is apparently available only for separate purchase.

Note that presidents and chancellors frequently receive additional forms of compensation: supplemental salary, in some cases paid by a private foundation; deferred compensation and/or “performance” or “retention” payments; car, housing, and entertainment allowances.

8. How can I get data on peer institutions?

The AAUP can provide institutional peer comparison reports. Because of the time it takes to provide these, we usually charge a fee for this service. In light of the dire circumstances being faced by faculties at many institutions we will provide them free of charge for representatives of AAUP chapters for as long as we are able to do so.

To request one, please follow these steps:

Step 1. Define an institutional peer group
In most cases, the administration already has a group of institutions identified as “peers” for purposes of comparison. It’s usually best to start with this group, so that results of any AAUP analysis can be compared with other items. If faculty members feel that additional and/or different institutional peers are more appropriate, additional analyses should be completed.

In accord with principles of shared governance. faculty representatives should be involved in selecting institutional peers. This is especially true when the object of comparison is faculty compensation or faculty status (use of contingent faculty), but it is also true when broader questions of academic programs or institutional mission are under consideration.

It’s also useful to distinguish between peer institutions that might be termed “comparables,” representing those institutions currently most similar to the basis of comparison, and “aspirational peers”—representing a future institutional direction or goal. There’s nothing wrong with using both types of peers for comparison, but there should be some identification of each type and agreement on its inclusion.

Step 2. Choose the reports that will be most useful
There are a number of reports from which to choose. All are in .pdf format. Samples are linked below. Some reports are limited to institutions providing data.

Full-Time Faculty Salaries (five options)

  1. Average Salary, by rank. See sample.
  2. Average Salary, all ranks. See sample.
  3. Average Compensation, by rank . See sample.
  4. Average Compensation, all ranks. See sample.
  5. Salary Change for Continuing Faculty. See sample.

 Expenditure on Full-Time Faculty Benefits (three options)

  1. Total Benefits as Percent of Salary. See sample
  2. Retirement Benefits as Percent of Salary. See sample.
  3. Medical/Dental Benefits as Percent of Salary. See sample

Spending on Instruction. See sample.

Faculty Status and Use of Contingent Faculty (two options)

  1. Full-Time Faculty by Function and Tenure Status, Fall 2005. See sample.
  2. Contingent Faculty Status, Fall 2005 (FT/PT). See sample.

Step 3. Complete a report request
Please request the reports using this Excel file. Type in the name of the basis institution (most likely your own) and each peer institution. Please give the full name and the state abbreviation for each; many institution names are similar. (You do not need to complete the “unit ID” boxes.)

If you have more than one set of peers, please complete a separate request file for each peer set and use “File Save As” to give the files different names.

Please give us complete contact information; reports will be returned by e-mail, but we would appreciate a daytime phone number in case we need to call for clarification.

Step 4. E-mail the completed report request file as an attachment to aaupfcs@aaup.org

We will process orders as they are received, and as quickly as possible. This is not an automated process, so please be patient.