University of Alaska cost savings remain to be seen after USD 136m loss in state funding

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One week after the regents of the University of Alaska voted to consolidate operations amid a large state funding cut of USD 136m, it remains to be seen exactly how the university system will achieve cost savings in fiscal year 2020.

The option chosen by the regents does not offer information about immediate cost savings, long or short-term.

“The details are currently being worked out, but it’s fair to say that whenever consolidation takes place, efficiencies will occur,” said Roberta Graham, spokesperson for the University of Alaska in a statement to Debtwire.

“Our state-funded budget has been reduced by USD 136m, which means the university will be transitioning from three academic organizations into one. Initial reductions will be in the area of administration. Moving forward, we will look at consolidating colleges and faculty. “

Because of lost tuition, donor and grant and research revenue, the university expects it will have to cut USD 200m from its budget to compensate for the USD 136m reduction in state aid. State aid was the university’s largest source of revenue in FY18, totaling USD 340m or 43.3% of the university’s total USD 750.7m in revenue.

The University of Alaska operates with three separately accredited universities on 13 campuses, but the “new” university will be united by a single accreditation and simpler structure by consolidating and reducing academic programs, faculty and staff.

The cut reduced the university system’s state aid appropriation by 40% in FY20. The state and university’s fiscal years begin 1 July.

Governor Mike Dunleavy (R) made an offer to reduce the impact from his USD 130m line-item veto to the university’s state aid, offering to spread the cuts out over multiple years by reducing the FY20 cut to USD 90m from USD 130m and the remaining USD 40m to be cut in FY21.

But that’s a conversation that remains “open and fluid,” said Matt Shuckerow, a spokesperson for the governor. The governor has not offered conditions to this offer.

“The Governor’s office put a transition number on the table with the understanding that the university may need more time to make reforms,” Shuckerow said.

The regents declared financial exigency after Dunleavy’s line-item veto, commonly called “academic bankruptcy,” which allows the regents to take extraordinary actions to make spending reductions, including laying off tenured faculty.

“This is not the ideal way to go about doing this, and probably everyone involved would agree with that,” said Brian Weinblatt, founder and principal of Higher Ed Consolidation Solutions. “The fiscal challenges are immense, no question about this, it’s a very difficult place for the state to be in and subsequently put the institutions in.”

It’s a difficult and painful decision to consolidate and the move will receive pushback from constituents, Weinblatt said.

“But in the long-term, there’s a lot of great opportunity here and no question campuses can save in the long-term by consolidating in the back office through purchasing, human resources, technology, etc,” Weinblatt said.

Ultimately, consolidation will make the university more efficient in the long-term, said Lucie Lapovsky, principal of Lapovsky Consulting, a higher education consulting firm.

“Given the time they have, [this] is the best and easiest way, and the best way to serve the whole state by being able to integrate more carefully,” Lapovsky said.

The re-accreditation process alone can take years, Weinblatt said.

“There’s no way to flip a switch overnight, and everything is done — it’s not possible,” Weinblatt said. “I saw that the accreditor has serious reservations on this, Moody’s cut the rating based on fiscal concerns — it will take time to sort out.”

In a letter to the Board of Regents dated 29 July, Sonny Ramaswamy, president of the university’s accrediting body, the Northwest Commission on Colleges and Universities (NWCCU), expressed concerns about the consolidation plan and the governor’s influence on the process as the regents prepared to vote.

“NWCCU remains concerned about the long-term consequences of reduced funding as it relates to student learning and educational attainment,” Ramaswamy said. “The additional and, perhaps, inappropriate strong-arm ‘guidance’ of the Alaska governor in place of the proper and shared decision making processes central to the healthy functioning of an institution of higher learning poses yet another factor as NWCCU considers the long-term viability and accreditation status of the institutions within your stewardship.”

The University of Alaska is rated Baa1/negative by Moody’s Investors Service, and AA-/negative by S&P Global Ratings.

by Maria Amante

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