Southern Oregon University faces financial crisis

Southern Oregon University is currently facing a financial emergency. The current budget for the institution is roughly $71 million, but cuts need to be made to drop that number to $60 million. President Rick Bailey points to a number of factors contributing to the crisis, including the lack of state support and actions from the Trump administration. Bailey’s new proposal to cut costs includes declaring a financial exigency that could impact more than 60 employees and possibly result in cutting 15 academic majors. Bailey joins us to share more on the financial state of the institution.

Note: The following transcript was transcribed digitally and validated for accuracy, readability and formatting by an OPB volunteer.

Dave Miller: This is Think Out Loud on OPB. I’m Dave Miller. Southern Oregon University is facing a financial emergency. Last week it announced something that does not seem to have any precedent at a public university in the state: SOU declared financial exigency. That is going to give it more ability to make cuts that might otherwise go against its collective bargaining agreements. It now expects to trim its budget by 15% over the next three years. Between layoffs, voluntary retirements and not filling vacancies, the university intends to cut 64 positions, resulting in 15 fewer academic majors.

Rick Bailey is the president of Southern Oregon University. He joins us now. Thanks very much for making time for us.

Rick Bailey: Oh, thanks for having me, Dave.

Miller: I want to start with some of the financial basics. In the proposal that you put out last week, you noted that the university’s two key revenue streams are declining, while your costs continue to rise at an unsustainable rate. Let’s take those one at a time. What are the key revenue streams?

Bailey: For 153 years, we really relied on only two – and that’s state dollars and tuition. One of the things, and a lot of your OPB listeners will know, we’ve had a really interesting shift here in Oregon, I’m gonna say since 1990, with Ballot Measure 5 and everything that came after that. Well, over time, the state agency that has really paid the price for that is higher education, and particularly public universities. Twenty years ago, two-thirds of our revenues came from the state and a third came from students. Twenty years later it’s completely flipped. Now, over two-thirds of our revenues are put on the backs of students, and a third from the state.

So we’re doing some things at SOU just to change that picture. We had a plan, SOU Forward, that was adopted two years ago that really started looking more at philanthropy, grants and revenue diversification. Those things are working. So we knew we had to stop relying solely on those two sources.

Miller: What’s happening with student enrollment? Why is it declining? And I should say that you note in this proposal that enrollment has gone down significantly at SOU over the last 10 years or so. I did get student enrollment numbers from the Higher Education Coordinating Commission this morning that showed the state average in terms of all of the seven public universities in the state. And your decline is something like four times higher. So even if there’s a trend that’s statewide, it seems to be much more drastic in Ashland. Why is that?

Bailey: Yeah, I think that’s real, Dave. I think a couple of things … and this is my perspective, so I will acknowledge my bias in this. One is that we’re a system. Oftentimes, we look at the state and we say, “OK, well, here are the state numbers for the universities.” But there’s a pretty big difference between our friends in Eugene and Corvallis and the regional schools. The way we recruit, the way we do things, it’s just fundamentally different. So if you look at where those trends are in the bigger schools, they’re not the same. If you look at the regional schools, that’s where we’ve seen a lot of the decrease ...

Miller: Just to be clear … so, say, think about WOU in Monmouth or Eastern Oregon University in La Grande.

Bailey: Yeah, you’re gonna see similar trends to where we are.

Miller: OK, but why? What’s different about these smaller, as you say, regional public universities?

Bailey: Well, let’s look. I said this in a state legislative hearing recently – I think that the regional schools are somewhat the canary in the coal mine, in the sense that we are schools that serve more Oregonians than the state as a whole. We serve more low-income students, we serve more students who are underrepresented in higher education. That’s where the regionals fit.

And by the way, when the Oregon university system broke up, that was the charter. That was really the charter for the regional schools: give access and affordability to students from around your region and let the big schools be the state brand, the branded schools.

Miller: Well, if you talk to your peers at WOU, say, or Eastern Oregon University, or Oregon Tech – which is closer to you and maybe it’s in its own special case with a more specific set of programs that it focuses on – do you find that you think they’re going to follow your lead, that they, too, might declare this financial emergency in the coming years?

Bailey:  I don’t want to put that on them, so, no. I will say that every school is gonna be different.

Here’s how we have owned it. Here’s how we have gotten ourselves into this place. A couple of reasons. One is – and I said this at a campus conversation on Friday – I’ve been the president here for three-and-a-half years. And in those three-and-a-half years, I’ve already downsized our institution by 13%, in terms of the number of positions, already. That’s not even counting the plan that you’ve mentioned and the provisional plan that we put forward, which was …

Miller: With 82 full-time equivalent positions cut, starting about two years ago, right?

Bailey: Correct. So, we’re doing the work. But I will say, we didn’t have the reserves that our counterparts have. We have to give credit to Western, to Eastern, to Tech, for really making sure that they have had solid reserves. SOU did not have those reserves, so that’s one thing we’ve challenged. As I told our campus on Friday, there are four things in my three-and-a-half years that I’ve never been able to fund, no matter how bad I wanted to.

One is investments that really bring students into the institution – think marketing, think outreach. I mean, we do it with blood, sweat and tears, but we’ve never had funding to actually do that. The second thing is student success. You know, we’re pretty much average. I mean, we’re not bad, we’re not a standout “great.”  Our first year retention rates, our graduation rates are kind of where our peers are, but we really haven’t been able to invest ways to make us get to that next level.

The third is talent management. How do we make sure that we’re compensating our faculty and staff at a competitive rate? And then lastly is reserves. We haven’t had the ability to put money in reserves so that we can withstand storms when they come. For three-and-a-half years we’ve never been able to do those things. At the end of this plan, the provisional plan, I know that we’re going to be able to do some of that work, but it’s really painful getting to that place.

Miller: I want to talk about what’s in that plan, but just to stick with the basic financial side of this, we started with the money coming in, the revenue streams of state funding or money directly from students. What about money going out? What are the expenses that are driving the biggest problems for you right now?

Bailey: Really good question, Dave. Let me put it this way. SOU, of all seven universities, we are supported by the state in something called the Public University Support Fund. It’s the big fund that basically funds all seven for operations. SOU’s share of that Public University Support Fund is a little over 5%; in this last fiscal year, that was $28 million. And let me be very clear, especially to our state leaders and legislators, we’re grateful for every dollar of that $28 million.

But also last year, the cost that we had to pay just for PEBB and PERS, just for medical and retirement benefits for our employees, was $16 million alone. So well over half of the money that we get from the state, we use to pay for medical and retirement benefits. And by the way, they’re fantastic benefits, so I’m not arguing with that. But if you think about it, over half of that funding is paid out to those two things alone, and that’s before we’ve given a dime to any compensation for faculty and staff, before we’ve done anything in student services, before we’ve turned any lights on. So who pays the rest of that in this state? Our students.

So, there is something that’s broken. By the way, PEBB and PERS are things that I, as a university president, have no control over. So it is a challenging economic environment and that’s why we have to do things differently.

Miller: You said at a press conference on Friday, that those savings, meaning the big cuts that you oversaw just two years ago – the 82 full-time equivalents, 13% of university staff … You said, “Those savings weren’t necessarily tied to a well-defined strategic vision.” What do you mean?

Bailey: Yeah, I think it’s Monday morning quarterbacking, but let me be clear, SOU Forward is the plan that we adopted two years ago. And we had a freight train coming at us at the time. Similar situation: Not sufficient reserves, economic crisis. I learned about it on the third day on the job. It was a real challenge.

Miller: Let me make sure, you were hired for the job and it was on day three when you realized just how bad of financial shape the university was in?

Bailey: Yes.

Miller: How did that happen?

Bailey: Well, you have to be careful because I don’t want to blame anyone who came before, but every institution has financial challenges, all across the country. It’s happening everywhere, especially now. But the way you asked the question is appropriate. As I interviewed for the job, and met my predecessor and talked to counterparts, it was like, “oh, we have some financial challenges,” and like, “yeah, who doesn’t?” But, on my third day on the job, we had a board meeting and really kind of started diving in to see the numbers. That’s when it hit me like, “oh, wow, this is far bigger than I had any idea about.”

Miller: Would you have thought twice about taking the job if you’d known that?

Bailey: No, no, I wouldn’t. I would have jumped in, because this is a promise I made to this institution. So, no, I wouldn’t have changed. I think I would have been more wide-eyed going into it, but I just had to learn. We had to build the airplane as we were flying it.

Miller: [SOU] made a declaration of financial exigency, which is going to pave the way for cuts of a kind that otherwise wouldn’t be possible under collective bargaining. How did you decide to make that declaration?

Bailey: I do want to give credit to our faculty union. Imagine being a new president coming into an environment where you have this massive budget challenge and you’re totally unknown. So you’re working with faculty and staff who don’t know you, and two very strong unions who also don’t know you.

SOU Forward – and this is the answer to your other question – at the time, it was, I think, about as good as we could have done given the circumstances. And at the time, with SOU Forward, we took advantage of, hey, here are retiring faculty, here are those who are volunteering, here’s who we can incentivize to leave early. So we did a lot of opportunistic things. It was good, it worked.

But at the same time, your question is, hey, it wasn’t as strategic, it’s because we really looked at solving that crisis in immediate time, with where we could expeditiously solve the problem. Now, there were very few of those we really did this time, and now we built up trust with the unions, with our faculty and staff partners, and sharing governance partners, that it was really, “OK, what do we need to do for the institution? What’s the best strategic move?” Then, let’s figure out what the vehicle or mechanism is to do it.

Well, in order to do that, as you mentioned before, going from 38 majors to 23 to become more hyper focused on students, and tied to regional economies, which is what the state expects us to do … In order to do that, you really have to think bigger and bolder in terms of your programs. We have very, very specific rules in the collective bargaining agreement that we have with the faculty union. So we just had some very thoughtful dialogues and came up to the decision together that exigency was really the only path that would allow me to be respectful of that contract and still do the transformative things that we needed to do. So I fully give credit to our faculty union for that. By the way, the staff union, SEIU, has been incredible too.

Now, I do want to put on the record, these two unions are not gonna be happy with the provisional plan or the final plan, of course. Neither am I. None of us want to see our colleagues lose their jobs. These are people that we love and care about, and they’re people who are really good at what they do. But the storm that we are navigating requires that we transform, so exigency is a mechanism, it’s a clause in that contract that gives the university the authority to do the things that it needs to do.

Miller: I should point out that we are in conversation with the president of SEIU 503 Sub-Local 84, which does represent, as you noted, some staff at the university. We do hope to have her on the show later this week. How did you decide which cuts to make in terms of majors and which academic programs to slim down?

Bailey: Great question. It was really a lot of different variables. My direction to the team was not to make data-driven decisions but data-informed decisions. And really the goal was what I said earlier. It is, how do we make the institution more focused, more responsive and more resilient? So we looked at things like the number of students in the major, things that your listeners would obviously gravitate toward … How many majors are we graduating each year? What’s the trend rate for student interest in certain fields? What is the tie to specific jobs in Southern Oregon – and statewide?

So all of those variables were put in. Then we also had to say, “OK, then let’s also weigh that against our values.” Every single thing that is a part of this provisional plan is something that we love. It’s something that’s dear to us. So everything comes at a cost and it was very, very difficult coming to the decisions that we put forward in the provisional plan.

Miller: You were clear in that provisional plan that this is not the bankruptcy of the university, not the closure of the university, that you’re hopeful for its future. But I am wondering how you think this is going to play out in terms of  prospective student decisions in the coming years? [Say] someone is about to go into their senior year of high school, they’re thinking about public Oregon universities that they want to go to. Yours is the only one that has made this kind of emergency announcement, to really reorganize the finances and the academic set up of itself. How concerned are you that those students might just be more likely now to say, “You know what, maybe I’ll go somewhere else?”

Bailey: Well, Dave, that’s exactly why I’m here with you today. The goal is to try and make sure … And by the way, I’m asking all of your listeners to help us with this. Exigency is a contractual term with our union and it’s one that we have agreed to declare together. So what we are insisting on, and what I will continue to work my tail off on, is to send that message to the rest of the state, that it’s exactly what you said. This is not bankruptcy. This is not closure, it’s not anything close to that. But it is something that’s gonna allow us to transform so that we actually become far more resilient.

Let’s not kid ourselves. The things that we are doing right now are really in response to our own internal issues, our own declining enrollment and things that we’ve withstood for a decade. It’s also an acknowledgement of where we are in prioritization with the state budget. The public universities have not been a priority for the state, and we have to own that and understand that.

But there’s also a pretty big storm coming from the federal government that none of us in the state have truly, really experienced yet. I heard at the top of the show, you talked about CAMP, the College Assistance Migrant Program that’s being targeted. And you look at Pell grant, work-study, student loans, TRIO, McNair and other LBJ-era programs that help low-income students, that stuff is still coming. So we need to be far more … By the way, every university needs to be far more resilient than it is right now in order to weather those storms. So, yes, this is really difficult work. But I am convinced that the university will be in a far better position on the other end of it to weather those storms.

Miller: Rick Bailey, thanks very much.

Bailey: Thank you, Dave.

Miller: Rick Bailey is the president of Southern Oregon University.

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