NAICU Washington Update

Publication of Financial Responsibility Scores Creates Unfair Fiscal Picture

September 02, 2010

Recently, 150 non-profit, private colleges around the country found themselves the subject of unexpected, and often unfairly negative, media coverage of their financial situations when the Chronicle of Higher Education published an unofficial list from the Department of Education of colleges scoring below 1.5 on a 3 point scale meant to measure basic fiscal health.

The list of schools that fell below 1.5 had grown unusually large this year - partly because of the economic downturn, but also because of an unusual federal formula that, among other problems, counts endowment losses as if they were "actual" instead of "unrealized" losses.

NAICU president David Warren alerted members to the possible public relations implications of this story and also issued a statement to media intended to allay fears about institutions' fiscal health.  Warren's comments appeared widely in regional media throughout the U.S.

In addition, since last spring NAICU has been working with the National Association of College and University Business Officers and the Association of Jesuit Colleges and Universities in encouraging the Department of Education to review and update their current assessment formula.  Part of the challenge facing the Department is that the current system is based on legislation written in 1992, and hasn't been updated to reflect more recent accounting changes or practical experience with the 18-year-old methodology.

The publication of the list, combined with the ongoing economic downturn, has brought new urgency to the need for the Department to update the formula, and put forth a more transparent process for appeal.  Currently, some colleges have been able to appeal faulty calculations, while others have been told by regional offices that no such recalculation is possible.

NAICU is also working with individual colleges that have contacted the association, and is analyzing members' scores from past years.  Many institutions that received unacceptable scores this year had high scores the prior two years.  Many others are reporting that their scores are already back into a much more favorable range, and that they will be well above the 1.5 level when the next financial snapshot is taken.  Our intent is that the next snapshot will be much more carefully focused.

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