The Next Casualty of the Oil Depletion Age: State Universities

It is an unfortunate fact for canaries, at least, that these birds are particularly susceptible to methane and carbon dioxide. For that reason coal miners used to bring them down into the mines as an early warming system for monitoring the air. When exposed to even small amounts of these noxious gases, the canaries would show signs of distress and wobble on their perches; if the gases were concentrated enough, the birds would fall over and expire. Either way, it was a sign to get out.

In the business world there are some "canaries" that are already wobbling on their perches as the age of oil depletion unfolds. The airlines are the most visible and obvious casualties since their fortunes are so closely tied to the price of jet fuel. The American automobile industry is another prominent casualty. This is in large part because the industry failed to anticipate the emerging energy crisis and continued to concentrate on manufacturing gas-guzzling SUVs. In addition, the automakers' high pension and health care costs have made them especially vulnerable to financial shocks.

Now, a third important casualty is coming into view: state universities. As with each of the other "canaries" already mentioned, state universities have particular vulnerabilities that make them more susceptible to rising oil and natural gas prices than their private counterparts. First, the "Demographics Project" of the College Board (the organization famous for SAT tests) reports the following:

For almost 20 years, enrollment managers have had the luxury of being able to recruit, select, and help finance their incoming freshmen from ever larger high school graduating classes. Those good times are about to end. Future applicant pools will be smaller and will vary across demographic lines.

Second, state funding as a portion of higher education budgets for state universities and colleges has been trending down from 44.8% in 1979-1980 to just 32.3% in 1999-2000. This trend is leading to a third vulnerability: sharply rising tuition and fees as shown on the right side of the graph below:

Trends in Rate of Increase in Total Four-Year College Costs 1978-79 to 2003-04

                                          U. S. Department of Education

The rate of tuition and fee increases for private and public colleges had been more or less in sync from 1980 until 2001. Then, tuition at public colleges began to rise dramatically. Increasing health care costs were partly to blame and served to make state colleges and universities all the more vulnerable to energy shocks. Higher tuition has also begun to threaten enrollment (and thus revenues) as students find that their education is less and less affordable. Of course, the students and their families are facing higher energy costs as well which means the income that is available to devote to education is dwindling.

State colleges and universities are vulnerable in yet a fourth way; their endowments are often small or nonexistent. While many private institutions can draw on substantial endowments to fund unexpected costs, most public institutions of higher education have little to fall back on.

All of these vulnerabilities leave state colleges and universities especially exposed to rising heating and electricity costs. And, while oil isn't the main fuel for college and university campuses, natural gas is. With natural gas supplies peaking in North America, heating costs for institutions located there are likely to remain high for a long time. One natural gas expert believes that natural gas production could even begin to drop precipitously by 2007 or 2008 sending prices higher still. Unfortunately, many state university and college campuses are sprawling energy sinks with vast energy-hogging laboratories, dormitories, arenas and classrooms. In addition, rising oil prices have begun to feed into higher prices for just about everything colleges and universities and their employees need.

The bad news is everywhere. Both New Mexico State University and the University of New Mexico were heading for huge deficits when a special session of the legislature was called to pass $3.5 million in additional aid to help the state's public institutions of higher education to pay their utility bills. Texas Tech tacked on a special $60 fee per student per semester to defray rising energy costs. Back in September, the state university located where I live, Western Michigan University, decided at the last minute to adjust its academic schedule to add an extra week of Christmas vacation and then tack that lost week onto the end of the school year. The reason given: to save energy.

Most colleges and universities are treating the situation as a short-term problem, one that should go away within a year or two as energy prices decline to more "normal" levels. What few are anticipating is a permanent or at least long-term change in the level of oil and natural gas prices. Under this scenario even elite institutions with large endowments and the ability to raise tuition almost with impunity will ultimately have to make considerable adjustments.

While many colleges and universities are striving to be "green" and "sustainable," the activities they have engaged in to date have seemed more optional than obligatory; these institutions have been trying to do the right thing because they want to, not because they have to. What most of them do not recognize is how thoroughgoing their own transformations will have to be to meet the challenges they will face as energy supplies become increasingly doubtful and expensive.

What those who run institutions of higher education need to understand starting right now is that in the future--perhaps as little as a decade from now--green colleges and universities may very well be the only colleges and universities. There isn't much time to prepare.