Finance Crisis at Arkansas Colleges Hits the Layoff Stage

With Arkansas’ public colleges in historic financial distress, University of Arkansas at Little Rock Chancellor Christina Drale prescribed a bitter remedy this month — cuts deep enough to cost tenured professors their jobs — and state education leaders fear other state universities may have to take a dose.

As the names of 13 laid off UA Little Rock professors came to light last week, Drale told Arkansas Business that other positions won’t be filled as they come open. She’s looking for $2.5 million in savings through academic retrenchment, an effective tack but one that Drale said she “wouldn’t wish on anyone.”

Drale’s goal “was to make sure that we got enough out of retrenchment to make it worth the pain of doing.” (She got some major pain relief Thursday, announcing that an anonymous donor had made a record $25 million gift to the university. The donation includes $15 million for needs-based scholarships and $10 million for Drale’s student retention and success initiatives.

The anonymous donor, in a university-released statement, praised Drale’s “purposeful, strategic approach to solidifying UA Little Rock’s unique and crucial role in the Arkansas educational system.”)

Even with the cash infusion, the retrenchment goes on, along with a separate initiative streamlining the university from five to three distinct colleges. That move is expected to save another $1 million.

Henderson State University in Arkadelphia, more than $8 million in debt and due to become a part of the Arkansas State University system partly because of that, is also considering staff furloughs, its administration said last week. The university was down to about a week’s worth of cash on hand as a $900,000 shortfall in state revenue added insult to injury; state collections have been ravaged by the COVID pandemic.

“At this point, Henderson has not laid off any workers, but that’s on the table,” said Maria Markham, director of the Arkansas Division of Higher Education. “And we have a few other state institutions that, depending on how things go in the fall, may be heading in that direction.”

State money flowing to public universities, usually contributing about a third of their budgets, is off by about 4% so far in the pandemic, and colleges were already facing a demographic cliff: The field of traditional potential students is shrinking, following birth rate patterns, and that trend is expected to deepen for years.

Still, the crisis is hitting some colleges harder than others.

University of Arkansas Chancellor Joseph Steinmetz is planning no layoffs the coming fiscal year, he announced in unveiling his budget last week.

He will be extending a hiring freeze for noncritical jobs and putting a hold on merit raises. The University of Arkansas for Medical Sciences in Little Rock, an anomaly among state schools in that it also runs a major medical center, was poised to present a budget this week projecting a $45.6 million loss.

At the University of Central Arkansas, President Houston Davis has avoided layoffs, softening COVID’s effects with “zero-based budgeting” and a resource optimization initiative dating back to 2017.

“We were already seeing the ‘enrollment cliff’ on the horizon, the prospect of having less enrollment growth, so I think we’re very fortunate at UCA to have already made significant preparations,” Davis said. “So we were more ready when COVID-19 brought this financial situation to our doorstep probably four or five years earlier than it would have.”

Nevertheless, the crisis is deep at most of the state’s 11 public universities and 22 public two-year colleges, Markham said. Even before COVID-19, most state colleges reported strains growing from fiscal 2018 to fiscal 2019, according to yearly financial statements. (See table below.) And state financing for higher education nationwide had been falling for the decade after the financial crisis of 2008, with Arkansas’ funding dipping 13.1% from 2008-18, according to the Center on Budget and Policy Priorities, a research organization in Washington, D.C.

Arkansas’ state colleges have been forced to absorb a $34 million cut in state aid in the final quarter of the current fiscal year alone, Markham said, “because state revenues were lagging” because of coronavirus shutdowns.

“And we don’t have any illusions that that will change for the next fiscal year,” she said.

“A very light fall term [for enrollment] is possible if graduating seniors delay enrolling because of the public health emergency. So this is one of those death-by-a-thousand-cuts situations. We’re seeing cuts from every possible angle, along with the increased expenses [of] migrating everything online.”

She said Henderson State “is obviously in a crunch, because they were already in a crunch before COVID-19.”

The state has granted the university more time to pay back an $8 million loan, but lawmakers rejected a request for $825,000 more in emergency aid last week.

“Originally, Henderson was going to have to pay back the loan within the fiscal year,” Markham said. “And that was obviously not going to happen, so they had to be given more open-ended terms. I mean, they basically needed that loan to handle immediate issues.”

Markham, who became the state’s higher education director in 2016, said UA Little Rock’s response represented “the first time in my career in higher education in Arkansas that we’ve had an institution go into retrenchment.”

More common nationally for schools in financial distress, retrenchment “was a smart move for UALR,” Markham said. “It needed to do some right-sizing, and this was a good way to do it.”

After topping 13,000 a decade ago, UA Little Rock’s enrollment was less than 9,600 in the fall of 2019.

Drale, who was elevated to UA Little Rock chancellor just last year, said the university looked closely at what students were interested in and at what businesses and employers need before focusing its cuts.

In a telephone interview, she also explained two processes for university retrenchment.

“It’s important to understand that retrenchment is a step in a larger plan for the university to get to a financially sustainable position,” Drale said, adding that retrenchment is defined by the UA Board of Trustees as “the only means, except for dismissal for cause, by which the university can lay off professors who have tenure.”

She had two retrenchment options under UA System rules: academic retrenchment or financial exigency retrenchment.

“I chose to pursue the academic retrenchment for two reasons,” she said. “One, I didn’t think our financial situation was to the point of exigency. We weren’t to that point yet, and I didn’t want to get to that point. And academic retrenchment allowed us to carefully look at our academic profile, our academic programs and to, in essence, right-size instructional staff after a decline in enrollment over an extended period of time.”

The Arkansas Times, which had filed a state Freedom of Information request, reported last week that 13 UA Little Rock faculty members had been laid off, including six full professors in the School of Education and two in other disciplines.

“For many years, we looked at the enrollment decline as temporary, a blip if you will, but careful trend analysis shows that we were trending down over time, and we really needed to adjust our budget and staffing to that condition,” Drale said.

Business Input

One strategy was going to “external constituents,” the chancellor said. “We approached the business community to ask what are you looking for in UA Little Rock? How can we be more relevant to your needs? That was part of the equation.

“Then we also looked at strengths and weaknesses in the academic portfolio and weighed them against our mission and institutional priorities, Drale said. The Board of Trustees approved her plan on May 4.

Drale said the university has earmarked other teaching positions for elimination, but the 13 layoffs detailed in press reports “were the positions that actually have people occupying them.”

Perhaps another 13 to 15 positions will be part of the retrenchment cuts, but “those positions have people in them that are either going to retire or for whatever reason were not going to be occupied,” she said.

At UCA in Conway, Davis said a resource optimization initiative he calls ROI was strengthening his university’s financial position.

“The key thing is that we started this process in 2017,” shortly after Davis took the reins after nearly five years as executive vice chancellor and chief academic officer of the University System of Georgia’s Board of Regents.

Zero-based budgeting, he said, requires “putting a name and a function to every single dollar that’s in your budget.”

He also applied metrics like how many units students were passing in different disciplines to determine where to put resources, and where to withhold them at the university, which had almost 11,000 students last fall.

“We found areas of need, thinking about expansion of our health science programs, of expansion in cybersecurity or computer science,” Davis said. “We knew we were limited in our students’ and their families’ ability to shoulder the costs, so we needed a plan to repurpose existing dollars.”

Retirement Incentives

The “centerpiece” of the resource optimization plan, which identified $7.6 million in potential annual savings, is an incentive program that helped prod about 50 staff retirements, providing $3.7 million in annual cost reductions, Davis said.

“We felt good within six months of the retirement incentive that we were already at $3.7 million of that $7.6 million goal. It was a success from a budget standpoint. All of these individuals had given a decade or more of their professional lives to the university, and we wanted to do this in a way that honored that,” Davis said.

UCA has about 1,400 employees, the university said.

The ROI program calls for $2.3 million in savings from keeping positions unfilled through attrition, and another nearly $2 million in operational savings.

“Operationally, you look at things like average staffing patterns at peer institutions,” Davis said. “Are you overstaffed or understaffed according to that analysis?” The effort has paid off, he said. “We’re going to have a balanced budget this year and we’ve not had to lay off anybody, even with the cuts that are coming from the state.”

Davis estimated that state support, about 31% of UCA’s budget until recently, now makes up just 27%-28% because of falling state revenue collections.

But Markham, the higher ed director, said COVID’s economic impact could offer some hope for two-year colleges, which could benefit as displaced workers frequently return to school for job training.

“Traditionally, in a recession, a lot of students enter college so they can up-skill. So typically there’s an inverse relationship between high unemployment and poor economic conditions and college enrollment,” she said. “In a normal recession, you’d expect to see a whole lot of adults coming back to college in the fall, on the two-year level.

“But this is not a normal recession. We don’t know when the economy will reopen fully, or how many of those now on unemployment will return to their jobs. So that’s a question that may not follow the typical trajectory of enrollment. Typically four-year institutions are not so impacted by recessions, but my crystal ball is really cloudy.”

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Operating revenues include student tuition. Net nonoperating revenues includes state appropriations, gifts and investment income. Operating expenses include salary and benefits and supplies. A change in net position or net assets is the equivalent of net income.

Sources: The schools’ financial statements on file with EMMA, the website funded and operated by the Municipal Securities Rulemaking Board.

– Researched by Mark Friedman

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