Top-Ranked Colleges Spend Their Money Differently From the Rest. Here’s How.

Look to the top of the U.S. News & World Report college rankings, and you’ll find public universities that tend to spend a greater share of their budgets on managing human resources and research. Move down the list, and you’ll see institutions that put more of their payroll dollars toward soliciting donations and marketing their campuses. So says a recent paper analyzing universities’ labor costs.

The paper is among the first fruits of a broader effort by a consortium of university administrators and researchers that is sharing financial data to better compare spending among institutions. But it is not, warns Paul N. Friga, the Chapel Hill business professor behind the research, a recipe for colleges hoping to engineer rises up the rankings.

Instead, Friga said, the correlations he found between universities’ rankings and their budgeting priorities could be indicators of the different challenges facing different universities.

Take spending on communications, for example, which Friga found correlates negatively with ranking. By virtue of their outsize profiles, better-ranked colleges may be able to harness more free attention from the media, prospective students, and alumni than, say, regional public universities without football teams or billionaire benefactors. Top colleges might not need to spend as much of their budgets on press aides or patron handlers because applications and donation checks will be in the mail regardless, Friga says.

The same goes for the share of spending on student services, which had an equally strong negative correlation with ranking. Lower-ranked institutions tend to be less selective, so their students might need more advisers and counselors, Friga suggested.

The strongest correlation of all was a positive one: Friga’s analysis found that universities with better U.S. News & World Report rankings in 2018 devoted a greater share of spending on staffing in human resources in 2014, the year Friga looked at to allow a lag time for effect. Those institutions also tended to put more of their budgets toward research administration, finance, and information technology. Unsurprisingly, universities that spent more nonfaculty payroll dollars per student generally had better 2018 U.S. News rankings, the researcher found.

Friga cautions readers against making industrywide generalizations based on his work, in part because of the limited sample size of his analysis. (Thirteen public universities contributed data.) Correlation is not causation, he says, so colleges should not rush to spend less of their budgets on student services or development.

His research, he said, is meant to act as a bridge to further discussions of academic finance. “It may explain some of the variance in how much universities spend, and where they spend their dollars,” Friga says.

Still, Friga’s initial findings are plausible, says Kent John Chabotar, a founding member of the higher-education consultancy firm MPK&D Partners and a former president of Guilford College. Chabotar says further analysis along the lines of Friga’s payroll breakdown could provide valuable insight into how different institutions spend money to cater to different types of students.

“It could tell us more about what the rankings mean, besides that you are one, two, three, or four, or five, or 160,” Chabotar says.

Richard A. Hesel, principal at Art & Science Group LLC, a Maryland-based consultancy, calls the benchmarking project “a good start.” Greater participation from both public and private colleges could also yield important knowledge about the challenges facing different types of institutions, he said. Further analysis of payroll spending should control for a range of factors, like colleges’ endowment size or discount rate, Hesel says.

In Search of Better Data

Digging deep into university finance can be a tricky task, and much of Friga’s initial interest was tempered by frustration at the lack of comprehensive, detailed data available. At the institutional level, the U.S. Education Department collects only topline spending figures across broad categories, and uncritically relying on universities’ financial disclosures fails to account for key differences among colleges, Friga says. For instance, the human-resources unit at one college may deal with only workplace claims and employee training. But at another institution, it may also be responsible for payroll or adjudication of Title IX complaints.

In an attempt to solve the data gaps, with other researchers, Friga formed the Academic Benchmarking Consortium. Participating institutions provide their data to the researchers; those researchers in turn code and categorize those expenditures using methodology that standardizes the information across institutions. In this way, the consortium can provide budget benchmarks informed by good data and methods, Friga says. Florida State University was one of the earliest members of the consortium, says Kyle C. Clark, its vice president for finance and administration. Clark says Florida State pays an annual membership fee to support the consortium and use its benchmarking tools and data. The university uses the data, he says, to check how it spends taxpayer dollars against how other public universities do so.

And, yes, as FSU seeks to raise its U.S. News ranking, it’s using the benchmarking data to make informed decisions about where it invests, he adds.

“We have a much better understanding of our data of our trends because of this software,” he says, “because of the amount of effort we spend collecting it.”

Dan Bauman is a reporter who investigates and writes about all things data in higher education. Tweet him at @danbauman77 or email him at dan.bauman@chronicle.com.