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the slow economy of the last two years. In 1981 the
state provided over 70 percent of our public
universities’ educational budgets. The figure now
is under 40 percent and still dropping.
This
process follows no master plan. It has progressed
under Democratic and Republican control in Richmond.
It reflects the combination of four forces: (1)
periodic declines in state revenues, (2) other
demands on state funds, like rising prison costs and
soaring Medicaid expenses, which crowd higher
education spending out of the budget, (3) a
requirement to balance the biennial state budget,
and (4) the fact that increases in college tuition
are politically more palatable than increases in
taxes.
Two
important goals now are at risk: high quality
institutions and accessibility for all Virginia
students regardless of income. Under the old
implicit contract, colleges and universities
guaranteed a high quality education for all Virginia
residents who met reasonable admissions criteria,
and the state appropriated ample funds to ensure
very low in-state tuition. As long as tuition was
low, little financial aid was needed to ensure full
access to higher education.
Even
a robust economic recovery will not bring back this
arrangement. We need a new compact between the state
and its universities: an agreement that ensures high
quality and full access, but which requires less of
a financial commitment from Richmond.
This
can be accomplished with a twofold reform. The state
should end direct funding of universities and
replace it with direct funding of students.
Secondly, in exchange for a guarantee that public
colleges and universities will maintain their
current enrollment ratio of in-state to out-of-state
students and meet 100 percent of Virginia
students’ demonstrated financial need, these
institutions must gain complete control of their own
tuition revenue.
Currently,
the state gives each state-supported institution an
appropriation. These funds allow the institutions to
charge an in-state tuition that does not cover the
full cost of a student’s education. This tuition
reduction is an across-the-board subsidy to state
residents regardless of financial need. Under
our plan the money that formerly went to
institutions as state appropriations would be used
to fund tuition grants for in-state students. The
hidden subsidy becomes explicit.
Initially,
the new arrangement would be a wash. Institutions
would offset the loss of state appropriations by
raising tuitions. Students would offset the higher
tuitions with grants from the state.
There
are many ways to implement tuition grants. One
possibility -- extending equal grants to all
students, regardless of the institution they attend
-- might seem fair but it has obvious drawbacks.
Some schools offer special programs, like
graduate-level education, which cost more to
maintain. Unless the state wishes to see these
programs dismantled, these institutions need to
charge more and the state needs to offer larger
tuition grants to students attending them. A
politically palatable approach might be to divide
state schools into two or three tiers, depending on
the types of programs they offer, and adjust the
tuition grants accordingly.
Under
this New Compact, Virginia’s state universities
would have a stable revenue stream. Over time
they could fully fund themselves, and do it without
pricing qualified students out of the market.
List price tuition indeed would rise, but so would
financial aid, governed by state-determined need.
At
present, state appropriations are such a volatile
part of the budget that any plans our universities
make are highly speculative. Tuition payments
also are part of the state’s revenue, and there
are no guarantees that the institution will be able
to use them. This makes life at a
state-supported institution rather like a roller
coaster ride.
When
state resources are flowing, institutions build new
programs, hire very talented faculty and
administrators, and increase educational
opportunities for their students. When
resource flows slow or reverse, programs have to be
eliminated, the faculty and administrators the
institution most wants to keep may leave, and the
educational opportunities for students dry up.
This revenue uncertainty complicates a public
institution's problems in maintaining or increasing
the quality of its programs. With direct
funding of students and control of its own tuition,
our public universities would have the same ability
to make long-range plans that private universities
now enjoy.
When
we talk to people about the direct funding of
students, one common reaction is a fear that risk is
being shifted from universities and placed squarely
on students and their families. The change is
less real than it appears. Under the present
system, since colleges and universities have the
ability to recoup some of any budget reduction by
raising tuition, they often face larger budget cuts
than most other state agencies. The pattern of
tuition spikes following budget cuts is common
across the nation.
If
the state legislature does not let public
universities raise tuition, families still bear the
risk of budget cuts, but the consequences are
measured in reduced quality instead of tuition
dollars. In the short run, lower state
appropriations combined with tuition limitations
mean higher class sizes, deteriorating facilities,
fewer courses, and a less capable faculty. In
the long run, starving public institutions weakens a
public asset built up over the course of the last
century, and debases the value of the diplomas it
grants.
Under
the New Compact, in-state tuition would remain a
bargain compared to private university prices.
Our state colleges and universities are motivated to
maintain a high quality and diverse student body,
and the tuition grant is an important element that
would allow them to compete with universities
elsewhere. Requiring Virginia’s public
universities to maintain existing ratios of in-state
students would force tuition discipline.
Direct
funding of students would eliminate many other
pathologies of our current college funding process.
At present, college administrators spend a
substantial amount of time and institutional
resources lobbying Richmond for increased
appropriations. Much of this lobbying is a
wasteful competition among Virginia’s public
institutions to protect their share of a declining
pie. If schools have no appropriation to
protect, this effort will be redirected toward
private fundraising.
Direct
tuition grants will greatly enhance private
fundraising by Virginia’s public institutions. College presidents have to spend a lot
of time convincing donors that their gifts will not
adversely affect the level of state support.
They are not always convincing, and they are not
always right. States effectively can tax
private donations by reducing the annual
appropriation. This likely induces donors to
become more active in determining exactly what their
contributions will fund, and steers those donations
toward new projects that may be of less use to the
university than gifts that would better fund ongoing
needs. Under the New Compact, a cut in the
size of the tuition grant does not directly reduce a
school’s revenue so the state no longer can tax
private donations.
In
the current funding system, a student can qualify
for subsidized in-state tuition for credits well in
excess of the number needed for graduation, or for
his or her third master’s degree. While
education is a good thing, the state may wish to
limit the number of semester hours or degree
programs for which a particular student is eligible
to receive a tuition grant. These limits
should be liberal, leaving room for mistakes and
experimentation, but placing limits is sensible and
saves state resources.
A
system of direct tuition grants also helps the state
and its universities to coordinate plans for growth.
Currently, an institution that chooses to add
in-state students does so at some peril because its
state appropriation may not grow as rapidly as its
student body. Yet there is no financial
penalty for adding out-of-state students. As a
result, the current system has a strong incentive
for institutions to decrease the percentage of their
student body coming from the Commonwealth.
With
direct student grants, the state has a mechanism
that reduces uncertainty for itself and for its
public institutions. The number of grants for
each institution could be set several years in
advance both to make the Commonwealth’s financial
commitments more predictable and to enhance the
institution’s ability to plan for any growth.
Also, the discussion surrounding the projected size
of an institution’s student body would allow the
state to coordinate plans for capital projects
needed for the institution to accommodate planned
growth.
This
New Compact is a win-win model. The state
maintains its high quality public institutions at
lower cost to the treasury. And it retains
control over enrollment growth. The
institutions secure a predictable revenue stream for
long run planning. No one is priced out
of college on the basis of demonstrated need, and
all students benefit from financially stable, high
quality programs.
--
December 1, 2003
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