These are turbulent fiscal times in the states. Just ask public-college presidents who are seeking to minimize vast spending cuts by cash-strapped legislators this winter. The news is not good. Two-thirds of the states face budget gaps that they must close by the end of June. Combined, the shortfalls total some $26-billion.
Slashing support for public colleges, of course, is part of the ebb and flow of economic cycles. In bad times, state lawmakers use public higher education to balance their budgets, knowing that the institutions can raise tuition rates. Then, in good times, lawmakers funnel money back to the colleges to make up for the down years. It has worked that way for decades.
But this time might be different.
Even when the recession ends, state budgets could be pinched well into the future by a vicious combination of weak revenues and rising health-care costs. Among the losers in this prolonged fiscal squeeze? Public colleges.
As a result, this economic downturn is likely to bring on the next wave in the privatization of public higher education. The first wave started more than three decades ago, when public institutions started charging tuition as legislators cut back on taxpayer subsidies.
After that, public colleges began setting up private foundations to raise money or spinning off parts of their operations, like hospitals and law and business schools, to avoid costly state regulations. Drawing private donations gradually became as important for presidents of public institutions as it had always been for those who run private colleges.
Now, some states are looking to hasten the trend by getting out of the business of public higher education like never before -- and, in a few cases, college leaders themselves are eager to show them the door. In Colorado, South Carolina, Wisconsin, and a few other states, colleges are seeking to free themselves somewhat from state control since taxpayers now pay for such a small share of their overall operations.
“State government, like the public, has been somewhat confused about what it wants from the university,” says Katharine C. Lyall, president of the University of Wisconsin System. “They want high access, low tuition, top quality, and no tax increases to pay for it. We have to get real about what realistically can be accomplished with the dollars we have.”
By almost every measure, public institutions are getting smaller and smaller proportions of taxpayer dollars. Since 1980, the share of state funds used for higher education has dropped to 32 percent, from 44 percent. If states had set aside the same percentage of tax dollars for higher education last year as they did in 1978, for instance, they would have spent $27.8-billion more than they did on colleges in 2002, or 30 percent more, according to an analysis by the Pell Institute for the Study of Opportunity in Higher Education.
The decline in taxpayer support is just one manifestation of the changing relationship between states and their public colleges. Lawmakers increasingly view higher education as a private good that should be supported more by students and donors, rather than as a public good that deserves state support. While college officials welcome less intrusion by legislators, almost none are willing to give up the public dollars that come with being called a state university.
“The $300-million we get from the state is not inconsequential,” says Graham B. Spanier, president of Pennsylvania State University, where state appropriations account for 13 percent of the overall budget.
Still, this recession will test the ability of states to continue pumping billions of dollars into public colleges while other services, such as public schools, prisons, and Medicaid, demand more funds and attention as well. Gordon K. Davies, for one, believes that many politicians have already made up their minds about what the priorities should be.
“College leaders are fooling themselves if they think the end of this recession will be like all the others,” says Mr. Davies, who directed higher-education boards in Kentucky and Virginia, and is now a senior adviser to the Education Commission of the States. “What we’re seeing is a systematic, careless withdrawal of concern and support for advanced education in this country at exactly the wrong time.”
Eroding Foundations
The budget woes in the states can hardly be blamed on public colleges alone, and higher-education cuts alone are not going to clean up the red ink. The problem is that the foundation that state budgets were built on is eroding. In the late 1990s, college officials paid little attention to what was happening in other parts of the state budget, and even if they did, the troubles were hidden by phenomenal revenue growth in the states.
On the revenue side, state tax cuts enacted several years ago are finally taking effect at the same time that states are increasingly unable to collect taxes on the goods and services that consumers buy. Most states levy sales taxes on goods, but exclude services, like health care, household repairs, and Internet connections. In 1960, families spent 41 cents of every dollar on services. Today, they spend 58 cents.
While revenues are falling, costs are rapidly rising for traditional public services, especially Medicaid and public schools, and for new responsibilities, like security. North Carolina, for instance, predicts that Medicaid costs will increase by a $1-billion a year for the rest of this decade, basically eating every new dollar that comes into the state’s coffers.
“It’s a black hole,” Molly Corbett Broad, president of the University of North Carolina system, says of the state’s Medicaid problems.
Against that backdrop, public-college presidents are struggling to keep their share of the state-budget pie from shrinking even further. Like many other higher-education leaders, Ms. Broad is pressing her case with business executives, politicians, and the public, painting the university as a linchpin of the state that will help revive its dormant economy.
“My goal is for us to become more central to the lifeblood of this state,” she says. And she has had some success. In 2000, voters approved $3.1-billion in construction bonds for higher education, $2.5-billion of which went to her system.
But even as the 16-campus system strives to strengthen its relationship with the public, the state continues to withdraw its support. Last year, the legislature took back $57.5-million that had been appropriated to the system for renovations -- funds that had been given to the university, officials say, to ensure that its buildings did not fall into the same disrepair that necessitated the bond issue in the first place.
That reversal -- meant to help close a $1.6-billion shortfall in the state budget -- was on top of $145-million that lawmakers have cut from university appropriations in the last two years. Those reductions have only hastened a rapid decline in the proportion of taxpayer dollars going to the university system, whose campus at Chapel Hill was the nation’s first public university. In 1990, 45 percent of the system’s budget came from the state. Today, only 35 percent does.
The withdrawal of the state is most apparent in higher tuition bills and in faculty salaries that lag behind those at elite private institutions. Tuition has increased by an average of 62 percent over the past three years, and the average full professor at Chapel Hill earns $103,000 annually, compared with $118,000 at Duke University and $114,000 at Rice University.
Like North Carolina, virtually every state university is trying to link higher education to economic development. But with few exceptions, the broad argument that public colleges are the keys to helping states climb out of the recession seems to have failed to win over governors and legislators. They still see higher education as the balance wheel of their budgets.
“The fact of the matter is, higher education is the single largest chunk of discretionary spending in the state budget,” says Theo Yu, the higher-education budget assistant to Washington’s governor, Gary Locke, a Democrat. “It’s not mandated in the state Constitution. It’s the final thing that is decided. Once all the other decisions are made, the Legislature will look at the table, see what change is left, and that’s what goes to higher education.”
Cutting Costs
Kristin Conklin, who works with governors on their higher-education agendas as a senior policy analyst at the National Governors Association, says the chief executives basically want two things out of higher education: cost cutting and quick results. One of the biggest frustrations of policy makers, she says, is that after states poured money into public colleges in the late 1990s -- spending rose annually by about 7 percent for three years in a row -- the institutions responded to the first year of budget cuts by imposing their largest tuition increases in a decade.
Governors were “flabbergasted” by some of the tuition jumps, Ms. Conklin says. “Why are colleges unique among public services that their costs have to go through the roof?” she wonders.
The governors want colleges not only to contain costs but also to produce results on issues that matter, like teacher education, student achievement, and partnerships with businesses.
“Governors are doers,” Ms. Conklin says. “They want to see change, and they’re frustrated at the pace of change in higher education.”
To get those results, governors seem willing to set aside money for what they see as specific state needs that public colleges should tackle, even in tough budget times. In Washington, for example, Governor Locke wants colleges to focus on enrolling students in programs that will train them for careers in high demand, like information technology and allied health. Since those programs are expensive to run, the governor has asked the Legislature to give institutions $3,830 more per student than they normally receive for 1,550 slots in high-demand fields.
Such restrictions on state funds make most public-university leaders cringe because they depend on taxpayer dollars to pay for their “base budget,” a per-student subsidy usually tied to undergraduate enrollment. They would prefer that lawmakers just increased the subsidy, instead of directing money to specific projects. After all, college officials say, the cost of educating English and psychology majors is also rising, as demand increases for majors that might not be priorities for lawmakers but are for students.
What’s more, demographic trends have resulted in public colleges in Washington and many other states that are overenrolled -- basically, they have more students on their campuses than the states can afford to subsidize. In Washington, the state’s twoand four-year colleges are overenrolled by the equivalent of more than 16,000 students. Research and graduate education are also taking a hit because colleges use part of the state subsidies for undergraduates to pay for facilities and faculty members that benefit the entire university.
“A lot of the very important things that we do, do not have a lot of direct state support, but there is a lot of cross-subsidy that takes place that legislators never see,” says Richard S. Jarvis, chancellor of the Oregon University System.
To make up for the dollars lost in the state-mandated cuts, colleges have turned to students and donors. Public institutions have increased tuition by an average of 10 percent this academic year, and 16 states raised rates by even more than that. Massachusetts led the way with a 24-percent boost. But since most colleges plow some of that tuition money right back into financial aid, experts note that institutions have actually lost money.
While politicians in Illinois, Ohio, West Virginia, and other states are now calling for a cap on tuition increases this year, last year’s jumps drew few protests from students, parents, or lawmakers.
“Many legislators see higher education as a private good,” says Mr. Jarvis. “It used to be that if I told them students graduate with $25,000 in debt, they’d raise their eyebrows and bemoan the fact. Now they roll their eyes and say, ‘Price of a new car.’”
Moreover, high-profile fund-raising campaigns have led lawmakers to think that colleges can pick up more of the tab from the state. At least 16 public universities or systems have completed or are nearing the end of capital campaigns with goals of at least $1-billion, and many have well surpassed that amount.
“You never hear of a welfare program that has financial reserves or can raise money,” says Paul E. Lingenfelter, executive director of the State Higher Education Executive Officers, a nonprofit group based in Denver.
Time for a Trade?
Despite the shrinking state role in public higher education, college officials say they are still expected to appear before legislative committees, deal with meddling politicians, and follow strict state regulations. That paradox has some wondering if they would be better off with greater control over their own affairs, even at the cost of less state money.
This year, a flurry of proposals in the states would do just that. In Colorado, the legislature is weighing a voucherlike system that would send state funds to students, not directly to institutions. Similar proposals in other states have failed to win the support of public colleges in the past, but Colorado institutions back this plan, which they see as their only escape from voter-imposed limits on state spending and restrictions on how much they can raise tuition rates.
South Carolina’s three major research universities want to break away from the state’s coordinating board for higher education so they could more easily enter into public-private partnerships. Such flexibility, for example, would enable private developers to build conference centers, research parks, or other facilities on public land, with the universities collecting some of the revenue.
And in Wisconsin, Ms. Lyall, the university-system president, suggested publicly this month, for the first time, that the state turn over its 26 campuses to an independent authority, much in the way the university’s hospital was spun off five years ago. The hospital now makes its own budget, purchasing, and personnel decisions.
While the details are still sketchy, Ms. Lyall says the university system risks falling into a “death spiral” if it continues to bear the brunt of state spending cuts. Last year, as Wisconsin erased a $1.1-billion deficit, the system absorbed 23 percent of the cuts even though it makes up less than 9 percent of the state’s budget.
“We have retrenched and retrenched, and we’re now at a point where the size of the cuts being talked about is such that we can’t make marginal decisions anymore,” Ms. Lyall says. “We need to agree upfront what the state can realistically expect from its public-university system.”
In other states, public institutions are examining smaller privatization proposals that would break off discrete parts of a university, like business and law schools, which could easily charge higher tuition rates. Since the mid-1990s, the University of Virginia’s business and law schools have been weaning themselves from state support, freeing up state funds for other parts of the institution.
Where this next wave of privatization will go is unclear. While the proposal in Colorado has the governor’s backing, Wisconsin’s governor, Jim Doyle, a Democrat, said this month that he had “no interest” in changing the basic governance of the state’s university system.
Still, all the talk of privatization makes some public-college leaders, like Mr. Jarvis of Oregon, nervous. With the states facing their worst fiscal crisis since World War II, he says, policy makers are seeking any excuse to cut budgets. Options such as privatization might give them a chance to reduce budgets more than even university leaders may want under a public-private partnership.
“The more we engage in the rhetoric of privatization, the easier we make it for lawmakers to walk away,” he says. “It’s outrageous that the state should become a minority partner in educating its undergraduates.”
A few universities are beginning to aggressively fight state efforts to cut spending, partly by channeling public support. Indiana University has posted on highways leading to the state capital 22 billboards that show what its graduates are doing for the state. The University of Maryland at College Park, Penn State, and other public institutions have recently marshaled networks of alumni, parents, and friends to lobby lawmakers on the universities’ behalf.
“Many of the trustees weren’t sure people were listening,” says Mr. Spanier, of Penn State. “We have 230,000 living alumni in the state. They can do a much better job than me and two governmental-affairs people.”
But the truth is, public universities might be a victim of their own success. They are no longer seen as places for educating the masses, as they were when private colleges enrolled only the children of the wealthy elite. Public colleges are “not places of public purpose anymore,” says Robert Zemsky, director of the University of Pennsylvania’s Institute for Research on Higher Education. “They’re educational deliverers with some public funds.”
University of Wisconsin officials were reminded of that just last week, when Governor Doyle proposed $250-million in cuts for the system during his budget address to the Legislature.
“I know how important universities are to individual opportunity and economic development alike,” the governor said. “But everyone must share in the sacrifice needed to clean up the budget mess -- and the university system can’t be an exception.”
After all, the university has other sources of funds besides the state these days, and, like its peers in academe, it will be tapping them more often in the future.
http://chronicle.com Section: Government & Politics Volume 49, Issue 25, Page A22