Pennsylvania colleges face challenges beyond state funding

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PHILADELPHIA – Pennsylvania’s state-related universities, on edge for several months during the state budget crisis, exhaled when the state legislature freed up a combined $600 million in aid.

The aid package to Penn State, the University of Pittsburgh, Temple University and Lincoln University, plus the University of Pennsylvania Veterinary School, was one of several funding bills that went to Gov. Tom Wolf’s desk and aim to seal a $2.2 billion shortfall for the $32 billion fiscal 2018 budget.

The week, however, included warning shots from a bond rating agency and one of the commonwealth’s top lawmakers.

As the House of Representatives was grinding out the legislation during the fifth month of a budget stalemate, Moody’s Investors Service on Tuesday placed historically black institution Lincoln University, in Chester County, Pa., on review for downgrade. Moody’s, which rates Lincoln Baa3, or just above junk, cited the failure of the legislature to pass the appropriation bill.

Lincoln relies on the commonwealth for roughly 25% of its budget. The school, with a projected cash balance of $3 million by year’s end, had little cushion for a prolonged stalemate.

Then, the state House of Representatives on Wednesday night voted 183-5 to free up the payments. The state-related schools – categorized separately from state universities such as Bloomsburg and East Stroudsburg universities -- had threatened to eliminate discounts to Pennsylvania students had the impasse lingered.
Approval, though, came with strings.

House Speaker Mike Turzai, R-Marshall Township, called on the universities to use the funding to help lower tuition for the in-state students. Those schools, he said, received almost 8% increases in funding from the 2014-15 through 2016-17 budgets.

“We are hoping that these state-related universities make a commitment to not increase tuition and room and board for our Pennsylvania students attending these institutions for the 2018-19 school year now that state tax dollars have been appropriated,” said Turzai. “These appropriations should be focused on making higher education more affordable for Pennsylvania students.”

Regardless of state funding levels, higher education in Pennsylvania is taking a good, hard look at its business model despite the resilience of the sector.

“There are headwinds,” William Rhodes, partner at law firm Ballard Spahr LLP and leader of its municipal recovery initiative, said during Tuesday’s Bond Buyer Mid-Atlantic Municipal Market Conference in Philadelphia. “The headwinds are shared by colleges and universities public and private, of all shapes and sizes.”

Stephen Winterstein, managing director and chief municipal fixed income strategist at Wilmington Trust, said tuition-dependent colleges, typically with undergraduate enrollments of less than 1,000, are navigating “an adult swim.”

Temple University treasurer and chief financial officer Kenneth Kaiser said flat state support – even before the budget crisis – combined with pressure to keep tuition down has created a new dynamic. “Our two major revenue sources are pretty well capped, so you have to think a little bit differently.”

Temple, whose main campus sits in North Philadelphia, derives about 85% of its revenue from tuition.

Demographics also pose a challenge, said Kaiser. The U.S. Northeast projects a decline in college-age students until around 2030.

“It’s not about hunkering down, and looking inside and staying insular,” said Kaiser. “It’s about looking out, looking to new markets and making investments that will keep you at the top as competition intensifies.”

For many traditional universities, an online buildout effectively expands and markets without such challenges as capital costs and campus overcrowding.

“Online is a great way to expand your capacity without really putting a burden on your campus,” said Kaiser.

“It’s a big focus at Temple and I think that is going to one of the futures for schools that have a good reputation and that have an anchor to expand online … not necessarily online schools popping up. I’m skeptical about that expansion.”

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Higher education bonds Budgets Commonwealth of Pennsylvania Ballard Spahr Temple University Penn State University of Pittsburgh Pennsylvania