ROANOKE TIMES
Copyright (c) 1997, Roanoke Times
DATE: Tuesday, March 18, 1997 TAG: 9703180018
SECTION: EDITORIAL PAGE: A7 EDITION: METRO
SOURCE: DAVID W. BRENEMAN
THE ARRESTING phrase "privately financed public university'' was used by James Duderstadt, president emeritus of the University of Michigan, in a recent speech on the future facing our country's premier public research universities. His view is captured in the wry comment circulating among public-university leaders: "We used to be state-supported, then state-assisted, and now are state-located.''
It is worth exploring the reasons for the concern about the direction in which several major universities seem to be heading, as well as the implications.
During the first half of this decade, higher education was the big loser in state budget battles. The proportion of state funds devoted to it fell from 14 percent to 12.5 percent. Other sectors, such as prisons, elementary and secondary education, Medicaid and welfare received higher priority.
The reductions in state support have led public colleges and universities to cut costs, increase tuition and scramble for other sources of support. Double-digit tuition hikes have subsided as outcries from students and parents have brought political pressure to bear. But in many states, legislators focused on tuition rates for undergraduate, in-state students, and voiced less concern about increases in tuition for out-of-state and professional-school students.
Fund raising on public campuses is now big business. The University of Michigan is completing a $1 billion campaign, and the University of Virginia is well on its way toward a $750 million goal.
Of course, the decline in state support has affected all public higher education, yet the discussion about de facto privatization has been limited to a handful of the most-prestigious flagship campuses. Only those campuses have the status, the drawing power for students at higher prices, and the fund-raising potential to make Duderstadt's vision plausible.
Today, the state share of some prominent institutions' budgets is strikingly low. At Ann Arbor, for example, state support accounts for only 10 percent of total revenues. At the University of Virginia in 1995-96, state support accounted for 13 percent of total revenues and 21 percent of the academic division's revenues (which exclude those of the medical center). When state support falls to such levels, one can understand why university leaders are talking about a different type of relationship to state government.
A closer look at the University of Virginia is instructive. The academic division's budget saw state support drop from 33 percent, or $181.5 million, in 1990-91, to 21 percent, or $119.9 million, in 1995-96. The state now is clearly a "minority stakeholder'' in the university.
Some education analysts have reasoned that if leading public universities become essentially privately supported, they should cut their links to the states and free themselves from bureaucratic constraints under which public universities operate. But can research universities make up the state's share of their budgets?
What about increasing endowment income? In the case of the University of Virginia, it would require $2.4 billion in additional endowment to produce the $120 million annually provided by the state for the operating budget, based on the 5 percent "payout'' rate that most analysts consider prudent. Even with a successful fund-raising campaign and a rising stock market, it will be many years before the university's current endowment of roughly $1 billion reaches
$3.4 billion.
How about raising tuition? One could generate $120 million by raising tuition for each of the university's roughly 20,000 students by $6,000 per year - if each student needed no financial aid. In-state tuition is currently $4,620 per year. Raising it to $10,620 would amount to a 130 percent increase. Yet Gov. George Allen wants a tuition freeze.
Trying to replace the state appropriation with tuition money would reduce student access, unless a significant amount of the increase were earmarked for financial aid. Assuming, as a rule of thumb, that one-third of the tuition increase would be needed for financial aid, then the university would have to raise $180 million in tuition to be able to set aside $60 million for aid.
In that case, tuition would have to go up by $9,000 per student. Full-pay students would now face a tuition of $13,620. This is not extraordinary by private-university standards but would be a dramatic shift for Virginia residents. (Out-of-state tuition, currently $14,400, would rise to $23,400.)
The other major revenue source for universities is federal research grants and contracts, and contributions from private foundations and corporations. In 1995-96, these revenues at Virginia totaled $147.8 million, 27 percent of the budget of the academic division, up from 22 percent in 1990-91. Such funds are of growing importance, but it is hard to imagine that funds from these sources could grow enough to replace the $120 million state appropriation. Most such dollars are earmarked for particular projects, and donors usually are not interested in providing general operating support.
My conclusion is that no viable scenario exists for ending reliance on state support. It is wishful thinking to argue that the university can replace annual revenues of $120 million in the next five, 10 or even 20 years.
But other adjustments are possible to cope with a diminishing state role. Universities can negotiate a loosening of bureaucratic strictures imposed by the states. We can turn again to the University of Virginia for examples.
The university's Board of Visitors, for instance, approved a plan in November 1995 to phase out state support for the law and graduate business schools. Each will be allowed to raise its tuition toward private-university levels. The state funds freed up were allotted to other parts of the university. This example shows that something close to privatization can be applied selectively.
The Board of Visitors adopted a related policy in November 1996, when it gave all colleges of the university the authority to use gifts and endowment income to supplement state appropriations to pay the salaries of tenured and tenure-track faculty members.
A key element of this plan was the state's agreement not to penalize the university by reducing state support by the amount of the private dollars used. This demonstrates the necessity of carefully negotiating agreements with state officials.
A third example was a loosening of various state restrictions on the university's business practices, giving it greater autonomy in such areas as purchasing, finance and accounting, management of capital projects, payroll and leases.
Each of the steps I've cited moves the university a bit closer to independent status. But part of the implicit agreement is that, in return for the state's actions, the university will not abandon its commitment to Virginia residents. It would be easy, given the applicant pool, to increase dramatically the out-of-state proportion of undergraduates at the University of Virginia. But such a sharp increase would be tantamount to abandoning its role as the flagship state university.
Diminished state support also has logical implications for the make-up of the Board of Visitors. Currently, all members are appointed by the governor. In Virginia, as in many states, these appointments have become more overtly partisan. That fact, coupled with the declining share of state support, raises the obvious question: Why should a minority stakeholder (the state) determine 100 percent of the board's composition? A logical next step would be for the legislature to allow some members of the governing board of this privately financed, public university to be selected by other means. This is an obvious application of the golden rule'' - whoever supplies the gold makes the rules.
Discussing the implications of financial change at public-research universities is difficult for everyone involved, but these institutions are so central to the future well-being of the country that no matter how difficult, the issues must be faced and resolved.
DAVID W. BRENEMAN is a university professor and dean of the Curry School of Education at the University of Virginia. This is an excerpt from an article that first appeared in the Chronicle of Higher Education..
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