Budgetary Challenges Faced by Higher Education Institutions

Higher education institutions covering colleges and universities face budgetary challenges encompassing the reduction in the annual budget of public institutions from the decreased appropriation of the state government and decline in revenue generation from investment in private institutions; reallocation and rationalization of their areas of spending to meet the decreasing budget; and improving accountability practices. These challenges have a number of implications for higher education such as increasing the tuition fee burden of students, limiting student welfare services, and affecting quality of education.

The economic recession greatly felt by almost all the states since 2003 have strongly affected the budget of higher education institutions. In the case of state-run colleges and universities, these experienced unprecedented decreases in the budget appropriations of the state allotted to education. Although, it has always been difficult to obtain an increase in annual budget and state colleges and universities have previously experienced budget cutbacks, the economic recession has exacerbated the situation leading to the highest levels of decreases to date. (Trombley, 2003)

With regard to private higher education institutions, shifts in the stock market and the slowdown of the economy has resulted to lower returns from its investments that in turn led to a lower budget for allocation (Pratt, 2003). Although investments involve risks and the areas of investments of higher education institutions are always board-approved to prevent reckless investments, the economic recession has heightened the investment risk resulting to varying levels of losses and lower budget of private higher education institutions.

Due to a lower budget, higher education institutions needed to re-think their areas of budget allocation and look for ways of obtaining additional budget or cutting-back expenditures. One common response to a decrease in budget is to raise the tuition fee of students in order to raise funds to meet institutional expenses (Trombley, 2003). However, raising the tuition fee creates other problems. Since higher education institutions cut back on welfare services such as scholarships, they cannot support students experiencing hardships in meeting the increased tuition.

This is a problem in both private and public higher education institutions. Another solution to the decrease in budget is the reorganization of the administrative and academic personnel that in turn involves curriculum changes to remove or downsize courses with smaller number of enrollees (Pratt, 2003). Again, this creates new problems. Motivation for administrative and academic personnel decreases and education of students enrolled in the affected courses suffer. Overall, quality of education suffers with the solution applied to the decrease in budget.

Apart from the problems of decreases in budget and reallocation of limited resources, higher education institutions also face the problem of in efficient budget allocation and accountability problems. Inefficient budget allocation means non-optimization of financial resources because of overlapping tasks, bureaucratic systems, poor maintenance of assets, and other causes of inefficiencies in budget allocation and spending. Moreover, poor accounting systems also open opportunities for corruption and other means of resource wastage. (Pratt, 2003)

In private higher education institutions, poor and high-risk investment decision eventually affects its budget while resource wastage in public higher institutions also affects its budget. Even if higher education institutions have sufficient budget, this does not necessarily mean that these experience the maximum benefit from its financial resources.

As such, there is room for improvements in the methods of allocating financial resources that involves not only the implementation of budgeting and accounting standards but also changes in decision-making processes.

Reference List

Pratt, L. R. (2003). Will budget troubles restructure higher education?. Academe Online, January-February. Retrieved March 20, 2008, from http://www.aaup.org/AAUP/pubsres/academe/2003/JF/Feat/Prat.htm.

Trombley, W. (2003). The rising price of higher education. National Center for Public Policy and Higher Education. Retrieved March 20, 2008, from http://www.highereducation.org/reports/affordability_supplement/affordability_1.shtml.

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