Spending Spree

By?Matthew Gutierrez,?Shawn O'Malley , and?Weronika Pycek ?· August 11 2023

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In the age of ChatGPT, the future of higher education is increasingly uncertain. How will universities change in the coming years? It’s impossible to say.

One thing is certain: The ballooning tuition costs and excessive spending of the past two decades are unsustainable.

???We dive into what’s driving colleges’ ever-increasing spending and tuition costs below.

—?Shawn

Here’s the rundown:

Today, we'll discuss the?three biggest stories in markets:

• Out-of-control college spending
• Amazon shakes up its deliveries
• The cost of Hawaii’s wildfires

All this, and more, in just?5 minutes to read.

POP QUIZ

?Adjusted for inflation, how much did tuition cost for the average student at a public university in 1970? (Read to the end to find out!)

CHART OF THE DAY

IN THE NEWS

???Colleges Spend Like There’s No Tomorrow?(WSJ )

U.S. colleges are rivaled only by Silicon Valley tech companies for their incredible ability to?burn cash. As The Wall Street Journal?puts it, over the past two decades, “The nation’s best-known public universities have been on an?unfettered spending spree.”

No price too high:?The University of Kentucky spent?$805,000 a day?for over a decade upgrading its campus while charging its students, from one of America’s poorest states, an average of $18,693 to attend in 2021-22.

• It’s a similar story at Penn State, which despite being one of America’s most expensive public universities, has spent its way into a budget crisis.
• And at the same time that the University of Oklahoma implemented some of the biggest tuition increases nationwide, it spent millions on extravagant projects like renovating a 32,000-square-foot Italian monastery for its study-abroad program.

What’s driving the abundance??The?$1.6 trillion?federally-subsidized student loan crisis is a major factor. Without federal loans, fewer students would likely be able to attend four-year universities, perhaps opting more for community colleges, trade schools, apprenticeships, and other alternative paths into the workforce.

• Instead, federally-backed student loans have helped keep enrollment at four-year schools high, allowing schools to increasingly raise tuition prices. But that only spurs students to take out even more debt.

Lacking accountability:?Schools have discretion over categorizing spending on audited financial statements, masking certain spending and making comparisons between universities difficult.

• For example, schools may classify “professors’ salaries as instructional spending one year and as research expenses the next.”

Why it matters:

The Wall Street Journal examined financial statements going back to 2002 from 50 universities — typically the oldest public school in each state — and found that spending rose?38%?over the past two decades (adjusted for inflation). Only Idaho had cut spending over that period.

• Those spending increases were funded by a?64%?price increase for the average student.

More spending:?While public universities have faced stingier funding support from states, they haven’t responded by reining in spending. Rather, for every $1 of state support lost, the median school increased tuition and fees by almost $2.40.

• To pay these higher prices, schools have largely turned to wealthy students and their families, appealing to them with state-of-the-art rec centers and dorms, among other luxuries.

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????Amazon Wants to Deliver Your Order Without a Box?(WSJ )

Could the days of Amazon-branded boxes piling up on doorsteps be gone?

OK, yes, this is a packaging story. But it’s about much more than that for a company delivering millions of packages daily, weekends and holidays included. The cost of all that packaging adds up quickly. It also turns into an enormous amount of waste.

• The tech giant can reduce its packaging partly because it has built out its?distribution network, including fulfillment centers all over the map, to reduce the distance its packages need to travel to their final destinations.
• And lately, millions of Amazon orders have already arrived across the country without extra packaging. Want a TV? It might sit in the manufacturer’s box at the door, not in a brown Amazon box that disguises the item. Need a blender or toaster? It might appear as if it were picked up at a store shelf. Same for baby wipes, trash bags, and clothing.

CEO Andy Jassy?is leading changes in Amazon’s delivery process, trying to appeal to customers put off by the volume of Amazon-branded boxes they receive and discard every week (or, for the Amazon-obsessed, every day).

• Over the past year, ‘Zon has revamped its logistics network for faster and more efficient deliveries. Eliminating or reducing packaging is an increasingly critical goal for the company to?maintain its dominance, reduce costs, and reach its goals related to?climate impact.
• “The recognition by a number of senior leaders was just that this is becoming more and more important,” Amazon’s first vice president of packaging and innovation said. “There’s a significant need for our company to take the next step in?innovation around packaging.”

About?11%?of items the company delivers arrive without extra packaging, or what the company calls “ships in own container.” Customers typically can choose if they want extra packaging at checkout or prefer their order without it.

Why it matters:

The company views its packaging initiative as a critical evolution after the success of its fast-shipping efforts. Amazon continues to try to get customers their orders as quickly as possible, often within two days, sometimes less. Executives also want to reduce how far products travel across the U.S. by?streamlining?its large, extremely complex?logistics system.

Throughout the pandemic, Amazon?doubled its U.S. warehouse space, which helps get customers their items quickly while reducing travel costs. The less an item has to travel, the better – Amazon has cut the distance items travel from fulfillment centers to customers by?15%. And the less packaging, the better.

Can’t forget about AI:?What’s a big tech story without any mention of artificial intelligence? Amazon has used AI to reduce the size of packages, thus reducing their weight and making them less expensive to ship.

MORE HEADLINES

???X (formerly Twitter) is ‘close to breakeven ,’ says CEO

???81% of workers?say ?a four-day week would make them more productive

??Global oil demand?hits ?record and may move higher, says IEA

???Manhattan rents?at ?record highs for the third time in the last four months

???Hawaii’s Biggest Disaster Destroys Tourist Area (Bloomberg )

Fast-moving wildfires in?Maui, Hawaii,?have killed at least 55 people, with more than 1,000 still missing. Rescue and clean-up crews are pouring into historic Lahaina, and more than 270 buildings?burned ?in the seaside resort area.

Hawaii governor Josh Green said the death toll is expected to rise, calling it the state’s?worst natural disaster.?Some estimates say the overall cost of the fires could be?$10 billion.

• About?$4 of every $5?the island generates comes directly from tourism, which “touches every aspect” of Maui, according to its economic development board. The tourism industry accounts for?75%?of all private-sector jobs in Maui.
• Thousands of residents and tourists fled the area without electricity, phone service, or the internet. It could take years for everything to be replaced, costing?billions of dollars?and depriving the vacation hot spot of millions in?tourism revenue.
• Maui’s economy has just rebounded from the pandemic and depends heavily on tourists from the mainland U.S., Japan, and Canada. Maui is the second-most visited Hawaiian island after Oahu, with 1.5 million visitors in the first half of this year, a 6% increase over last year.

For an economy that depends on visitors, the wildfires are a blow to human life and the area’s economic viability. The flames stemmed from strong winds from a hurricane far off the coast. Coupled with low humidity and invasive, non-native grasses that fueled the blazes, it was a perfect storm.

Why it matters:

The Hawaiian fires become the latest example of how natural disasters have increasingly wreaked havoc on tourist hotspots and economies. In Hawaii, Lahaina is a historic town that was an important economic center in the mid-1800s as part of the whaling industry.

It was also home to a printing press that published the first printed documents in the Hawaiian language. (More than?11,000 homes and businesses?remained without power as of Friday morning.)

• Scientists say that while it’s unclear whether climate change directly contributed to these fires, the?warming climate?is extending the length of the fire season and increasing areas burned in many parts of the world.
• A recent study found that between 2000 and 2019, the number of people in the U.S. exposed to?wildfire risk doubled.
• Aside from the loss of life, the fires are an insurance headache for top Hawaiian insurers like?State Farm?and?Berkshire Hathaway.?Insurers are increasingly?pulling coverage?from disaster-prone areas such as California and Florida.

Huge costs:?The Hawaiian fires’ estimated $10 billion damage costs are roughly the same as the?$10 billion?Southern ice storm in February and about double the?$5 billion?in flooding damage caused by flooding last month in the Northeast.

TRIVIA ANSWER

In today’s dollars, the average annual tuition and fees at a four-year public university in the U.S. in 1970 would have cost around?$2,500, according to?EducationData.org .

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