THE BIG PINCH
Recessionary budget cuts are putting Virginia Tech in a hard place.
Outwardly, Virginia Tech this fall does not look like a university suffering the deepest, most rapid budget cuts any state yet has made to higher education. Prospective students and alumni returning for home football games can still stroll across manicured lawns between the well-maintained quarry stone buildings, including the recently renovated Squires Student Center.
But to faculty and staff taking on added responsibilities on salaries that actually buy less and with budgets as adequate for most as a Band-aid over a laceration, the effect of the recent state budget cuts is as tangible as the autumn chill. As one faculty member put it, "the financial adjustments at Tech are going beyond belt tightening and into body sculpting." Departmental operating budgets have already been sucked in at pre-inflationary levels here for the past nine years.
Virginia Tech—and even the Virginia system—are not alone in suffering the effects of a recessionary economy; 29 states cut their higher education budgets this year. But, as of Sept. 15, Virginia's cuts have been the most stunning.
Indeed, the double-digit statewide higher education budget cut of $276 million was equivalent to removing George Mason University, Old Dominion University, and James Madison University from the state system.
But this is not necessarily a gloom-and-doom story. Not now, not yet. This is the story of a university system and a state at the crossroads of their funding relationship. How much a Virginia college education will cost, who will attend state institutions, and how Virginians will pay for higher education are questions that soon must be answered.
Quality was the one thing Virginia Tech President James McComas and the 16 other state university and college presidents were adamant about when they, with State Council of Higher Education (SCHEV) officials, last summer drafted recommendations to improve higher education in the next century. "One option we won't support is an intentional reduction of the quality level we have worked to attain," McComas says. "The competitiveness of Virginia—of any industrialized state-is bound to the quality of advanced education available."
Other options include studying further ways to economize at state universities, increasing the students' proportion of their educational costs, and serving fewer students.
When he talks about Virginia Tech's financial relationship with the state, President McComas' hands form a pyramid, fingers touching at their tips as if he is praying. He begins by counting the blessings.
"Virginia has brought in outstanding faculty through an eminent scholars program, made equipment trust-fund money available for major acquisitions, and given special support for Commonwealth Centers such as our forestry and materials centers," he says. "Some good things have been happening."
But, he says, departmental operating budgets have been essentially level since 1982 (though special money has been available to raise salaries), no significant funds have been provided for capital projects since 1986, and—after more than a year without raises—faculty salaries are slipping in national ranking. Staff salaries, also static since early 1990, never have been competitive with those of peer institutions in other states, McComas says.
"Virginia has the image of investing in education," McComas says. "But this is not entirely true. Virginia is a 'low effort' state. Today we are ranked 39th in the nation in per-student higher education appropriations; yet we're 11th in our ability to pay, based on per-capita income and sales revenue. Virginia has not made the commitment to higher education many states have."
Virginia ranks 43rd in the amount of state income tax collected from its residents.
Just prior to most severe budget reductions, Virginia Tech was ranked in the top 50 universities in the nation by U.S. News & World Report and other publications. "One thing that helped us stay competitive was the additional money gained from research overhead. Our faculty and staff have brought in $120 million in sponsored research in the past year," says McComas.
Virginia is also among the top in the amount of the actual cost of their education that students fund. The Virginia General Assembly decided in 1973 that by 1980 Virginia Tech students would bear 30 percent of the cost of state institutions. Out-of-state students paid 75 percent, which was raised to 100 percent this year. Virginia Tech students now are carrying 37 percent of the cost of their education, according to Kathy Johnston, budget director.
"We, like many other public universities, are already state-assisted rather than state-funded," says McComas. Though some schools, such as Penn State, use the term to dramatize their situation, McComas wants to downplay the description.
The dramatic tuition increases have changed the demographics of out-of-state students coming to Virginia Tech, says Director of Admissions David Bousquet. Once, students from Pennsylvania, New York, and New Jersey could beat the cost of their own state schools by enrolling at Virginia Tech. Now, Bousquet says, the mostly upper-middle class out-of-state students who enroll compare Tech with private schools and those with high out-of-state tuition, such as Penn State, North Carolina State, and the University of Colorado-Boulder.
"Virginia and Virginia Tech still have the reputation for quality. Seven of Virginia's 15 public colleges and universities were named among the 100 best buys in American higher education. Applications to Virginia Tech were up 6 percent this year," Bousquet says.
But the budget trimming over the last two years is bound to have adverse effects, McComas says. "Belt tightening is not the same thing in the academic and business arenas," he says. "When business is bad and sales are down, you reduce production and tighten your belt. But our sales aren't off—enrollment is not down. It is as if we absorbed 2,000 extra students last fall without the faculty and staff to support them. Even greater numbers are expected within the decade. The budget decreases aren't trimming the fat; they're cutting valuable services."
Last year, Virginia Tech students went to Richmond to urge the General Assembly to allow Virginia Tech to increase tuition. The university's lack of funds is damaging to Virginia Tech's programs, they said. McComas says, "Now they're saying, 'We don't mind paying more to maintain and improve the quality of our education, but these latest increases, coupled with inflation, still don't offset the budget cuts. This year we're paying more for less.' We are determined to maintain our educational quality. For example, the revenue from the tuition increases is going directly to fund positions for undergraduate instruction."
For Tech, higher education budget cuts meant whittling $24.3 million from the $290.4 million budget for 1990-91 (though tuition increases restored a part of the cut). The budget for 1991-92 is actually lower than the year before.
As a result, Virginia Tech lost 377 positions, 213 of which were in the instruction division, 85 were in the research division, 79 were in Extension service personnel. After tuition was raised, 97 instructional positions and 6 Extension positions were reinstated. The only actual layoffs were 49 staff people; the rest found other jobs, retired or were reassigned.
"These cuts affect everyone," McComas says. "Everyone has less space, less staff support, fewer resources, and more work. We're hopeful that when the Virginia revenue picture improves, the state will see fit to restore the reductions higher education has sustained so that we can maintain and improve the quality of our educational system."
Tuition for in-state residents has risen from $2,352 in 1989-90 to $2,652 in 90-91 to $2,856 this year, a 20 percent increase over two years. Out-of-state rates have jumped from $5,328 to $6,951 to $8,152, an increase of more than 50 percent.
Cutbacks not the answer
Higher education is, by its nature, labor-intensive. Efficiencies introduced this year at Virginia Tech and other schools cannot begin to compensate for the under-funding they're experiencing or the growth coming in the next 10 years, according to a report by Virginia's college presidents.
Faculty work hard—an average of 50-55 hours a week, according to a recent survey. But when they teach more, they do less advising, less design of new courses, less interacting with students, less research, and less community service.
Continued cutback of services then, does not constitute a viable option for Virginia's colleges to successfully meet state budget goals. The Virginia college presidents' report mentions reducing the number of students served as one option. According to SCHEV director Gordon Davies, as many as 40,000 students could be turned away from Virginia colleges in the mid-1990s when a record number of high-school students reach college age. If the campus construction freeze continues, schools will be able to accommodate less than half of the predicted 70,000-student increase, according to SCHEV statistics.
The report sees this as an undesirable alternative, given the historic commitment of Virginia to provide higher education to all those who want and can benefit from it and the high probability that the most needy would be deprived.
If sufficient general funds are not made available, there is only one other major source of higher education funds if Virginians are to have outstanding public colleges and universities. Tuition will have to rise. Student aid will have to go up correspondingly to ensure access for needy students. Even then, according to the president's report, colleges and universities cannot increase tuition and fees enough in the next biennium to regain the losses of the last two years. It will take longer to accomplish this objective.
One generation of students could bear the brunt of this tuition increase or, as some legislators advocate, Virginians could come to expect that education will take an even higher percentage of the family budget. If student tuition and fees have to provide an even larger share of operating budget support in the future, the highest general fund priority would be additional student financial aid.
The presidents' proposal considers another option. This one comes at the end of the report and takes up only two pages of the 24-page report, yet has evoked more response from the media than all the rest of the document. The report suggests that Virginia's most prestigious schools could become semi-private if state funding doesn't improve. Although his signature is on the report–and many consider the College of Engineering a good candidate for private status–Virginia Tech President McComas won't discuss the privatization or even semi-privatization of Virginia Tech. "That is a last resort only," he says.
McComas talks about blessings again. "With all the shortcomings of our higher education system," he says, "we are still a model for the world. We are still ahead of other nations. We need to make sure we stay that way."
Putting it away for baby's B.A.
It doesn't take a wizard to figure out that if the present tuition rate increase continues at 6 to 8 percent a year, today's newborns will be facing six-figure college bills.
Start saving now, says Virginia Tech family finance Extension specialist Elaine Scott. Because of the power of compound interest, a little saved early can far exceed a lot saved later. Scott says parents evaluating college savings programs should look at the tax advantages, ease of making contributions, and ownership of fund.
The single premium life insurance plan is a way to defer taxes while saving for college, she says, but many states tax the money and its accrued interest when they are withdrawn for college. Also, the insurance company's interest rate may not beat inflation.
Another strategy Scott recommends for risk-averse families is the EE Series U.S. savings bonds, whose interest is tax-free if used for education by families making less than $60,000. These bonds pay only 85% of the five-year Treasury bond rates, and the current issues will pay a minimum of 6 percent, so although they reduce risk, they are not inflation-proof.
Other alternatives include buying state and federally tax-free municipal bonds that mature the year your child enters college. The return averages in the 7-8 percent range, equivalent to 10-12 percent on taxable accounts.
A nationally renowned college finance expert, Richard Anderson of Columbia University, advocates a hybrid, slightly riskier strategy of starting early with growth-oriented mutual fund shares or zero-coupon bonds held in the child's name. When the child is 14, roll the fund over into the safest high-yield, fixed income instrument you can find. This dodges the kiddie tax (which taxes child's income at the family's percentage rate until age 14) while offering the possibility of double-digit appreciation.
Parents also can buy certificates of deposit (CDs) earmarked for college tuition at banks such as the College Savings Bank in Princeton, N.J. For a set fee, you are guaranteed your child's tuition, fees, room, and board will be covered when college time arrives. The bank accomplishes this by tying earnings on the federally insured CD to an index of costs at 500 private colleges. If you purchase one unit for a group of schools of roughly equal cost, it covers one year of college. Your money grows, along with the index, to cover the average of costs at that group. If you believe that inflation is likely to take off, you might find this an attractive option.
However, there are some negatives. The earnings on your original deposit are taxable annually. Another problem with this and any account in the child's name is that when she reaches 18, the money is hers, whether she wants to go to college or see the world.
Another possibility, prepaying tuition at a particular college or group of state colleges, is somewhat like a commodities future contract. "You pay the going price for something you fear will be much more expensive in the future," says Anderson. Several states including Florida, Michigan, Wyoming, and Indiana sell tuition certificates to parents of young children. The equivalent rate of return on prepaid tuition plans depends on the amount of the family's tax bills, on the amount of the prepurchasing discount, and on tuition increases during the time. Based on historical financial data, this seems to offer an extremely good financial return to parents.
"You need to investigate these plans carefully," Scott says. "Admission is not guaranteed. Although each state program has a variety of colleges to which your child may apply, you may not find one appropriate to her ability and interests." In Florida, only your original investment is refunded should your child decide to go out of state. In some states, you must find another buyer for the tuition certificate.
Whatever savings method you choose, Anderson recommends you set realistic goals, start early, and see that your child gets a good education now. "The greatest barrier to successful completion of college is poor academic preparation," he says. "Students who get the most out of college come ready to do college."
Virginia Tech Magazine, Volume 14, Number 1, Fall 1991