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Tapping Into the Well

January 9, 2013

Grant Shaft, a member of the North Dakota State Board of Higher Education and its immediate past chair, gets funny looks from other states' board members when he talks about his system’s plans.

“At meetings of the [Association of Governing Boards of Universities and Colleges], there’s no question we’re the envy of everybody,” he said. “We go to breakout sessions and hear about the dismal economic crisis in each other state, and it comes North Dakota’s turn and we have such a different story.”

That’s because North Dakota, unlike almost every other state, is poised to make an unprecedented spending increase in its higher education system. The state’s governor has proposed a 14 percent increase -- about $90 million -- in the 11-campus system’s operating budget for the next biennium, as well as an additional $177 million in one-time capital expenditures. Politicians and education leaders hope an infusion of cash will help transform the system – which has struggled with inconsistent direction and leadership – into one of the country’s best.

The proposal stands out in higher education because most states are still cutting budgets in the wake of the economic downturn, which led to a 25 percent decline in per-student funding between 2006-07 and 2011-12, according to the College Board. At the same time, Republican lawmakers in other states have begun to question the value of state investments in higher education, with some calling for even greater austerity.

The situation in North Dakota couldn’t look any different. The state’s economy did not take any meaningful hit during the economic downturn that began in 2008, so the increases would come on top of decent budget years to start with. Recent developments in natural gas and oil drilling have dramatically transformed the economy of the western portion of the state, generating multibillion-dollar budget surpluses for a state of about 700,000 people. And Republican lawmakers are eager and excited to invest in higher education.

North Dakota University System

Five Community Colleges:

- Bismarck State College

- Dakota College at Bottineau

- Lake Region State College

- North Dakota State College of Science

- Williston State College

Four Regional Universities:

- Dickinson State University

- Mayville State University

- Minot State University

- Valley City State University

Two Research Universities:

- The University of North Dakota

- North Dakota State University

Fall 2012 Enrollment: 48,203

2012-13 Operating Budget: $1.25 billion

Higher education leaders and politicians say that while the economic picture is unique to the state, the system would not be seeing an increase in funding had it not been for a concerted effort on the part of the board and system administration to prove that such an investment would be a good move on the part of lawmakers.

And they say their experience holds lessons for public institutions facing lawmakers who are increasingly skeptical about higher education funding. In particular, they said their efforts to provide a detailed road map, meet initial goals, hear and respond to private-sector interests, demonstrate efficient operations, and establish personal relationships with lawmakers all helped build confidence in the system after a period of prolonged skepticism.

“Some people might sit there and say any state with this kind of influx of financial resources we now have would do the same thing,” Shaft said. “But this is a state that still budgets based on its needs. They require a very thorough process.”

Those lessons could be particularly useful this year, when state legislatures will see an influx of inexperienced lawmakers, many with unformed opinions about higher education. According to the American Association of State Colleges and Universities, at the start of this legislative session, one-half of state lawmakers will have served for two years or less. “This limited experience among lawmakers will require college and university leaders to communicate their policy and funding priorities in a strategic, concise, and powerful manner,” the association’s state relations and policy analysis team wrote in a brief published Tuesday. “It will also present the opportunity to build a new generation of legislative champions who understand public higher education’s contributions to state economic and social well-being."

Liquid Gold

North Dakota’s sudden influx of money is the result of an oil boom in the western part of the state, driven largely by technological developments in hydraulic fracturing, commonly called “fracking,” that led to the tapping of new oil wells.

Because the state collects several taxes on natural resource development, including a 6.5 percent extraction tax and a 5 percent gross production tax, the state has brought in billions of dollars in new revenue in recent years. The state’s Office of Management and Budget predicts that state revenues from natural resource production for the 2011-13 biennium, which ends in June, will be between $3.5 billion and $4 billion. That’s a major boon for a state whose annual revenue was about $3 billion for the 2007-09 biennium.

The oil boom is also bringing population increases, new high-paying jobs, and increased property values, all of which improve the tax rolls. In 2012, North Dakota had the highest rate of population growth and the lowest unemployment rate of any state.

The state’s other main industry, agriculture, is also thriving.

In December, Gov. Jack Dalrymple proposed a $12.8 billion budget for the 2013-15 biennium, almost double what the state budgeted two cycles ago.  

The proposal for higher education includes a 4 percent increase in salary and benefits for college and university employees, an increase in spending on merit and need-based aid programs, and a $30 million matching fund for endowments. The governor also proposed $68 million to renovate and expand the School of Medicine and Health Sciences at the University of North Dakota and $29 million for a new science, technology, engineering and math building at North Dakota State University.

“With the influx of oil money, for the first time we can look at something other than some capital project expenditures,” Shaft said. “Instead of starting some small new programs and initiatives here and there, we can think of larger types of requests that can really make a dramatic impact.”

The governor’s budget would also revamp the funding formula, rewarding course completions rather than enrollment.

A Skeptical Legislature

Just because the state has more money, however, doesn’t necessarily mean that the state universities would get any of it. While the universities saw sizeable increases in appropriations for operating expenses over the past two bienniums, the capital allocations are a new test.

North Dakota is generally conservative, and Republicans -- who have opposed increased spending on higher education in many other states -- overwhelmingly hold both chambers in the state legislature.

There are also several high-demand projects on the legislature’s agenda, particularly efforts to improve infrastructure in the western part of the state, where the oil boom has strained existing roads.

“The university system is competing for the same number of dollars as everyone else, and even though there are a lot of dollars, there are a lot of hands as well,” said Rep. Dan Ruby, a Republican who said he is skeptical of the governor’s proposed increase for higher education. Ruby said he questions whether the proposed expenditures on higher education will overcommit lawmakers to spending that will be unsustainable when the oil money goes away. He also noted that he thought other priorities, such as flood prevention and tax relief, were better uses of the state’s newfound wealth.

Lawmakers said that despite general support for the state's colleges and universities throughout the state's history, the state’s higher education institutions suffered from a deficit of trust with lawmakers in recent years.

“We’ve struggled in North Dakota with higher education,” said Rep. Robert Skarphol, a Republican who chairs the state House committee for education appropriations. “For lack of better terminology, we’ve struggled with leadership. The board was ambivalent and unable to have consistent policy. The system had leadership that probably didn’t have the vision it should have.”

Skarphol, who has been in the legislature since 1993, said he has been ambivalent about higher education for much of his tenure. “Oftentimes the dollar investments we make in higher education don’t seem to correlate with success,” he said, noting that he was a noncompleter who ended up fine.

But he is now championing parts of the governor’s current proposal, and he attributes that support to the system’s efforts over the past few years to rectify previous problems.

A System in Turnaround

In the 1980s, the state struggled with a declining population and an economic downturn, which meant several years of cuts for the colleges and universities. A weak system structure also led to infighting among the institutions.

Things began to turn around in the 1990s and early 2000s, when the state brought together education, business, and political leaders to discuss where to take the system. Shaft said that group ended up pushing a plan called “flexibility with accountability.” Under that plan, the universities were freed of many state regulations but asked to meet certain outcomes that were determined on an annual basis by lawmakers. Metrics included the number of degrees awarded over all and in STEM fields, gradation and retention rates, employer-reported satisfaction with recent graduates, net college expenses as a percent of median family income, average annual student loan debt, and student performance on nationally recognized exams. The discussion also led to the strengthening of the chancellor’s office and system structure. (Note: This paragraph has been updated from an earlier version to correct the timing of changes in the system structure.)

While governors and legislators were supportive of higher education, the moderate growth the universities saw throughout the second half of the decade came without much increased state spending. Some of the improvement came through out-of-state students, particularly at the University of North Dakota and North Dakota State University, where such students now compose more than half the student body. But the universities also became more efficient institutions.

Bur Shaft said that during that time the board and state did not do a good job of holding the institutions accountable. A series of scandals, many of which Shaft said would have blown over in larger states, brought more intense scrutiny on the system.

That episode culminated in a dispute between then-Chancellor Robert Potts and North Dakota State University President Joseph A. Chapman in 2006, in which Potts said Chapman was ignoring his authority. The system board sided with the university. The chancellor resigned and the decision “put the hierarchy of the university system in a tailspin,” Shaft said. The legislature disagreed with the board’s position, further disrupting things. The episode resulted in major change in the system’s leadership, with significant board turnover and a vacancy at the chancellor’s office.

A scandal last year, in which Dickinson University was found to have awarded hundreds of degrees to students, many of them foreign, who did not complete coursework and who in many cases were incapable of doing so, also hurt the system’s reputation.

Shaft said the system, with the prospect of dramatic state revenue increases on the horizon, used the leadership vacancy at the system level to again take stock of where it wanted to take the system. The majority of the seven-member board has turned over in the past five years, and three members have been appointed within the last year. Shaft said the chancellor search, which he chaired, was a perfect opportunity to rethink the system’s direction. After touring the state and speaking with stakeholders, he said the search came down to a philosophical (and literal) choice.

“Do you want a true CEO as chancellor, or do you want someone who is going to manage a bunch of independent campuses?” he said. “When we got down to final candidate choices, we faced a very stark choice between two candidates.”

Shaft said the man they ended up picking, Hamid Shirvani, who was then president of California State University Stanislaus, reflected the former kind of leadership.

The Right Man

Multiple board members and state lawmakers said Shirvani, who took office July 1, has been the driving force behind the building of state trust in the system. They point to his broad experience in higher education administration, including stints at Chapman University, Queens College in the City University of New York, the University of Massachusetts at Lowell, and the University of Colorado at Denver. He also served as a faculty member at the State University of New York at Syracuse and Pennsylvania State University.

And they say he can talk about the system and responding to lawmakers concerns in a way that’s convincing. “He’s adept at recognizing the things that need to change, the excesses, and he has a proposal of how to fix it,” Skarphol said. “He understands more oversight and why that’s necessary, and what the benefits will be from it.”

More than anything else, however, administrators say Shirvani’s political capital has come from doing what he said he was going to do. One of Shirvani’s first major initiatives, called Pathways to Student Success, reoriented the system into three tiers – community colleges, regional comprehensive universities, and research universities – and established new admissions standards that were standardized across institution types.  The initiative attempts to align K-12 education with college and university expectations. And it proposes a set of reforms to tuition pricing, accountability and access that Shirvani says will help improve the system and help ensure that students graduate.

“In the system, each university knows their role and strives to do what’s best within those parameters,” said Kathleen Neset, a geologist and oil field consultant who was appointed to the board in June to fill a vacated seat.

System leaders and state politicians said Shirvani’s plan laid out a clear vision of where to take the system and that he roots that vision in where lawmakers want to take the state. Administrators note that they want the research institutions to be thought of in the same tier as the Big 10 institutions, and many have made no secret of the fact that they aspire for one or both of the research universities to become a member of the Association of American Universities.

AAU membership might be a lofty goal for the system, particularly in the wake of recent changes in the association's membership, which now includes 62 universities. The association's criteria focuses on five major metrics: competitively funded research awards, membership in national academics, national research council faculty quality indicators, some faculty honors and scholarly citations. On the first metric, the University of North Dakota and North Dakota State University ranked 155 and 128, respectively, on the National Science Foundation's list of overall research expenditures by university in 2007, though the association normalizes expenditures based on faculty size, so the North Dakota universities' small size could work to their advantage. North Dakota State University is classified as a "very high research activity" institution by the Carnegie Foundation for the Advancement of Teaching, on par with most of the association's membership and even above a few institutions.

“This postured us better now with the legislature ultimately to seek increased appropriations, because so far he has met the bulk of legislative expectations,” Shaft said.

Neset said Shirvani and the system have also done a good job of responding to business interests in the state, which has helped it build support. “Amongst the general population, people are very, very supportive of the university system,” she said. “[The system] brings a strong tie between private industry – businesses – and the universities. There is exceptional communication open there. We can literally tell colleges, ‘We want students to come out with this skill set,’ and in turn they devise a curriculum specific to those needs.”

Securing the governor’s proposed increase will take work on Shirvani’s part. He spent part of the winter holiday home in California working on the presentation he will have to give to the legislature this month.

Skarphol said he believes Shirvani will be able to sell the plan, but that it will be a "gigantic task."

"It takes a fair amount of time for a person who is not knowledgeable about this to understand," he said. "[Shirvani] is very good at doing that. For example, he spent 45 minutes with a couple of my house colleagues -- who are not higher education fans by any imagination – convincing them. But 45 minutes, with 141 members, is a lot of time."

 

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