Happy New Year! Here are six stories I will follow in 2016, with a few predictions sprinkled in. The stories have one thing in common: they involve managing legacy – costs, practices, politics, and brand – in a rapidly changing world.
Managing legacy gets to the heart of why leadership is so important: strong leaders help us to rethink the purpose and position of institutions before they decline. They are not afraid to seek change – while others never get the memo.
- Mergers in Higher Education
The Thomas Jefferson and Philadelphia universities merger was a surprise that few predicted. It was a break the mold announcement because there was no obvious synergy. But look closer and you can see how a medical and health sciences school (Jefferson) and a school with a design and business focus (Philadelphia) would fit together. It is a merger about the changing nature and increasing integration of their respective fields. It is a merger about the future more than a way to rescue the past.
Look for more higher education mergers and affiliations. Some of them will be out of the box, like Jeff and Philly, and others more defensive, as a way to save a school in crisis.
Parts of higher education are in trouble due to rising costs, too much student debt, new technology, demography, and global competition. Private schools without significant endowments and prestige have to scramble to bring in students, maintain quality, and adapt to changing skill demands.
Many schools are responding by becoming global institutions: setting up alliances with international universities or building their own campuses overseas. All of our major local universities have aggressive global partnerships that will continue to expand.
The merger between Jefferson and Philadelphia University is about the future more than a way to rescue the past.
American cultural institutions—universities, museums, and orchestras—are also marketing their brands overseas, much as American retail expansions have done. New York City’s Guggenheim, for example, now has museums in Spain, Venice, and Abu Dhabi.
Full-scale mergers are less common than inter-school affiliations that create feeder systems and leverage respective strengths. Partnerships and mergers between universities and museums (Drexel and the Academy of Natural Sciences, for example) are more frequent than ever.
Higher education mergers now cross boundaries between public and private, profit and nonprofit, academic and non-academic, and even secular and religious affiliated (e.g. Towson State and Baltimore Hebrew University).
Here at home, a potential acquisition candidate is University of the Arts. Created as a merger between the Philadelphia College of Arts and the Philadelphia College of the Performing Arts in 1985, it is a solid school sitting on prime real estate with a limited endowment. It is also quite costly and its students carry heavy debt loads, typical of many art schools. A larger university that wants a foothold in downtown Philadelphia and wants to link fine arts with other University strengths (liberal arts, design, technology) would see great value here.
It may not happen this year, but it is a story to watch.
- Can Cheyney Be Turned Around?
Our region is home to two historically black colleges: Lincoln and Cheyney. While both have struggled over the past three decades, Cheyney is in free fall. A recent report showed that officials at the school had failed to keep adequate records for about $30 million in student aid, for which taxpayers could be on the hook. But even aside from administrative and financial problems, every academic indicator from enrollment to retention is in bad shape. Presently Cheyney loses almost 1 in 2 students after their freshman year. The school is financially and academically bankrupt.
Cheyney has a proud history of notable graduates. Like other historically black colleges and universities, it played a vital role in promoting African American social mobility when racism blocked attendance at other institutions.
But rescuing Cheyney is no longer an issue of increasing state aid (although that would be great). This is a work out and the state, Cheyney, and other education leaders must develop new options. That might take the form of an affiliation with nearby West Chester University or turning the school into a center for African American studies as part of a major private University.
Something has to be done to rescue the school and better serve the African American community and it will take a more dramatic transformation than trying to hold the current model together.
- How About That Girard College-Hershey School Affiliation?
During the mayoral contest there was a lot of talk about the Philadelphia School District. But two schools fully owned and controlled by the City were given less attention: Philadelphia Community College and Girard College. In this column I wrote about the city’s community college and its efforts to improve. Hopefully 2016 will be a year of progress for that important institution.
How about Girard College?
Girard College is an iconic institution. It was an early example of philanthropy by one of the richest men in early 19th century America and it features extraordinary architecture: Founder’s Hall is one of the best examples of Greek revivalist architecture in the nation. It sits on a forty-four acre site in North Philadelphia and was the subject of the city’s most famous civil rights battle, fought to allow non-white poor children to be served by a Will that restricted services to poor whites.
The school has been on a financial tightrope for years, as a result of poor investment decisions and the governance of the City Board of Trusts, which lacks the capacity to more effectively run the institution.
As a result, the school’s enrollment has dwindled to around 270—less than half its size just a decade ago. Yes, Girard is better managed today in terms of transparency, communications, and academic programs than five years ago. But its endowment has not fully recovered from either the recession or bad investment decisions. The school attempted to temporarily curtail its boarding school and high school mission to save money, while it rebuilt its balance sheet. A judge denied the request.
Six months ago a few Girard alums floated the idea of a merger between Girard College and the Hershey School in an Op-ed in the Inquirer. The co-authors were retired business executives. They noted that Hershey and Girard have similar missions but widely different circumstances: Hershey has resources but needs to attract children and Girard can attract children but needs money.
The Hershey Trust, which also is linked to the chocolate company, hotel and amusement park, along with other holdings, has had its own share of governance issues and intrigue. But it has shown a willingness to help Girard College by admitting its students.
A full-scale merger would be difficult to pull-off but there is a strategic alliance that could work for both institutions. This would be a good time to move that forward.
- Legacy Costs: A City Pension Fund Commission (please!)
One year ago the PICA board issued its report on city pension fund liabilities, detailing the problem of underfunding and its impact on the city’s operating budget, along with options for future action. Look for the Kenney administration to convene a city pension fund commission to issue its own report and strategy. The value of that commission will be to get everyone around the table to build buy-in. The downside is that the commission becomes a substitute for action.
Economic growth rates will make it impossible to reach projected pension fund returns, while changes in accounting rules make it harder to obscure its financial position. Add to that, the continued pressure of rising rates of new retirees, and it’s clear the city has a problem it can no longer kick down the proverbial road. It should not be solved on the back of those who made their contributions and lived up to their contracts in good faith. But neither can it be solved by pretending there is no problem, while slowly devouring the city’s operating budget.
This will be Kenney’s most important structural issue to face. Nutter tried but was not able to build union or council support. Let’s hope Kenney is up to the challenge. It cannot wait another eight years.
Look for Kenney to convene a city pension fund commission. The value will be to get everyone around the table to build buy-in for action. The downside is that the commission becomes a substitute for action.
- Legacy Politics: The House of Fattah
For the first time in years Congressman Fattah has legitimate opponents for his congressional seat, including powerful State Rep. Dwight Evans. And why not? He is under indictment on RICO charges, just endured his son’s conviction on bank and IRS fraud, and is not raising much money for his legal defense.
Fattah leads a political machine that counts State Representatives, State Senators, and several City Council members among its ranks. The pending trial has not stopped loyal supporters like the Hospital Workers Union or the head of the city’s Democrats, Congressman Bob Brady, from endorsing him. I think this is the end of the line for the one-time reform Congressman from West Philly. Maybe he wins the primary and the election: but ultimately the trial will be the decisive factor.
- Legacy System: Philadelphia School Finances on the Rocks
With the state budget still hostage to politics, schools do not know the size of the increase to expect. Whatever the number, the new resources will not be enough to eradicate the projected SRC deficits.
There were three drivers of school deficits during the past decade: the growth of charter schools in the absence of offsetting state reimbursements or SRC administration changes; rising personnel costs driven by pension fund contributions; and the loss of state aid from its high water Federal stimulus level. The structural deficits caused by these three issues were detailed by the much-maligned (but largely unread) Boston Consulting Group study in 2012.
The District has tried to come to terms with these deficits by asking the city and state for more money, closing down underutilized schools to cut fixed costs, renegotiating labor contracts, cutting administrative expenses, closing down several poorly performing charters, favoring Renaissance turnarounds over de novo charter schools, and making Draconian cuts to personnel: teachers, nurses, and aides.
No matter what the state does, it will not be enough to fund the present system. Hence the crisis of 2011 is still the crisis of 2016. We need new ideas besides throw out the bums, get more money from the state or get rid of charters.
If you get rid of the SRC and bring back a local board, it will feel good to school activists and union members but will not solve the money issue.
Close down all the charters? It won’t happen; the parents that represent 1 out of 3 school children won’t have it and for good reason: It works for their kids. Even some of the most vocal anti-charter activists in town send their kids to charter schools if they can’t get them into the elite special admit schools. It’s the Philly version of do as I say, not as I do.
No matter what the state does, it will not be enough to fund the present [school] system. Hence the crisis of 2011 is still the crisis of 2016. We need new ideas besides throw out the bums, get more money from the state or get rid of charters.
More money from the State? Maybe, eventually. It is doubtful that it will happen anytime soon or that in the absence of fixing school pensions, the per pupil impact will be as great as we would like.
We have a much bigger legacy system problem but lack the political and institutional space through which solutions can be designed and implemented. The District needs to be reimagined as a lean support and regulatory board that oversees school based managers: charter, district, or contract. Its mantra should be to push resources and authority, as much as possible, to the schools themselves.
This is a design and management problem, not only a money problem. That’s the legacy lesson.