Brace Yourself, Parents, More Tuition Hikes Inevitable

The fleecing shall continue.
The fleecing shall continue.

by James A. Bacon

Bad news for Virginia’s public colleges and universities, and for the students and parents who pay tuition: Faced with a $1.5 billion shortfall in the biennial budget, Governor Terry McAuliffe has told public institutions to take a 7.5% reduction in state appropriations in the next fiscal year.

A memorandum by Chief of Staff Paul Reagan warned higher ed officials that McAuliffe expects them “to make a concerted effort to identify real, ongoing efficiencies and related savings” while avoiding tuition increases. “Tuition and fee increases beyond what was already being proposed in an institution’s six-year plan should not be considered as a mechanism to offset those reductions,” Reagan wrote.

In its account, the Richmond Times-Dispatch did not say how much the cuts would amount to in total, although it noted that the College of William & Mary anticipates a $3.275 million reduction. The Virginia Institute of Marine Science will have to eat a $1.56 million cut.

Bacon’s bottom line: Sadly, these cuts were almost inevitable. And, despite the governor’s directive to hold the line on tuition increases, it is just as inevitable that Virginia institutions of higher learning will find some way to shift the pain to its students. While some genuine belt-tightening might occur, history has demonstrated that Virginia universities have placed a higher priority on their plans for institutional advancement over affordability. One way or the other, the cost of higher education will increase.

Here’s another sad reality: Unless the General Assembly is willing to raise taxes, which it isn’t, the state will be in no position to restore the higher-ed cuts in the foreseeable future. The state economy remains in slow-growth mode, and there are too many other pressing demands for state dollars.

The Medicaid program is crowding out spending in all other categories. As the Joint Legislative Audit and Review Commission (JLARC) reported last month, Medicaid spending has almost doubled over the past 10 years, adding $2 billion a year to Virginia’s budget. (Virginia and the federal government split Medicaid funding roughly 50/50.) There is no indication that Medicaid spending is slowing.

Public pensions are another huge problem. State payments to the Virginia Retirement System (VRS) are predicated on the assumption that the VRS’s $68 billion portfolio can generate an average return on investment of 7.0% annually, even as investment returns remain depressed while the Federal Reserve Bank and central banks globally flood markets with credit, pursue zero-interest-rate policies, and depress risk-adjusted returns on capitalk. At some point reality will set in, the magnitude of the under-funding will be recognized, and the General Assembly will be forced to increase its payouts by tens, if not hundreds, of millions of dollars yearly.

Meanwhile, the state is facing a long-incubating personnel crisis. Every year the General Assembly aspires to give state employees a raise, and every year promised pay hikes are the easiest budget cuts to make. As Baby Boomers in the state workforce retire in large numbers, state agencies will be hard pressed to fill critical positions. Either the General Assembly will have to pony up more funds to keep pay competitive or the gears of state administration will grind to a halt.

Finally, the current economic expansion is getting long in the tooth. Nearly eight years in length, it is one of the most enduring (albeit weak) business cycles in U.S. history. Any number of events in the increasingly interconnected global economy could spark another recession, which would cripple state and local revenue and trigger another round of painful budget cuts. The ability of colleges and universities to hike tuition, and the ability of students to borrow ever more debt to pay for it, is one of the few areas of slack in the state budget.

Unless we fundamentally rethink how we deliver higher education in Virginia and how we finance access to that education, we are looking at relentless tuition increases for at least another decade.

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12 responses to “Brace Yourself, Parents, More Tuition Hikes Inevitable”

  1. I don’t have a solution to offer other than to say I just started Va. 529 plans for the grandchildren.

    Hey Jim, I was able to sign-in to Bacon’s Rebellion the “old fashioned” way like the good old days!

  2. LarrytheG Avatar

    I’d be curious to see what areas of revenue to the state ended up short – AND which geographic areas ended up generating less than projected.

    probably never get that – but there are some indications that it’s in income taxes (rather than sales or other) and it’s Northern Virginia and Hampton.

    Similarly on the spending side – what parts of MedicAid are increasing and why – and just like with reductions in aid to Higher Ed and K-12 – what options are available to trim MedicAid?

    ” Historically, states have had significant flexibility to expand Medicaid beyond federal minimums for benefits and coverage and to determine how care is delivered and how much providers are paid. These policy choices— as well as other factors such as a state’s ability to raise revenue, the need for public services, the health care markets in which Medicaid operates, and each state’s policy process— all lead to state variation in Medicaid. ”

    from ” Medicaid Per Enrollee Spending: Variation Across States”

  3. TooManyTaxes Avatar

    And if we had any honorable and useful state college presidents, they’d announce they would show good faith with the residents of Virginia and absorb the cuts from the state. What percent of a university’s budget is equal to 7.5% of state aid?

    As far as Medicaid cuts are concerned, it’s been my understanding that federal law restricts the ability of a state to cut Medicaid. Is that correct? And to what extent? Federal law prohibits public schools from spending less on special education than they spent in the previous year, according to a Fairfax County school board member. Is Medicaid similar?

  4. LarrytheG Avatar

    not true TMT – ” Each state operates its own Medicaid program within federal guidelines. Because the federal guidelines are broad, states have a great deal of flexibility in designing and administering their programs. As a result, Medicaid eligibility and benefits can and often do vary widely from state to state.”

    Virginia, for instance, chooses voluntarily to pay for nursing homes for the elderly even if they have their own homes. Some states do not do this.

    but we don’t get this from the folks who would rather pit MedicAid against other things like College Tuition.

    we have choices – on both higher ed AND MedicAid – as well as other things yet we often see MedicAid portrayed as a “no choice” cost that robs other spending in the State.

    Fully a third of MedicAid in Va goes voluntarily for long-term care, it’s not required by the Feds.

    from :

    Virginia compared to other states:

    24th in Medicaid spending
    48th is Medicaid spending per capita
    No coverage for childless adults

  5. TooManyTaxes Avatar

    Larry, thanks for the additional information. Quite helpful.

  6. LarrytheG Avatar

    quite welcome TMT … I purposely try to develop info and facts on issues that have become a focus and generate differing views… controversy , etc.

    often , as many who read and comment here are aware – many issues are not simple, single dimension and such is MedicAid in Virginia of which if further looked into is not such a simple issue as it is a totally voluntary dual-funded Fed and State program with some things mandatory and some up to the State and Virginia has made choices for non-mandatory things.

    Virginia can choose not have any of the optional things , in fact, Virginia can choose to not do MedicAid at all…

    It’s not at all – “we have no choice but to let MedicAid damage funding for higher Ed/K-12, or anything else. Instead, it’s actually conscious choices we do have and do actually make.

    As stated – MedicAid is entirely voluntary although all states have chosen to participate in original MedicAid and many have set up their own larger programs to run with MedicAid as one component

    Original MedicAid is funded from the General Fund, Expanded MedicAid is not – it’s funded from dedicated taxes and ironically some reduced tax deductions for health like HSAs and itemized medical deductions that got reduced from 10% to 7.5%, etc.

    We make choices on MedicAid but instead of being honest about it – we politicize it… like claiming the expansion will cost us money when it actually will reduce our costs AND provide jobs just as good as any DOD or other govt job in Hampton or NoVa except these jobs will be in RoVa for folks who would be unemployed otherwise.

    instead – who choose to not do anything and blame MedicAid for reductions to higher Ed and K-12…

    we really can’t do legitimate public policy this way -but it seems to be where we are these days.. and it’s a shame…..

    1. Excellent background. You say Medicaid is “entirely voluntary” but there’s little doubt that the expensive federal program has (1) filled a huge social need and (2) set broad parameters around how the medical/insurance health care complex has evolved to meet that need. The HSA part of that is an overt attempt to apply certificate of need regulatory principles to health care, with predictably shaky results. Yet, is there anything Medicaid Expansion under Obamacare would do that we, as people of a a State concerned about the welfare and health of our citizens, should not be doing anyway, one way or another? Or to put it another way, is the task NOT optional, only the means to accomplish the task? Therefore, if we don’t have a less expensive alternative, can we morally refrain from endorsing Medicaid Expansion notwithstanding its cost? Of course, this is just a rhetorical exercise . . ..

  7. LarrytheG Avatar

    yep – you’re onto the issue. it really is up to each state to decide what they want to do or not do with regard to health care for their own citizens who cannot afford it or have access to it rather than blame the Feds for what they don’t like about the Fed program or even worse – resentment against their costs for providing health care to their own state’s citizens.

    it’s just chock full of hypocrisy and blame shifting for they themselves would not do except they’d have to own their decision publicly so they shift the blame to the Feds and others instead – without ever actually taking any actions of their own to reduce costs.

    IF Virginia does not want to provide MedicAid services to it’s own citizens – then let them start with the ones that ARE optional – get rid of them.

    Then if they still cannot stand the costs of providing their HALF of providing the “mandatory” then they should seriously consider getting out of the program all together and doing what they want to do – without any Federal “interference” and reduce costs they feel they can afford – get on with it but stop being feckless cowards about it.

    Take responsibility for what Virginia leaders want to do – or not want to do for it’s own citizens – step up and lay out the Virginia Way plan and get off their partisan political horses of blaming MedicAid for all their budgetary ills real or imagined.

    If the feeling is that Virginia just cannot afford to provide anything other than minimal services to the indigent – then say so – and get on with it and if that’s what Virginia voters want – then so be it – but stop playing these silly partisan blame games as an excuse for refusing to take responsibility for leadership and decision-making.

    McAuliffe has his point of view. If it is not representative of a majority of Virginians and the “we can’t afford MedicAid” …IS the majority view of Virginians – and represented in the General Assembly – that way – then let’s get to it – and do the decision – and own it.

  8. Jim, you know, from experience, how big a chunk of a family’s resources are consumed by raising children, and what a large portion of that ends up devoted to the cost of higher education. It is no surprise to me that our legislators will avoid adding that cost to the State’s budget as long as the public puts up with the status quo — but as a matter of public policy, it seems such a false economy. As this election cycle surely has taught us, our economy is no longer based on manufacturing but on information technology and services, and those without a good education are going to end up in that Basket of Deplorables railing about globalization. How can Virginia compete by cutting the affordability of higher education? Oh sure we can go on and on about how to make that investment in post-high-school coursework in a more efficient setting and more tailored curriculum than the residential campus/ liberal arts standard model — but dare we put that cost entirely on parents and student loans, especially parents who didn’t get those extra years of education themselves and disparage the need for it? This is deplorable long range public policy.

    All that said, we have debated here the desire of Virginia’s centers of highest education to free themselves from the strings attached to State funding. And as long as that coincides with the State’s desire to cut that funding, we should be pleased that those centers have risen to the challenge, and are developing the private financial resources and structures and soliciting the federal and private grants to make a go of it entirely without State funding. My concern is not for the continuing financial health of UVa and VT and W&M but for the next tier, and the next, those wonderful educational institutions that make Virginia so attractive to families, and the Virginia community college system that undergirds it all.

    When will we stop the political name-calling and have the public policy debates about long-term priorities in the State budget — including health and primary education — that we need to have? Another rhetorical question . . . .

    Anyway, thanks for keeping this discussion going.

    1. TooManyTaxes Avatar

      Higher education needs to reduce costs substantially, while preserving instruction. What would happen if William and Mary or VCU were acquired by a private owner who had to break even with existing sources of revenue? The university’s operations would be reviewed from top to bottom and major reductions made. Overhead would be slashed. Non-productive majors eliminated. More employees would be put on a pay-for-performance plan, and pensions reformed. Why can’t that be done by the existing management and boards of directors?

      I have a good friend who is an officer with Frontier Communications. She clearly earned her way to the top. Frontier just closed on Verizon’s properties in California, Florida and Texas. And Frontier just announced it was cutting 1000 jobs while adding more service personnel. This is reality. Why doesn’t higher education live in economic reality?

  9. LarrytheG Avatar

    I’m as strong an advocate for education as health care but in a similar vein, I think education should be for everyone not just those inclined towards on-campus residential ivy desires.

    Acbar is totally on point about folks who were on a blue-collar track getting waylaid in the 21st century economy – and they are not happy about it but the lie they’re being told about bringing their jobs back is a total disservice and worse – if we only have an education system for some “haves” and others are on their own.

    we have to provide education – broad spectrum – for all demographics, income and cultural stratification..

    we have to have a culture where it is YOUR responsibility to get educated – and there are opportunities for you to pursue .. not just those headed to higher-ed IVY.

    and that’s the problem with the current conversation – again -it’s about a favored education option for SOME but not one in which all kids of displaced coal miners or inner city generational poverty kids can realistically aspire to .

    so it’s hard to work up a big sympathy for just this one area of education that is getting “whacked” by the budget.. when we seem to treat other areas of education as “oh yeah, that too”…

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