The Crumbling Foundations of Deferred Maintenance

This is a great article from insidehighered.com on the issue of deferred maintenance and its perfect timing for back-to-school season! This risk has consistently appeared as one of the top risks in higher education, whether reported by United Educators, URMIA - University Risk Management & Insurance Association, or Deloitte.

At HigherEdRisk, we highlighted "Crumbling Foundations" in our Winter Issue. Moody's Corporation's estimates colleges will need $750-950 billion over the next decade to address deferred maintenance. What makes this statistic even more impactful is that 63% of institutions only fund up to a quarter of identified maintenance needs. Deferred maintenance represents a financial and reputational risk that extends far beyond the facilities management department.

In our centerfold, we quoted Ben Unglesbee from Higher Ed Dive, where he states, "Institutions can't put off spending forever. Doing so could exacerbate enrollment declines." Considering the financial chaos that higher education is already experiencing, deferred maintenance needs to be viewed at a strategic level.

Just like risk management, facilities management has evolved from a back-office concern to an enrollment threat. Students are keenly aware of facility conditions, whether it be dormitories or classroom spaces that are past their prime.

Poor conditions not only impact student learning environments and employee working conditions, but they also potentially create safety and accessibility issues, resulting in an increase in insurance claims and reputational risk. Never mind explaining to a student that their $2k laptop will not be covered under the institution's insurance policy when water intrusion occurs!

Traditionally, institutions put deferred maintenance on the back burner, hoping that future growth could compensate for the funding needs. However, with flat or declining enrollment, tuition revenue at stake, and endowments at risk, this strategy is ineffective and compounds costs significantly. Richard G. Mills Jr., President and CEO of United Educators, highlights these key points in the article.

Ruth Johnston, VP of Consulting for NACUBO, further adds that public institutions will face additional challenges as state legislators choose to fund new projects over maintaining existing ones. This practice can lead to a vicious cycle, affecting institutional competitiveness and overall financial stability.

What can be done?

Institutions should consider innovative approaches, such as creating maintenance endowments, reducing physical footprints, implementing flexible workspace arrangements, and transitioning from perpetual naming rights to renewable sponsorships.

It is time for the board and fiduciaries to recognize deferred maintenance as a strategic risk that requires immediate attention and innovative solutions to halt the ever-increasing downward spiral.