Financial Exigency in Universities
At the very least, an institution’s financial faculties can lead to the reallocation Of resources; at the worst, they can threaten the institution’s existence. Faculty travel budgets and money for new faculty appointments are often early casualties. In the more serious cases, faculty and staff appointments are terminated, and academic programs and departments are reduced or eliminated. Some institutions ultimately close their doors.
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Because a college or university’s financial problems and an administration’s response to them can significantly affect faculty rights, faculty appointments, and the substance of academic programs, faculty have keen interest in learning about these problems as soon as they start to emerge. Unfortunately, an institution’s financial difficulties can catch members of the faculty by surprise, too late for them to participate meaningfully in decisions about how the institution should respond to these problems.
An institution’s declaration that it is in dire financial straits, like a declaration of war, often comes too late to avert disaster, if it comes at all. Over the years, the American Association of University Professors has developed standards and procedures to enable colleges and universities to rote academic freedom and to ensure academic due process when they have to contend with serious financial problems. Prairie, 201 0) In addition, the AUP, under the auspices of its Committee A on Academic Freedom and Tenure, has investigated and reported on numerous instances in which the termination of appointments of faculty members on stated grounds of financial exigency has been deeply flawed, both procedurally and substantively.
A college or university budget is all of the following: a mechanism for setting institutional priorities; a plan of action for the institution; a summary of commitments made by those who have participated in the budgeting process; a mechanism for communicating to all members of the campus community the institution’s objectives and the means to meet those objectives; and the outcome of negotiations over what activities should be funded and at what levels. The allocation Of financial resources among competing demands is plainly a complex and crucial task for any college or university.
The AUP has long held that the governing board, the president, and the faculty should participate in financial decisions according to their reticular expertise and responsibilities. The governing board is expected to husband the endowment and obtain capital and operating funds; the president is expected to maintain existing institutional resources and create new ones; the faculty is expected to establish faculty salary policies, and, in its primary responsibility for the educational function of the institution, to participate also in broader budgetary matters primarily as they impinge on that function.
The faculty’s role in budgetary decisions should therefore be well established before a financial storm engulfs the institution. Such a role is, in any case, consistent with, and helps advance, the principle of shared authority in institutions of higher education. In addition, the faculties are also more likely to support budgetary decisions when they have participated meaningfully in reaching those decisions, including decisions that may prevent bad financial problems from becoming worse.
Moreover, an institution’s administration and board of trustees are more likely to give serious attention to faculty views during a financial crisis if they have worked productively with the faculty On budgetary matters in better times. At the name time, the faculty must be sensitive to concerns about the confidentiality of financial information. An administration contending with serious financial problems is likely to resist the wide circulation of budget figures. If bad news is lurking in the numbers, the institution’s situation might get worse if information becomes widely known and affects enrollment decisions and alumni giving.
An administration might therefore conclude that sharing financial information with faculty who are on a budget committee is reasonable, but that circulating it to the faculty as a whole is fraught with risk. Effective collaboration among the faculty, administration, and governing board during a financial crisis requires that the collaborators be able to draw on a reservoir Of mutual trust that has been built up in better days (Knight, 2004). Early in its history, the JAPE recognized that a college or university could legitimately terminate faculty appointments, including appointments with tenure, on grounds of financial exigency.
In 1 925, the AUP joined in formulating the “American Council on Education Conference Statement on Academic Freedom and Tenure,” which provided that: Termination of armament or long-term appointments because of financial exigency should be sought only as a last resort, after every effort has been made to meet the need in other ways and to find for the teacher other employment in the institution. Situations which make retrenchment of this sort necessary should preclude expansions of the staff at other points at the same time, except in extraordinary circumstances.
As for the faculty member whose appointment is actually terminated, the AIR calls for at least one year of notice or severance salary for the individual who has served at least eighteen months at the institution. In addition, released professors are granted recall rights. Their places will not be filled by a replacement for a period of three years, unless the affected individuals have been offered reinstatement and a reasonable time in which to accept or decline the offer. Colleges and universities react in different ways to serious budget shortfalls.
On many campuses, the administration has worked effectively with the faculty to identify measures- such as cutting tuition and fees to increase enrollments, reducing programs in foreign countries, selling off local properties, or increasing alumni intrusions–that are intended to help the institution survive and perhaps even prosper. Other institutions have reacted with what an outside observer might characterize as panic, with the administration and governing board making decisions precipitately with little or no regard for discussing proposed actions with the faculty.
In these latter cases, the financial problems have been compounded by serious rifts between the faculty and administration; the resulting distrust has exacerbated the financial woes by further damaging the institution (Viewpoint, 2009). Because such a large proportion of a college or a university’s operating expenses are linked to salaries and benefits, it is obvious why the payroll is often the first target for budget reductions.
And because faculty salaries and benefits account for a significant portion Of an institution’s total payroll expenses, complaints from faculty about personnel decisions, especially decisions that result in the termination of faculty appointments, are the typical spurs for the ALGAL to become involved in a campus case. In its early years, the JAPE conducted a handful of investigations into cases in which serious reasons existed to doubt that an administration had considered alternatives short of terminating faculty appointments as a remedy for the institution’s financial problems.
But the Jape’s ongoing engagement with the termination of faculty appointments for financial reasons began in 1974. In the spring of that year, the Association published a report on Bloomfield College in New Jersey and began work on a revised and expanded text of the applicable provisions of the AIR. As indicated above, the latter document has become the benchmark against which the AUP has judged actions taken by administrations and governing boards to resolve their institutions’ financial problems.
The desirable thing to do about financial exigency and governance issues is for colleges and universities, through joint action by the faculty, administration, and governing board, to ensure that sound standards and procedures exist to deal with budgetary problems in good times and bad, and to ensure that what is applied in actual practice matches the stated standards and procedures. An institution can take additional steps to improve and strengthen joint decision aging in budgetary’ matters.
First, colleges and universities should adopt and distribute widely a formal statement of the respective roles and responsibilities of the governing board, administration, and faculty in decisions about the institution’s budget. Without a carefully framed policy, an institution may be forced to rely on ad hoc responses to unanticipated problems. Second, each institution should communicate key budget decisions to all members of the campus community. As this report has noted, faculty who serve on budget committees should have “access to all information” they quire to carry out their tasks effectively.
In addition, the large majority of faculty who do not serve on these committees need to be kept informed of the substance of budget decisions. Budget decisions, especially those addressing a financial crisis, should foster no suspicion that they are being made by members of a select group more concerned to protect their own academic interests than to safeguard the institution as a whole. Third, institutions might prepare a roster of faculty members who are expert in various facets of budgeting.
The roster could serve as a resource not only for he administration but also for other faculty members or college and university committees that want to learn about budgeting and institutional finances but do not know who can assist them. Fourth, institutions should develop ways to encourage faculty interest in serving on budget committees and to reward such service. This can involve giving serious weight in personnel decisions to responsible participation in institutional governance, and providing opportune ties, through workshops and retreats, for faculty to keep abreast of new developments in budgeting, financing, auditing, and accounting.
Fifth, institutions should prepare regular reports on the effectiveness of their mechanisms for reaching budgetary decisions with the goal of improving them. These recommendations are aimed at improving an institution’s ability to solve serious financial problems. The solutions each institution develops will reflect its own history and traditions, and the specific nature of the financial problems besetting it. Terminations usually reduce expenses (and can also reduce revenue), but a good deal can be done to preclude the necessity for that extreme step.