The economics of a university

Universities are very complicated beasts to run. Just how complicated came to me when I attended a board meeting of a university business school today. I finally managed to get a bit of a picture of the financial's which underlie a university's operations and many things became clearer to me.
You know I keep on moaning (see links here) about student fees and how universities have to be properly funded and so on and so forth, so this note will give you a bit more detail on how that works.

Also, please understand that this model has some peculiar British characteristics. My other experiences with and knowledge of universities in India, Australia, New Zealand, France, Belgium, USA, Canada, Sweden, Netherlands and Ireland unfortunately has led me to believe that every country has a different way of funding its universities. But, if you are a typical average university (if such a beast exists...), you will be spending money on the following main things

• Buildings, estate, campus and their maintenance
• Salaries and other expenses of current salaries
• The huge and gigantic overhang of pensions to be paid for the    ex-employees of the universities, all of whom are on final salary pensions
• The consumables (chemicals, paper, pens, computers, and so on and so forth)
• Library and laboratories and stuff that goes into them (equipment, books, etc. etc.)
• Other bits which come in are like advertising, marketing, public relations, local taxes (while they are charities and generally tax exempt, they still get hit by taxes),
• services such as electricity, water, sewage, etc.
• Depreciation and other financial treatments such as fines, penalties, provisions, reserves, tax, etc. etc.

So add it all up and very simplistically speaking, that's your cost of running the university (I am sure I have missed out on many things here...), feel free to add them here. So where do they get the money from? Well, they get the money from the following places

• The government grant per student which is embarrassingly minute compared to the economic cost
• The fees that are paid for by the Home / EU student (roughly 3k per year for undergraduate students, can be very high for say business masters students )
• The fees that are paid for by non EU students (roughly anything between 2-5 times the home fees depending upon the course, level and university) (see this for a giggle)
• The consultancy fees that professors get in
• Research grants from government and industry bodies
• The rental amount or some other amount from external institutions which are based on campus or use univ facilities for academic and research purposes
• The professional education and post experience fees for company specific programmes
• Some other blobs of dosh which local, regional, national or EU governments might give out in return for training long term unemployed people for example.
• Outsourcing revenue, so they outsource a canteen to company XYZ, the company pays a rent / amount to the univ, same with running hostels, etc.

As you can appreciate, the British government is cutting costs rapidly and the grants from the government is rapidly reducing. The main cash cow are international students and postgraduate students. So if an undergraduate student is paying 10k per year, that's just about perhaps paying for his education, a bit of a domestic student and an even smaller bit of a staff member.

As I keep on saying, there is nothing free in the world. So if you do not want to pay for your fees, somebody else has to pay. Its either the shareholder, taxpayer, citizen, myself or my (grand) children. If you jack up the fees too high, then the international student can simply go to Ireland or USA or Australia. Then you are stiffed because he has not only walked away with his fees, he has also walked away with a potential future investor in Britain... If you want more research money, then you have to hire more qualified staff. Who will pay for them? How about getting industry grants? In this day and age of recession? What about government grants? Well, government is trying to get its spending under control. Why?
because if it doesn't, then it has to raise taxes and raising taxes in the middle of a recession is very bad. More importantly, companies and high earners can move countries very easily. I can nip over to Ireland and work from there very nicely, for a equal if not better quality of life and keep on doing the same job (ish)... or go to Switzerland..., So they cannot raise their taxes that easily. Lets not forget that these universities are having to pay for pensions for a very long period in time, and that's very expensive...

So, I am simply not surprised that the chancellors are screaming for more money, they simply cannot afford to educated unfunded students. So what do they do? They simply close down unremunerative departments which do not bring in extra money such as geography, physics, and other departments.
Smaller universities or universities which cannot compete on research therefore go for the volume business. Get more students in, and since their revenue is dependent upon simply number of students, out come courses like film studies or surfing management. Cheap staff, cheap to teach (the sea is free and you don't have to pay for film tickets) and bob's your uncle.

There are a huge number of politicians and ministries studies and committees and groups and industry bodies and and and who have worked on this before, and the current situation is the sum result of all those deliberations. I don't have an answer but I know this. To improve the current situation will require God, Allah, Ganesh, Zeus, Imhotep and Walt Disney, till then, I will keep on wondering how on earth do we finance a university.