University of Oregon bets on top-ranked Ducks to defeat budget dilemma

Looking from the outside in, the University of Oregon appears to be doing very well.

Overall first-year enrollment at UO is overtaking pre-pandemic levels, new academic and research facilities are open in Portland and Eugene, and the Ducks athletics are basking in the national spotlight.

UO’s women’s cross country took home the university’s first Big Ten championship this year. The men’s basketball team has cracked into the top 10 of two national polls. And perhaps most notably, the Ducks football team appears to be unstoppable heading into the College Football Playoffs after winning the Big Ten title earlier this month.

Related: Ducks’ historic football season boosts merchandise sales, helps smaller sports at University of Oregon

But even with all this winning on the playing field, UO is dealing with a loss on its balance sheets. The university has a projected $2.3 million shortfall in its operating budget this school year.

The gap is a small percentage of the university’s overall budget, but leaders are concerned it could signal the beginning of a trend they want to prevent. Administrators blame the shortfall on flat levels of state higher education funding, costly state benefits programs for university employees and lower-than-expected enrollment of out-of-state students.

To increase revenue, UO is banking on attracting more out-of-state students — who pay more than twice as much in tuition as Oregonians — to commit to the Ducks. It’s a bet that could pay off in the short term due to the university’s increased visibility this year, largely brought on by its recent athletic achievements.

“The success of one part of the university is success for the whole,” said UO President Karl Scholz at a Dec. 10 board of trustees meeting. “Athletics are an incredible gateway for those curious about Oregon.”

But turning curiosity into college attendance is harder than it used to be. Nonresident students already pay a premium for a UO degree — a cost that continues to rise. At the same time, high school students across the nation are questioning the value of spending their time and money on a higher education.

UO’s longstanding budget problems rooted in state funding

The University of Oregon is no stranger to budget woes. From 2016 to 2020, the university went through a series of budget cuts in an attempt to tamp down runaway expenses. Staff took temporary pay cuts, there were rounds of faculty layoffs and vacancies were left unfilled.

The reasons for the budget deficits back then echo those of today: low state investment, high personnel costs and declining enrollment in specific student populations.

When it comes to operating the university, UO has for years sought an equilibrium between its main source of income — student tuition — and its biggest expense — salaries and benefits of employees.

This year, those two budget lines nearly equal each other, with 80% of UO’s operating expenses going towards people and about 78% of its budget revenue coming from tuition dollars. Employee costs are sure to increase in the year ahead, and UO leaders are scrambling to find other ways to generate income if they want to keep up.

UO has little control over how much state lawmakers choose to invest in Oregon’s public universities. This school year, about 15% of the university’s operating budget comes from the state.

“We receive a very, very low level of state operating support,” said Jamie Moffitt, UO’s chief financial officer. “And when you look at the model that the Higher Education Coordinating Commission uses to distribute that funding, the University of Oregon actually receives the lowest funding per student.”

Last year, Oregon invested over $489 million into the state’s seven public universities, according to an analysis from UO’s finance team. UO’s share was $92.4 million, which equals out to about $7,200 per in-state student. In comparison, Oregon State University received more than $159 million, or about $8,900 per resident student.

This funding model awards money based on enrollment numbers, student outcomes and degrees offered at each university, said Higher Education Coordinating Commission Executive Director Ben Cannon.

Cannon suggests there are ways UO can boost its share.

“They can serve more in-state students, increase the diversity of their in-state students, increase completion rates and enroll and graduate more students in high demand fields such as science, technology, engineering and math,” said Cannon.

Related: Oregon’s public universities and colleges want more from governor’s proposed budget

But even if UO increases its state support, Oregon lawmakers are unlikely to deepen the pot of money that all the state’s higher education institutions are dipping their hands in.

Since the 1980s, Oregon has lagged behind most states in the nation when it comes to public higher education funding. That trend is likely to continue into the next biennium.

Gov. Tina Kotek’s proposed budget, released earlier this month, called for a more than 6% increase in state funding for higher education from the last biennium. Higher education leaders decried the proposal, saying the nearly $1.08 billion set aside for the state’s public universities would not be sufficient to sustain current operating levels.

UO is also expecting costs associated with the state’s retirement plan to go up by about 9% next year. As a state public institution, UO is required to participate in that state benefit program.

Out-of-state students offer limited path to stability

Revenue from student tuition makes up more than three quarters of UO’s operating budget this school year. And nearly half of that revenue comes from undergraduate students who grew up outside of Oregon.

Students who come to learn at the University of Oregon from across the country and around the world have historically been a cash cow for the university, paying more than double in tuition costs than Oregonians.

This school year, it costs an Oregon resident about $16,000 in tuition and fees alone to attend UO as a first-year student. Students coming from other states or countries are on the hook for nearly $45,000. These figures don’t include other costs for housing, food, transportation or books.

With such heavy reliance on tuition revenue, the university has gone after more out-of-state students to balance its budget for at least the past two decades. Moffitt said it’s a common tactic used among public research universities.

“Because the University of Oregon receives such low levels of [state] funding, we’ve been feeling this pressure to make sure that we have enough nonresident students,” said Moffitt. “I think more and more public institutions are starting to look to nonresident students to help them maintain their budgets, but it’s a pressure that we’ve been under for some time.”

Out-of-state students have made up almost half of UO’s student body for the past 10 years, according to state enrollment data. Oregon State University also enrolls high rates of nonresident students, with this group actually overtaking the number of resident students this school year, largely due to its growing online enrollment count.

By bringing in more money for the university, administrators can turn around the revenue from nonresident students and reduce the cost of a UO education for Oregonians. And that’s a win for Oregon, said Cannon.

“I think that expanding the enrollment of out-of-state students is generally a good thing, particularly as it hasn’t reduced access for Oregonians,” said Cannon. “They are bringing to Oregon revenue-generating, tuition-paying students who are helping to subsidize the cost of educating students from Oregon.”

Enrollment of first-year resident students has steadily grown at UO since 2021, with the university recruiting the largest class of freshman Oregonians it’s seen for a decade this Fall. But while expanding its in-state student numbers fulfills UO’s mission as an Oregon public university, it doesn’t bring in the revenue boost of nonresident students.

Related: Tuition hikes coming this fall for students headed to Oregon’s largest universities

This school year UO hoped to enroll close to 3,000 nonresident first-year students. Their tuition dollars would’ve given the university’s operating budget a slim, but comfortable cushion this year.

Instead UO fell short of its target, enrolling about 475 fewer out-of-state students than it projected for this year. This missed enrollment goal is a main driver of UO’s projected budget deficit.

It’s still not clear why or how the university went off-course this year. But what is clear among UO administrators is that the university is reaching a pivotal tipping point when it comes to attracting more nonresident students to UO.

Costs for out-of-state students are already at market rate with some of its main competitors: University of Colorado, Boulder, Oregon State University, University of Washington and University of Arizona.

Prospective students UO seeks could shy away if the university’s sticker price gets any higher.

A survey of UO’s admitted nonresident students this year showed that affordability was a big factor in their decision making, with 60% of respondents noting cost or financial aid as the main reason they did not choose to enroll at UO.

At the same time, tuition hikes among both resident and nonresident students have become an inevitable reality for all of Oregon’s public universities. UO sees few alternatives to keep up with projected rising expenses.

University gifts, athletic income can’t close budget gaps

UO’s financial challenges might seem incongruent with its flagship university brand.

The school is associated with billionaire Nike co-founder Phil Knight, who has dropped hundreds of million dollars into UO’s athletic, academic and research infrastructure.

And the university has seen successful fundraising campaigns in the past, with the most recent campaign closing with more than $3 billion raised for UO.

Philanthropists bring in a lot of revenue but that money cannot be tapped for use in the university’s operating budget.

“Almost all of that money is legally restricted by agreements between the donors and the foundation,” said Moffitt.

UO’s athletic department is also kept separate in the university’s budget, neither drawing from tuition dollars nor state appropriations to operate. Athletics brings in just enough money to cover its own expenses, according to Moffitt.

Related: Oregon lags most states in public higher education funding, report finds

And just like donations and gifts, athletic department money can’t be transferred to the university’s general operations. That means a media rights deal, worth tens of millions of dollars, that came with the Ducks’ move to the Big Ten this year is untouchable.

“Athletics is wonderful for the university in the sense that it helps our recruiting efforts by making more students aware, it gives our alumni a sense of pride and it’s fun to be part of an institution that’s doing so well,” said Moffitt. “But we’re not able to pull dollars over for general operations.”

Ducks’ athletic success brings valuable opportunity

The university can’t use money from athletics to help balance the budget — but UO leaders are having conversations now on ways to leverage the fame of its successful sports teams to get more of the students they want: high schoolers from states other than Oregon.

The school’s marketing team has launched a multi-pronged approach aimed at advancing UO’s reputation nationwide. Key parts of the plan include expanding the university’s Big Ten television and social media ads across markets in the U.S., uplifting the university’s research efforts and leaning into what people already associate with UO.

The hope is that bringing more attention to the university will lead to increased enrollment.

“Athletics has a positive impact on awareness of universities, particularly for prospective students who live outside the state,” said Scholz at the December trustees meeting. “Right now, people are looking. I feel very good about where we are and where we are headed.”

And with the Rose Bowl days away, the Ducks are eyeing a national college football championship. But it’s still too early to tell if UO’s dominance on the football field this year will have a significant effect on enrollment.

“We’ve seen some impact. We haven’t seen as much as we had hoped to see,” said UO Interim Vice President for Student Services and Enrollment Management Jim Brooks at the board meeting. “But we’re certainly getting more visibility and as our football team gets further into the playoffs we’re hoping that we’ll see a little bit more of a bump.”

There is research that shows universities are likely to see an increase in enrollment in the years after a national championship win or upset victory.

A 2019 study from Appalachian State University examined what’s known as the “Flutie Effect,” which refers to the publicity that resulted from a game-winning touchdown pass thrown by former Boston College quarterback Doug Flutie in 1984. That victory led to a 30% increase in applications to the college in the following two years.

The report found a national championship win can boost overall enrollment at a university by more than 6% the year of the championship and 5% the following year.

There is certainly a lot of excitement surrounding Ducks football as a potential draw, but it’s only one factor. According to a UO survey of admitted out-of-state students this year, about a quarter said their main reason for choosing UO was sports or athletics.

Competition between universities — for students — expected to increase

UO’s teetering budget issue is something administrators will have to get back on stable ground soon as all higher education institutions across the nation are facing significant challenges in the coming years.

Competition among traditional college-going students is expected to become even more fierce starting after 2025, when colleges and universities will come face-to-face with a so-called “enrollment cliff.” That’s when researchers predict 18-year-olds graduating from high school will peak, followed by close to two decades of declines.

Related: Oregon higher education leaders propose budget they say will jeopardize programs and raise costs for students

This comes as young people are increasingly questioning the value of a college education and opting to forgo a postsecondary degree. That’s despite substantial research showing young people with bachelor’s degrees make significantly more in median annual earnings than those with a high school diploma.

With a smaller pool of potential students coming out of high schools, UO and other higher education institutions will have to get creative to attract more students.

For some leaders at UO, a shortfall of a few million dollars out of a nearly $700 million operating budget is no big deal. But if the university continues to miss critical out-of-state student enrollment goals while its costs only increase, its financial situation could quickly spiral out of control.

“We can get by having $2.3 million in the red this year,” said UO board chair Steve Holwerda at the December trustees meeting. “We can do that for a number of years, but it’s just not sustainable in the long run.”