Earlier this year, Moody's Investors Service released its annual assessment of higher education in the United States, a report that viewed the sector's short-term outlook as largely negative amid growing economic pressures. The analysts, however, applauded the efforts of a few states that were trying to merge or consolidate campuses because such efforts "foster operating efficiencies and reduce costs amid declining state support."
Georgia was among those states. Its Board of Regents ratified four consolidations, involving eight universities. As a result, I took the helm of Georgia Regents University, a new institution created through the consolidation of Augusta State and Georgia Health Sciences Universities. (A consolidation is two organizations forming a third organization while a merger is one organization taking over another organization.)
Although we are still in the early stages of the process, we have already seen benefits of the union that could help other states that are deciding whether to merge and consolidate campuses rather than simply close them.
The first benefit is the possibility for reduced costs. Most notable are reductions in the overall costs of administration, since frequently a shared infrastructure can serve a larger entity with little or no expansion.
For example, with the creation of Georgia Regents University, we decreased the cost of administration from a combined total of $33.4-million to $32.4-million, a nearly 3-percent reduction in just the first weeks of our existence. These savings will very likely increase as our understanding of how to improve administrative cooperation continues to develop.
More important in this cost-saving proposition is the fraction of the overall budget that is represented by administrative costs. And this is where size matters.
The overall cost of administration for our smaller consolidating university, Augusta State, represented about 9.3 percent of an $81-million total budget. Alternatively, administrative costs for Georgia Health Sciences University represented approximately 3.9 percent of its $643-million total budget. For the newly formed Georgia Regents University, the overall administrative costs represent 4.5 percent of the total budget, even before significant administrative reductions have begun.
While administrative costs are an easy and popular target for reduction, the potential total savings from these actions alone are relatively modest in view of the total budget represented by these expenses. For example, if we reduce the combined costs of administration by 20 percent (a pretty hefty goal), the amount saved would be approximately $7-million annually, or only about 1 percent of our total combined budget.
However, an additional benefit that can occur with consolidation is greater administrative quality and depth, since the larger the university, the greater the ability to recruit nationally recognized leaders. Furthermore, there is less need to have administrators serve as "jacks-of-all-trades," fostering greater depth and expertise among individual leaders.
There are many other potential savings: eliminating duplicate educational programs and services, more effectively using facilities, and the ability to get discounts by ordering supplies in larger quantities.
The second benefit is greater academic value. Enhanced value for students will stem from the increased diversity in programs available, both from combining old programs and from creating new ones. After consolidation, there will also be greater opportunities for faculty development.
A greater diversity of students and faculty members, both in expertise and in demographic make up, while potentially disruptive, also has the great promise of enriching the campus experience.
Frequently a shared infrastructure can serve a larger entity with little or no expansion.
The third benefit is enhanced reach. As the institutions consolidate, the potential footprint of the university can expand. For example, Georgia Health Sciences University had more than 700 training sites throughout the state, with four regional campuses for the medical school and two regional campuses for the nursing school. That broad statewide presence can now be used by Georgia Regents University for the benefit of non-health-science programs and for recruitment of undergraduate students.
The final benefit is stronger competitiveness. The increased competitiveness of the university stems from all that has been described so far. In addition the competitiveness of the university will be enhanced through a larger student body, which allows for more stability in fee revenues, used to support existing or future fee-based projects, including intercollegiate and intramural athletics. And the larger student body allows for greater economic stability, as any tuition increases necessary to offset declining state or other support can be distributed across more students.
But circumstances vary, and it's important that states considering mergers or consolidations understand the pros and cons of each one.
A merger creates a clearer line of authority and responsibility early in the process, minimizes disruptions around branding, and is minimally troublesome for a large part of the campus community. Yet a merger runs the significant risk of marginalizing the segment of the university community being absorbed. In addition, it may yield little incentive for change among the dominant partner's faculty and staff, which may result in the loss of an important opportunity for reassessment and transformation.
Alternatively, while consolidation has the potential to lead to the creation of something new and better, it risks alienating constituents among both university communities, muddling the lines of authority during the consolidation process, creating branding issues, and being more complex from a process point of view, albeit potentially less politically controversial among external constituents.
It is also important to recognize that significant differences can exist in the types and parities of institutions being brought together. Some unions are of similar types of institutions, like the research universities in the potential marriage of Rutgers University with the University of Medicine and Dentistry of New Jersey or the local-access institutions created by the consolidation of Waycross and South Georgia Colleges.
Other unions may involve dissimilar institutions, as is the case with the consolidation I am leading. One college focused only on health and biomedical sciences, while the other was more oriented toward the liberal arts. One catered primarily to graduate students, the other almost exclusively to undergraduates. One aimed to attract elite students, while the other was less selective.
Unions of relatively similar institutions have the greatest opportunity for cost savings stemming from reductions in duplications. Alternatively, the combination of more dissimilar institutions has the greater potential for creating a different, and perhaps better, whole, with a greater variety of programs and offerings.
This grand experiment has just begun for us—an experiment whose results may be decades in the making, an experiment for which judgment can only be issued by those far into the future, when many of the present players will be gone. Moody's report was focused on the short-term outlook for higher education, but it is the long-term outlook that we should care most about.