Over the past year, our office has received a large number of calls and emails from faculty asking us to help them in interpreting UC’s complicated, and worrisome, debt situation. For anyone without special training in higher education finance and management, it is indeed difficult to sort through the many pieces of information that come from multiple sources to answer the seemingly simple question: What does it all mean?  

Is UC financially stable? Can it be financially viable into the foreseeable future? What does the “billion dollar debt” really mean for UC’s students, faculty, staff, and its educational mission?

Given the recent presentation made by President Zimpher and Vice-President for Finance and Administration Monica Rimai to the Board of Trustees, the new state budget, and recent media coverage of UC’s financial state, we felt it important at this time to provide an overview of the situation for faculty. 

What is UC’s debt situation?

UC, like most institutions, has two kinds of debt: bonds (essentially, long-term loans, somewhat akin to your home mortgage), and “internal debt.” As you may have read in recent news reports, UC’s bond debt currently stands at approximately $1.2 billion. Where did all that money go? While many assume that this money was spent on new academic and administration buildings, actually, most of the initial cost of that construction was paid by the State through direct allocations. The bond debt went to cover other construction projects such as landscaping, green space development, the Rec Center, the new power plant, new garages—in other words, other construction projects not directly funded by the State.

Three points can be made about the bond debt: first, an argument can be made that, just as your home mortgage is not necessarily a “bad” kind of debt, bond debt is not automatically “bad” debt for a university to carry. Second, it is helpful that UC’s bond rating (effectively the interest rate on the loans) has remained stable. And, while UC’s bond debt is much higher than many other institutions of its type, this does not automatically mean the level is unmanageable.

However, one must ask, how much is too much? Perhaps most shocking is the rate at which bond debt was incurred in the last few years of the Steger administration. In the last 5 years of the previous administration the bond debt was doubled.

Rolling over internal debt

Internal debt is the debt type that you have heard the current administration speaking most about. Internal debt, or “the charge against operations,” is essentially a way of speaking about the fact that some parts of the institution tend to spend more money than they are budgeted. In a large, complex university, this is not unusual—in fact, it is to be expected. 

But these fluctuations cannot be allowed to become “permanent” (i.e., a large number of units which are consistently over budget).

The problem under the Steger administration was that the number of units running over budget increased, and the amount they went over budget increased, but essentially nothing was done about it. Academic and auxiliary units were never told that rolling over budget deficits from one year to the next was a problem—in fact, many unit heads were routinely told “it’s just accounting, don’t worry about it.”

To use a basic household analogy: once the money  being lost in some units could no longer be made up by budget surpluses from other units, UC began “digging into savings” to pay the difference … until the savings were all gone. At various points late in the Steger administration, short-term bank loans had to be taken in order to meet normal operating expenditures such as payroll. This was a fundamental refusal to acknowledge the realities of the increasing payments which the bond debt required, unrealistic budgeting, and inaccurate projection of costs and tuition revenue.

The current “charge against operations” is $165 million (a seven-fold increase since 2000), a number that all agree is much too high and cannot be allowed to continue.

What’s happening with endowment funds?

When we speak about UC’s debt, it’s not accurate to mix apples and oranges, so to speak, by conflating questions and concerns about what’s happening with UC’s endowment funds.

Questions about debt and endowment funds are, of course, entangled by the fact that both were managed in a particular way by the Steger administration.

UC’s various endowments funds were used, under the previous administration, to underwrite, in whole or in part, loans for external projects, mostly real estate. In essence, UC endowment funds now serve as the “banker” for various real estate projects in the surrounding neighborhood. Approximately 10% (about $100 million) of the endowment’s funds are invested in this way. But this is not a “debt issue.”

What are the implications?

During the previous administration, the Faculty Senate, and in particular the Faculty Senate Cabinet, repeatedly and strenuously warned President Steger and former Vice President for Finance and Administration Dale McGirr that these debt and endowment policies were potentially dangerous. That advice was routinely ignored.

Now, these policies are impinging on UC’s current financial health in three ways:

(1) Repayment of the large bond debt now requires a significant portion of revenues generated by the University. One can argue about the need for the scope and breadth of the improvements made to the campus’s physical plant, but the facts are: mis-management and specific choices about acceptable risk and appropriate investments made by the previous administration created the large bond debt that is now a drag on the entire system.

(2) The size of the internal debt likewise impinges on UC’s ability to properly fund basic operations.

(3) Decisions made about using endowment funds for investment in real estate may, in the long run, reduce the amount of money available to key university programs that depend on endowment revenue.

For faculty and staff, the administration’s decision to invest in bricks and mortar without corresponding investments in flesh and blood has had serious consequences. For staff, it has meant layoffs, increasing workloads, and job losses. For full-time faculty, it has meant increasing workloads, a loss of faculty lines (i.e., failure to fill empty positions), and a severe stagnation in salaries.

Each year the national AAUP devotes a special issue of Academe to the economic status of the profession. National AAUP staff collect salary and benefits information from colleges and universities across the United States, and compare institutions by category. Comparative salary and total compensation (including benefits) are reported in quintiles (i.e., top 20%, bottom 20%).

In 1989, this data showed that salaries at the University of Cincinnati main campus, as compared to other Category I institutions, fell in the second quintile for full and associate professors, and in the third quintile for assistant professors and instructors. UC was in the second quintile for each of those ranks when comparing total compensation packages. These rankings were very similar to those at Ohio State University’s main campus.

By 2006, the data showed that both average salaries and total compensation at UC’s main campus had fallen to the fourth quintile for each rank. OSU’s rankings, however, have essentially remained unchanged.

This means that UC’s salaries and compensation fell from the top 40% to the bottom 40% among Category I institutions. Or, to look at it another way, between 1989 and 2004 UC faculty salaries just barely kept up with inflation. Thus, continuing faculty saw no real increase over that period,  and between 2004 and 2007 they fell behind inflation.

What does it all mean?

Choices can and must be made

It’s easy to say, “We’re all in this together.” But the reality is, staff and faculty have already paid a very high price for the decisions—the choices—made by the previous administration. Perhaps we can all acknowledge that UC’s campus needed a major renovation to meet 21st century challenges. But choices were made about how far and how fast to go, and about how money would be managed.

Choices must now be made about how to manage the debt situation. Investing in people must now be a priority. Faculty and staff now deserve the same respect and attention given to the physical plant during the 1990s. If it was true that a 21st century campus was needed to compete for students and to fulfill UC’s education and research mission, it is equally true that we must now invest in the best faculty and staff. This, too, is a key part of debt management. If we fail to make these human investments—and therefore cannot recruit and retain students or obtain grant funding—what difference will it make that we have a beautiful campus or a slightly lower debt load?

—  Sally Dunn, President, AAUP - UC

—  Deborah M. Herman, Executive Director