HD10 - Review of Non-Academic Services and Costs at Virginia’s Public Higher Education Institutions

Executive Summary:
Key Findings

• Intercollegiate athletic programs use, on average, 12 percent of tuition and fees. Athletic programs do not generate enough revenue to cover all their expenses, so most depend heavily on mandatory student athletic fees to subsidize their athletic programs. (Chapter 2)

• Campus recreation facilities and operations use, on average, about three percent of tuition and fees. The cost to students of having access to these facilities in Virginia is generally less than private sector alternatives. (Chapter 3)

• Student housing and dining vary considerably by campus, but together typically average 47 percent of the price of higher education for residential students. Virginia institutions charge, on average, about the same as or less than other higher education institutions nationwide. (Chapters 4 and 5)

• Most higher education institutional debt is for auxiliary enterprise facilities. Virginia’s public higher education institutions have built more than 200 auxiliary projects during the last decade using $3.5 billion in bonds. Students pay most of the debt service. (Chapter 6)

House Joint Resolution 108 (2012) directs the Joint Legislative Audit and Review Commission (JLARC) to study the cost efficiency of the Commonwealth’s institutions of higher education and to identify opportunities to reduce the cost of public higher education in Virginia. The resolution identifies 14 items related to the cost and operations of public four-year higher education institutions in Virginia. The overarching intent of the resolution is to, amid substantial increases in tuition and fees, assess the major drivers of cost at Virginia’s 15 public higher education institutions (Appendix A).

Given the scope of this review, a series of reports will be completed under HJR 108 during 2013 and 2014. This second report in the series addresses some of the major drivers of non-academic spending increases at Virginia’s 15 public four-year higher education institutions. Much of this non-academic spending is broadly categorized as auxiliary enterprise spending.

This report includes three recommendations for action by the institutions or SCHEV. Broader options and recommendations for improving efficiency and managing costs will be included in the final report of the series. These will address major academic, administrative, and auxiliary enterprise concerns identified in the series. Specific recommendations in the final report may be for actions by individual institutions or for system-wide changes by the General Assembly.

Auxiliary Enterprises Receive No State Funds, Are Primarily Funded Through Student Fees and Charges, And Have Been the Largest Contributor to Spending Increases

Higher education institutions typically use auxiliary enterprises to manage the non-academic services they provide. Institutions use these auxiliary enterprises for a wide range of services, but most commonly for intercollegiate athletics, campus recreation, student housing, and student dining. In contrast with academic services, these non-academic services provided through auxiliary enterprises receive no general funds from the State and are expected to be self-supporting. Consequently, the primary funding source for most auxiliary enterprises is students.

Between 2001 and 2011, auxiliary enterprise spending (per student, adjusted for inflation) was the largest single contributor to spending increases at Virginia’s institutions. The amount that students are charged to support these non-academic services has also increased, but not as much as tuition and fees for academic services. As of 2011-12, 65 percent of the total price of higher education paid by a typical freshman student in Virginia was for nonacademic services.

Athletic Programs Do Not Generate Sufficient Revenue to Cover Expenses, Requiring Substantial Subsidies from Student Fees

Intercollegiate athletics are the non-professional competitive sports organized by colleges and universities. Athletic programs are often the largest component of mandatory fees at Virginia schools. Virginia’s 15 public four-year higher education institutions collectively have 280 sports teams. More than 6,100 student athletes are on these teams, about three percent of all students.

No athletic program in Virginia generates enough revenue to cover all its expenses. In 2012, Virginia’s athletic programs generated only 31 percent of the revenue needed to cover their expenses, on average. Virginia schools generated from three to 89 percent of total athletic revenues through activities such as ticket sales, contributions and endowments, NCAA and conference distributions, broadcast rights, and royalties. Because the programs do not generate sufficient revenue, most institutions heavily depend on mandatory student athletic fees to subsidize their athletic programs.

Intercollegiate Athletics are Subsidized by 12 Percent of Tuition and Fees, on Average, and Substantially More at Several Institutions

Mandatory athletic-related fees range from $267 per student at VT to $2,044 per student at LU, and average $1,185 per student across Virginia’s 15 institutions. The athletic fees at several schools, including LU and CNU, are comparatively high when considered in the context of tuition and fees (see figure on page iii of the report). Several factors affect the amount of the athletic fee, including the number of students over which to allocate the program’s shortfall, a program’s ability to generate revenue through private donors or ticket sales, whether or not the school has a football program, the total number of sports offered, and the level of spending and investment in a program.

About 12 percent on average of what Virginia students paid in tuition and fees in 2012-13 was for intercollegiate athletics. This varies widely, though, across the 15 institutions. Students at VT pay only two percent of their total tuition and fees toward athletics. In contrast, almost one quarter of a student’s tuition and fees at NSU goes toward the athletic program. LU’s athletic fee is over $400 higher than NSU’s, but LU charges more for total tuition and fees, so the percentage represented by the athletic fee is lower.

Institutions do not consistently calculate athletic spending and charges per student, nor do they consistently publicize these amounts. It is recommended, therefore, that the boards of visitors at each four-year public institution promote greater transparency of mandatory fees by requiring the amount of the athletic fee (or athletic-related portion of mandatory fees) to be listed on the tuition and fees information page of each institution’s website.

Campus Recreation and Fitness Enterprises Use About Three Percent of Tuition and Fees

In Virginia, students at public four-year institutions are required to pay a fee to support recreation and fitness enterprises. Recreation expenditures averaged $260 per student in FY 2012. Across schools, mandatory fees for recreation ranged from $36 to $488, and averaged $281, or 2.8 percent of total tuition and fees in academic year 2012-13. All schools rely primarily on mandatory student fees to pay for their recreation enterprises.

Most Virginia institutions have increased spending on recreation in recent years. The growth of these annual expenditures is particularly pronounced at schools that have recently issued debt for a recreation or fitness center. Although many have built new facilities, most Virginia institutions are below the national median for indoor recreation space among schools of comparable sizes. Most institutions also charge about the same, or less, than average monthly membership fees at private-sector gyms nationwide.

Housing Charges Are Within a Range of Other Public and Private Alternatives

Twenty-eight percent of all undergraduate students statewide are required to live on campus in student housing, on average. Charges for student housing vary considerably by institution and the revenue generated from these student charges typically accounts for more than 90 percent of all revenue for student housing auxiliary operations. Student housing space and amenities vary by campus, but older facilities typically have fewer amenities than more recently-constructed facilities. About three-fourths of all student housing capacity across Virginia’s institutions was built prior to 2000.

During the last 10 years, the average student housing charge in Virginia has increased more than the average rent cost nationally and in local rental markets. Various factors, including the cost of building new or renovating older facilities and student demand for better housing, have contributed to this higher rate of increase.

Despite these higher increases, Virginia institutions charge about the same, or in certain cases less, than national and local rental alternatives in both higher education and broader rental markets (see figure on page v of the report). A considerable number of students at most Virginia institutions choose to live in student housing even when it is not required. This suggests that the quality, cost, and/or convenience of student housing is often appealing compared to private alternatives.

Dining Charges Are Within a Range of Other Public and Private Higher Education Institutions

About 45 percent of undergraduate students at Virginia’s 15 higher education institutions are required to use student dining services, on average. All but two of the 15 institutions have privatized their student dining services to one of four vendors. Charges for student dining plans and the number of meals per plan vary considerably by institution and dining plan. In 2012-13, residential dining plans ranged from a minimum of $410 per year for approximately one meal a week at VCU to a maximum of $5,456 per year for unlimited meals at VMI. The revenue generated from student dining charges accounts for the vast majority of revenue for student dining auxiliary operations.

During the last 10 years, the average student dining charge in Virginia has increased more than the average cost of a meal consumed away from home nationally. The average dining charge in Virginia has also increased more than student dining plans at public and private four-year higher education institutions nationwide.

Various factors, including the rising cost of food and labor, building new dining facilities to accommodate enrollment growth, and accommodating expanding student dietary needs have contributed to this rate of increase.

As with student housing, student dining charges at Virginia’s public four-year institutions were similar to charges at other four-year institutions in Virginia and nationwide. The average dining charge at Virginia public four-year institutions was less than the average dining charge for private four-year institutions in Virginia and nationwide. The average dining charge at Virginia public four-year institutions was, however, slightly above all public four-year institutions nationwide.

On average, more than one-third of students who are not required to purchase dining plans still choose to do so. Students paid, on average, around $7 per meal, depending on the meal plan. Students consumed an average of 83 percent of the meals they purchased through all dining plans. Certain institutions in Virginia are particularly effective at providing dining services that are attractive to students, have a relatively low per-meal cost, and are structured so that most students are able to utilize most of their
dining plan during a semester.

Institutions Used $3.5 Billion in Debt to Fund 207 Auxiliary Enterprise Construction and Renovation Projects

Virginia’s public four-year institutions of higher education have undertaken extensive construction and renovation of auxiliary enterprise buildings and facilities in recent years, most of which has been funded through the issuance of bonds. Over the 11-year period ending in FY 2012, a total of $3.5 billion was authorized for 207 auxiliary enterprise projects at the 15 institutions. Four institutions (VT, VCU, GMU, and JMU) had 56 percent of the dollar value of these projects.

Users of auxiliary facilities—primarily students—pay on average 90 percent of the debt service on these projects, usually through mandatory fees and user charges embedded in various auxiliary operations. Total institutional debt averages $1,330 per student and ranges from $38 at RU to $3,152 at CNU, although the amount students actually pay differs from these figures.

SCHEV provides to the General Assembly information about how each proposed auxiliary enterprise project will impact student fees and financial aid. Institutions have policies limiting the amount of debt the institution may incur, but neither SCHEV nor the institutions provide information about or have policies on the amount of institutional debt charged to students.