Bacon's Rebellion

James A. Bacon



 

I'm not hearing you!

Save the Wahoos!

Erratic state funding is hindering the University of Virginia from building a world-class institution. It may be time to privatize Mr. Jefferson's creation.


 

Here’s a disconcerting scenario to contemplate:

 

The University of Virginia, after nearly two centuries as a state-supported entity, decides that state “assistance” is its greatest single barrier to building a world-class educational institution. Declaring, “We’re not going to take it any more,” The Board of Visitors votes to privatize the university – spurning the annual state appropriation of $9,700 per in-state student.

 

Under the new regime, Virginia students are no longer accorded special treatment. The board hikes tuitions aggressively from $3,706 to the $18,916 charged out-of-state students. Even so, UVa is a great value, providing a near-Ivy League education for two-thirds the cost. As word gets out that Virginians no longer receive special treatment, out-of-state applications soar.

 

The average SAT for the entering class rises as the university recruits out-of-state students with higher scores. (The mean SAT for Virginia students is 1306; the mean for out-of-state is 1330.) Flush with cash from higher tuitions and unshackled from state-mandated, zero-percent pay increases, President John Casteen authorizes his deans to aggressively recruit top faculty from around the world. “Bring me back a couple of Nobel Prize winners,” he orders. “I want UVa ranked in the Top Ten!”

 

It hasn’t happened yet, but it’s not beyond the realm of possibility. Pressures for privatization are building, and not just at UVa, but at Virginia Tech and the College of William & Mary, two other state institutions with strong enough endowments and alumni networks to consider going it alone.

 

Talk about a double-edged sword. On the one hand, cutting state ties would give UVa a chance to vault into the top tier of universities, public or private, in the world. From an economic development standpoint, what’s good for UVa is good for Virginia. As Gov. Mark R. Warner has observed on many occasions, universities are the factories of the Knowledge Economy, the places where human capital and ideas are generated. UVa could become the Cambridge of Virginia, churning out intellectual property, spitting out entrepreneurs and transforming the small town of Charlottesville, like its English counterpart, into a breeding ground of innovative, high-growth businesses.

 

On the other hand, bright kids around Virginia would be the losers. The cost of a four-year UVa education would soar – potentially $60,000 more. That’s assuming, of course, that the Virginia kids even get in. If Virginians had to compete on an equal basis with applicants around the country, they could wind up a minority in their home-state university. The Old Dominion would lose one of the things that makes it such a great place to live: affordable access to one of the best educational institutions in the country.

 

The privatization scenario just described will never happen, of course. Whatever he may think in private, President Casteen does not utter the "p" word in public. In any case, there would be formidable challenges to work out. Privatizing wouldn’t be as simple as notifying the governor that state funds would no longer be accepted. After decades of commingling public and private resources, someone would have to sort out whether the state or the university holds title to the land, facilities and equipment. Meanwhile, the General Assembly could hardly be expected to make things easy. Constituents with children at UVa, or those who hoped to send their children there, would complain bitterly at hikes in tuition and changes to admittance policies. Turning the University into a haven for rich kids and Northerners would alienate large swaths of the electorate.

 

But the status quo cannot long persist. Feckless state funding policies threaten what it has taken nearly 200 years to create. As Casteen told a group of UVa alumni in Richmond a week ago, it can take 10 years to rebuild an academic program after it has been crippled by hiring freezes, below-inflation pay raises and the departure of key faculty. The Board of Trustees cannot sit by idly and let the institution deteriorate. With public funding so low, just above 13 percent for academic programs this biennium, the burdens of state money begin to outweigh the benefits. State funding comes with many strings -- rules, regulations, reporting requirements, control over compensation and veto power over new programs -- that UVa would happily be rid of.

 

Late last year, UVa's School of Law moved dramatically to cut the state strings. In a letter to alumni dated Nov. 18, Dean John C. Jeffries, Jr., announced a "watershed" event: The Law School was moving to "financial self sufficiency." Under the new financial structure, the school would reject state funds and make up the difference through higher tuitions. The school still would reimburse the university for overhead and direct expenses, and it would charge Virginia students $5,000 less for tuitions, in recognition of the school's long association with the state. But gaining control over its finances, Jeffries said, was necessary to remain "within the first rank of legal education."

 

It's mind-boggling to think that the UVa Board of Visitors would ever vote formally to withdraw from Virginia's public system of higher education. But the School of Law has taken a big step in that direction. And don't be surprised if the Darden Graduate School of Business Administration, already autonomous, follows suit. Meanwhile, the logic of privatization will exert a steady, gravitational tug on the policies of the larger university. The next capital campaign, seeking to raise $3 billion to $5 billion by the end of the decade, will insulate UVa from the vagaries of state funding. The university will boost tuitions as aggressively as it can without creating a political backlash. And Casteen will carve out, through incremental, politically invisible steps, as much autonomy as he can from state oversight.

 

Ten years from now, it may dawn on us that Mr. Jefferson’s University is public in name only, having achieved de facto independence not through a revolutionary proclamation and open rebellion but through a thousand changes over a long period of time.

 

Virginia’s policy makers have brought this situation upon themselves. As the budgeteers in the Warner administration and General Assembly have struggled to balance the budget, they heaped disproportion-

ate budget cuts on those institutions – UVa foremost, but William & Mary and Virginia Tech as well – with the resources to absorb them.

 

A glance at this chart tells the story.

 

Public Support for Virginia Universities

(in millions of dollars)

  FYE 2002 FYE 2004

2-year

cut

University of Virginia 166.3   117.7    29.2%  
Virginia Tech 196.6   144.7    26.4    
College of William & Mary 51.9   38.5    25.8    
Mary Washington 19.6   14.6    25.5    
Virginia Military Institute 15.7    11.8    24.8    
Virginia Commonwealth 186.6   144.7    22.5    
George Mason 123.9   96.4    22.2    
James Madison 70.0   55.8    20.3    
Old Dominion 93.4   76.3    18.3    
Virginia Institute of Marine Science 17.9   14.8    17.3    
Longwood 22.0   18.2    17.3    
Radford 42.9   35.7    16.8    
Christopher Newport 24.8   21.1    14.9    
Virginia Community College System 318.4   275.6    13.4    
University of Virginia at Wise 10.8   9.5    12.0    
Eastern Virginia Medical College 13.4   11.8    11.9    
Virginia State 29.1   27.6    5.2    
Norfolk State 43.4   42.2    2.8    
  1446.7   1157    20.0    

 

Virginia maintained competitive levels of funding for higher education in the 1980s, then slashed support in the 1991 recession. The legislature got back on track by the end of the 1990s, but the latest cuts put UVa back to mid-1990 funding levels.

 

When UVa compares itself to peer institutions – top-rated public universities with a comparable breadth of programs – it ranks near the bottom for state support per student. Virginia’s $9,711 this semester, scheduled to drop to $8,860 next year, compares to:

  • UNC-Chapel Hill --  $24,178

  • University of California-Berkeley -- $22,309

  • UCLA -- $21,888

  • University of Michigan -- $17,082

UVa has responded to the state budget crisis by instituting a hiring freeze for faculty and staff, reducing the number of courses available, and granting no salary increases over the past two years. The university has trimmed expenses in other areas: eliminating unlimited free copying in the library, a perk which a number of students were abusing, and reducing housekeeping in offices and dorms.

 

The personnel freezes make it difficult to keep top faculty, however. The university’s goal is to pay salaries in the 60th percentile of the average for peer institutions. By next year, compensation could plummet to the 30th percentile. The university, Casteen told the Richmond alumni, is vulnerable to raids on its faculty, especially minority faculty members.

 

The situation would be worse, Casteen said, had not UVa economist John Knapp alerted him early on to the impending revenue downturn. “He (Knapp) said the state was in a recession and didn’t know it.” The governor – presumably Gov. Jim Gilmore, though Casteen did not mention him by name – disagreed. But acting on Knapp’s forecast, UVa moved quickly to trim expenses and spared itself many of the agonies the state is now enduring.

 

In recent years, the university has bolstered its finances by improving the return on its $1.5 billion endowment. Under the instigation of board member William Goodwin, the university created a separate board to manage the endowment for higher returns. In the year that the stock market tanked, the endowment earned a 28 percent ROI, Casteen said. Financial performance now ranks among the Top Five university endowments in the country.

 

Meanwhile, the university has built a finely tuned fund raising machine. From all sources, the university is raising about $250 million a year, Casteen said – twice next year’s contribution from the state. The final numbers have not been settled upon, but he expects the university to set the goal of raising $3 billion to $5 billion in its next capital campaign, far exceeding the $1.4 billion picked up during the last campaign.

 

The university also is raising tuitions aggressively – including an unscheduled bump to the second-

semester tuition – and is maneuvering to roll back state oversight on payroll, purchasing and building. Casteen especially would like more flexibility in how the university spends non-state funds. There would seem to be little justification for the state, which now contributes less than one dollar in eight, to continue imposing its own inefficient and archaic practices -- some of which Gov. Warner hopes to reform -- upon a restless UVa.

 

As Virginians ponder how best to support higher education in the Old Dominion, they would do well to remember a rarely mentioned fact: The problem isn’t a lack of funding for the higher education system. Virginia ranks in the second quartile of all U.S. states measured by state support per student. The problem is too many institutions in the system competing for finite dollars.

 

Virginia has three broad options:

 

  • Continue muddling through, spreading the fiscal pain as evenly as possible. Accept educational mediocrity.

  • Force colleges to cut redundant and mediocre departments, ruthlessly targeting the weaker institutions if need be.

  • Encourage UVa to privatize. Redistribute UVa’s $118 million appropriation to other public colleges with the aim of building them into superior institutions.

No one wants to accept educational mediocrity. And Virginia’s politicians don’t have the stomach to purge weak and redundant programs from their local institutions. Why not take a look at the third option, privatization?

 

Virginia could end up with a world-class university in its midst on the scale of a Duke, a Cornell or a Columbia. If things worked out well, Virginia Tech and William & Mary -- perhaps led by their strongest colleges, like Engineering at Tech or the law school at W&M -- might follow UVa’s example. With fewer institutions competing for funds, the state could adequately support the remaining universities. With sufficient resources, George Mason, James Madison, Old Dominion and Virginia Commonwealth have a shot at becoming top-ranked institutions.

 

If handled properly, privatization might create the best of all worlds: An independent UVa better equipped to compete in the academic marketplace, and extra resources for the other players in Virginia's system of higher education.

 

-- January 13, 2003

 

Bring Home the Bacon

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Full disclosure: Jim Bacon is himself a dyed-in-the-

wool Wahoo. His daughter attends UVa, and he has two other children whom he hopes will follow. It is in his personal self interest for tuitions to stay as low as possible. But he also believes that it is in the interest of all Virginians to unchain UVa so it can meet its full potential.

 

Contact Jim Bacon

 

jabacon@

   baconsrebellion.com

 

 

 

Guest columnist Jack White has a different take on the  privatization issue in "Public Ivys in Jeopardy."

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Source: Fiscal Year Ending 2002 data from the Department of Planning and Budget website, Web-Bud database. FYE 2004 from "Governor Warner's Proposed Amendments to the 2002-2004 Biennial Budget."