State policy

Fixing the Broken Financing Model

In the title of a recent paper, David Breneman, a regarded higher education economist, asks: “Is the Business Model of Higher Education Broken?” While he objectively weighs the pros and cons of his question, we answer emphatically, yes!

Put simply, the way in which America finances public colleges and universities, which serve over 70 percent of college students nationally, is severely and irreparably broken and needs to be changed. Without a new model, public higher education will fail its principal purpose of providing broad college opportunity, especially to low- and middle-income students and an emerging population of new Americans. Moreover, without a new funding rationale that has transparency and predictability for all funding partners, these colleges will lose the public trust – a critical element in sustaining the American democratic experience through education.

Public colleges can achieve the dual goals of public and private benefits only by demonstrating equity and fairness regarding who goes to college; legitimacy for who pays and how; and responsibility for how colleges account for educational outcomes and sustaining the public trust.

The solution as we see it should include a new public service corporation model that creates private partnerships; produces new revenue to replace lost public financing; protects and enhances the core educational enterprise; and, thereby, generates greater transparency, accountability and public trust that will support a sustained investment in public colleges.

The Problem

There is widespread evidence, in addition to opinion, that the longstanding model for financing public colleges that has seemed to work so well in many states for decades, now seems, even with an expected economic recovery, to need radical change. (See the soon-to-be-published “A New Model of Financing Public Colleges and Universities,” in On the Horizon.) Comprehensive regional public colleges and universities have been financed principally by state governments and tuition revenue, with a significant amount of funding supplementing these two main revenue sources through state and federal student financial aid.

But it is no longer a viable policy to assume that many states can sustain being the principal funding source for public colleges and universities. Neither can we expect to sustain public colleges by continuing to shift the cost of the enterprise to students and families, thereby pricing many out of college, or alternatively leaving citizens with loan repayment burdens far into the future. While state appropriations as a share of total government spending have decreased steadily for nearly two decades, tuition at public colleges has increased by over 300 percent during the same period. In New Jersey, for example, state funding accounts for only about 30 percent of total public college spending in 2010, down from 60 percent nearly 20 years ago.

National studies project that state revenues are not likely to recover until 2014 or 2015, largely because of entrenched unemployment. Few states are as bad off as California, Illinois, New Jersey, and New York, ranked among states in the worst financial position for many years, with their long-term debt commitments outpacing new revenue. Moreover, states’ structural budget problems virtually guarantee disinvestment in higher education as this is likely to remain a discretionary budget item for the long term. Those who desperately want to find a new model for shared responsibility for public college finance will be poorly served by the continuing misperception by others that higher education can be fixed as a whole or fixed by first changing traditional “academic culture.”

We must recognize that there are many different types of higher education enterprises, that student and service markets are mature and well-defined, and are local and regional, not national in scope. Accordingly, seeking a unified theory for financing public higher education will be unproductive. Instead, different models for financing these enterprises and their accountability which fit different types of institutions serving different types of students, will lead to more effective policy and educational outcomes.

A Possible Answer: Public Service Corporations

We propose, as a long-term strategy to remedy the problems of diminishing state financial support, that comprehensive public colleges and universities should create public service corporations as a new important means of realigning shared financial responsibility. This will help address the thorny matter of continuing ineffective regulatory intrusion, and help to increase incentives to create new revenue streams to reduce the burden on tuition to replace lost state funds.

“Public service corporations” — that is, corporations created to perform a civic function — are familiar to readers of Reinventing Government, which referred to them as “quasi-public or private corporations.” Applying this concept to public higher education might sound like a daring new idea, but institutions based on this model already exist and are succeeding in some states; for examples, note Oregon Health Sciences University and charter colleges such as St. Mary’s College of Maryland. They are publicly owned organizations that are independently governed by their own boards of directors. While they are free from most state controls, as a rule they are evaluated by the state and must meet certain state-set audit performance goals.

The new public service corporations, foreseen by practitioners such as the former Maine Chancellor Terrence MacTaggart and Dave Frohnmayer, former president of the University of Oregon, would complement traditional institutional governance structures (boards of trustees). Allowing institutions to create autonomous public-private service corporations would help colleges acquire, lease, sell, and manage goods and services and real property; provide means of entering into agreements with private corporations by pledging college assets; and receive services related to purchasing, construction, risk management and other required financial services.

While freeing public colleges from arcane state “command and control” mechanisms for purchasing, contracts and construction, the new corporations can provide an appropriate level of public accountability. New Jersey’s comprehensive public colleges and universities are well on their way to achieving these objectives independently and through several pieces of legislation recently implemented and others currently under consideration.

Public service corporations affiliated with the institutions should not be confused with current auxiliary corporations or university foundations, or seen as simply the next step in “privatization” of public colleges. Generally, they are formed for the public purpose of promoting the public welfare of the people of their state by enhancing excellent, affordable, accessible, and accountable public higher education — although not necessarily delivering that education.

Characteristics

We propose a new conception — and a new level of autonomy — for public service corporations that support public higher education. We suggest that public service corporations can stand alongside public colleges and universities and their boards of trustees. Rather than confusing or adding on top of traditional academic governance structures, public service corporations would provide greater transparency, and focus on non-education-related business. Traditional governance structures would remain in control of the institution’s academic operations. These new organizations need to be created to achieve, in short order, a new financial model, instead of doing so incrementally.

The public service corporation should have the following powers and protections:

  • the authority to enter contracts for goods and services;
  • the authority to enter contracts for construction, and to finance and oversee capital projects to allow it to maintain the institution’s physical plant;
  • the authority to raise revenue for the institution, including through grants, appropriations, rents, income, profits from investments, securitization of assets, and proceeds from the sale of revenue bonds, which it must have the authority to issue;
  • exemption from federal and state taxes, and from antitrust law. Both of these exemptions are important for the public service corporation to be able to enter joint ventures or other business alliances or partnerships with private businesses; and
  • entitlement of its directors to representation and indemnification from a state’s tort claims fund for judgments entered against them for actions taken in the course of performance of their statutory responsibilities.

Under our reconceptualized notion of the public service corporation, accountability can be achieved within or outside of a traditional higher education system or centralized coordinating body. Instead, the board of trustees of the institution itself can devise and measure the performance goals for public service corporations entrusted with helping the institution achieve its mission and serve the citizens of its state.

The purpose of the public service corporation that we envision is to supplement, not supplant, the role of traditional trustee governing boards. Beyond enhancing administrative flexibility and new revenue possibilities, the public service corporation should provide even greater transparency for new unrelated business income, thereby helping to protect and enhance the core educational enterprise.

The public service corporation should not only provide for greater flexibility and financial accountability, by helping to free institutions from government regulation that inhibits progress, but also provide the impetus for greater institutional accountability regarding the educational product. Public service corporations can make clearer where revenue comes from, and what it pays for. Forms of successful public service corporation entities abound at public and private research universities, for example, those related to research institutes and health science centers, which explicitly bifurcate education from research and health care functions. However, such enterprises are less well-developed at comprehensive public colleges, still largely controlled by state regulation, or system offices.

The public service corporation, in itself, cannot guarantee financial or educational success of public colleges. But it is emerging as a solution as public institutions face growing pressure to achieve, simultaneously, the goals of access, affordability and service. If such new organizations are created to play a larger role in shared responsibilities for financing public colleges, it will be critically important for the publics that they serve to understand their function, and support the value that they add.

In summary, the benefits of a new model for financing public colleges, one that adds public service corporations, include the ability to:

  • Focus squarely on the core business of public institutions – that is, serving the public good and the educational needs of 21st century students.
  • Promote institutional support that is student- and mission-focused, based on recognition that different types of institutions serve different types of students, in different parts of the country, given the unique role of public colleges in America.
  • Create new, explicit and viable public-private partnerships that help to replace the failing existing model to sustain the core educational business.
  • Focus creatively on operating non-educational business-related functions as stand-alone revenue-generating enterprises, not only to enhance revenue, service innovation and entrepreneurialism, but to build new partnerships that promote educational mission, educational productivity, quality and public service.
  • Provide predictability and equity for all partners, while engaging and promoting accountability, transparency, and public trust as an important outcome measure for the investment.
  • Provide for continuous assessment and strategic alignment of resources and educational priorities within the context of mission and broader regional, state, and national needs in an environment of global providers, thereby helping to keep American public colleges global leaders.

This relationship between the institutional governing board, our citizens, and the public service corporation is essential to ensure that public colleges are accountable for serving the public interest of 21st-century public higher education.

Author/s: 
Darryl G. Greer and Michael W. Klein
Author's email: 
info@insidehighered.com

Darryl G. Greer is the chief executive officer and Michael W. Klein the director of government and legal affairs for the New Jersey Association of State Colleges and Universities, a nonprofit higher education policy advocacy organization to advance and support public higher education in New Jersey.

21st Century Snake Oil?

Texas is the latest state to jump on the higher education “performance funding” bandwagon, joining a group of other states that see this shiny technocratic strategy as the solution to the many problems surrounding higher education.

Despite the title of this article, I’m not opposed to the core idea: it obviously makes more sense to fund universities (the issues for two-year colleges are often quite different, so I’m leaving them out of this discussion) on the basis of course completions than on the traditional one of enrollments. Adding additional focus to outcomes by counting graduates in some way could also make sense, though the inputs and assessments would have to be fairly weighted -- not easy to do.

The problem with performance funding isn’t in the formulas; it’s in the unreasonably exaggerated expectations for results.

The promoters of performance funding — let’s call them the resultari to save space — are good and capable people with laudable goals whose belief that performance funding will effect major change in higher education appears to stem from two basic assumptions: 1) university leaders are inept managers; 2) both university leaders and faculty care too little about quality and success in undergraduate education.

Examining the Assumptions Behind the Push for Performance Funding

At their core, the assumptions of the resultari stem from a belief that universities suffer from internal contradictions, ones that inevitably flow from the self-interest of both faculty and administrators. Their view is that faculty are too focused on their research and that faculty and administrators are too often intent on enhancing institutional prestige through such things as unneeded programs (principally in the graduate and professional areas). These self-interested emphases, the resultari argue, distract from the real business of the university — graduating as many students as possible with the highest levels of learning and at the lowest possible cost.

Specific manifestations of this alleged administrator-faculty malfeasance include: a general unwillingness to make use of data on productivity and learning, innocence of where money is actually spent, lack of accountability for attrition, a resistance to using technology, and a failure to measure student learning. Performance funding, we are told, will change all this because it will force priorities back to where they should be. And then, when the death grip of administrator-faculty self-interest is wrested from the helm, the ship of higher education will steer a new and better course.

A History of Recent Times

If we accept the resultari’s assumptions, then they are certainly right about the profound impact that performance funding will bring. But are their beliefs about the state of the university correct? Let’s look at what’s happened in public higher education in the past few decades.

First, the resultari often cite as an illustration of inept university management the fact that tuition — even after declining state support — is increasing faster than inflation. There are many flaws in this argument, not least the point, recently cited in these pages, that it ignores basic economics: in a knowledge economy, the cost of all services that rely on highly educated individuals has been going up relative to that of the manufactured goods and other fruits of unskilled labor that comprise so much of the CPI market basket. And, compared to many businesses, higher education has less ability to improve productivity through outsourcing and automation.

Second, the problem of misplaced faculty and administrative priorities is mostly in the past, especially the 1970s and to some extent the 1980s. But universities have undergone radical internal changes in the last 30 years. I saw fine scholars turned down for promotion because of ineffective teaching at the university where I worked (Ohio State) as early as the late 1970s. I know from conferences, etc., that we weren’t atypical. The professoriate’s sense of entitlement, largely generated by the faculty shortages of the 1960s, has long since worked its way through the system. Today’s younger group of faculty is highly attuned to the importance of student learning, and even at major research-focused universities, this aspect of the job garners a significant proportion of their energy and creativity.

I’ve worked with several dozen presidents in both Ohio and South Carolina, and haven’t met one in the last 15 years who didn’t have student success as his or her highest priority — this statement most specifically includes leaders at large public research universities. And it isn’t just talk: these presidents have and are following up with incentives, programs, and rigorously balanced promotion and tenure criteria.

While the big and small universities changed early, it’s true that some mid-sized institutions continued to be a problem well into the 1980s, and in a few cases into the 1990s. Far too many of these institutions suffered the reign of what I call Louis XIV presidents (l’université, c’est moi), who focused on building prestige in the form of doctoral and professional programs that were typically of indifferent quality. But my observation is that this plague of academic locusts has passed and now shows up as just the occasional grasshopper.

There are several reasons why the Louis XIV presidents have met the fate of Louis XVI: state systems have woken up to issues of quality and duplication and cracked down — in many cases drawing public attention to the weak success of the doctoral and professional graduates in the job market; and trustees, often benefiting from the good advice of the Association of Governing Boards of Universities and Colleges, have learned to be vigilant. There was a time when the chairman of the English department could look around the table at a faculty meeting and say, “Damn! There are more than 20 of us now! Let’s offer the Ph.D.!” and see the dream quickly and easily realized. No more (though the unfortunate consequences of many of these earlier decisions linger).

Like generals whose philosophy is shaped by the last war, the resultari appear to be busy preparing to do battle with the universities of the 1970s and ‘80s. Unfortunately, once we’ve constructed the computer-derived version of the Maginot Line, with its walls of data and turrets of formulas, we’ll peek over the top and see there’s no one there.

Measuring

Another dimension of the misplaced priorities category, according to many critics, is that universities show their lack of appreciation for undergraduate learning by failing to measure it, particularly in general education.

I certainly agree that colleges and universities have been terribly deficient in assessment. We’ve operated on the “infectious disease” principle — the faculty are critical thinkers, the students are in contact with them, so…

No matter how you view the issue, higher education’s “take our word for it” approach as an answer to questions about student learning is unconscionable. That being said, I strongly believe that standardized testing isn’t a solution but a new problem. It’s an approach that creates powerful contradictions and also flies in the face of experience — notably, we know from the history of quality management that the “inspect the product at the end of the line” approach is certain to fail. I won’t attempt to recap the extensive literature in this area. My bottom line is that rigorous, improvement-focused, campus-level, non-standardized assessment (and reporting) is critical — and sufficient.

Ever More Data?

A core part of the performance funding push, and one that I find especially alarming, is the relentless, almost ritualistic, advocacy for more and better data. It seems that American education bureaucrats generally suffer from OCD (Obsessive Computational Disorder). A part of the problem in the higher education world is that the “more data” argument is being pushed by folks — I call them the datarati — who have spent their lives with numbers and, like the man whose only tool is a hammer and who therefore thinks everything looks like a nail, they naturally see data as a primary solution. But getting human-based data down to the decimal point is not necessarily a good investment, and this leads us to another problem of expectations.

Education datarati purport to draw their inspiration from business. One source is the late Harold Geneen, CEO of ITT, who is famous for saying that it didn’t matter the kind of business, if you knew the numbers inside out, you knew the company inside out. Geneen may have made other contributions to business, but this observation is on its face nonsense.

If you had applied Geneen’s thinking to IBM in the mid-‘80s (as its leaders did) you’d have seen an incredibly strong business numbers-wise but failed to notice that a major shift in technology was soon to bring the company to the brink of bankruptcy. There are lots of other business examples of this data-centric blindness. A modern government illustration is the recent federal Race to the Top competition, where data systems count for 9% of the total score but “turning around the lowest-achieving schools” gets only 10%.

Based on extensive personal experience, I find the allegation that universities don’t use data amazing. In the fat years of the ‘60s and to a certain extent the ‘70s, there were certainly gross inefficiencies resulting from lack of attention. But, after waves of budget cuts in recent decades, my observation is that presidents and senior staff are very knowledgeable about where the money goes and about where efficiencies can be found, and they do care deeply about attrition and do assign responsibility for it.

How about those longitudinal data systems, ones that will allow for the tracking of students from K-12 through college? I agree these are likely to have some value. But I strongly suspect the probable impact of these systems is seriously (albeit unintentionally) oversold. Why?

The longitudinal data approach anticipates a system that will be able to tell us, for example, that Mme. Maron’s 11th-grade advanced algebra class at Hogwarts High is turning out students who are weak at college algebra. So far so good, but I suspect that in most cases when the Datarati Swat Team arrives at the school they’ll find that leaders were already well aware that Mme. Maron was a concern. Thus, the second issue, which is that it will be much easier to find the sources of problems than to resolve them. An automobile manufacturer detecting faulty parts can force suppliers to revise their practices and, if that doesn’t work, go to another firm. But, as we are reminded nearly every day in the papers, it’s not so simple with teachers (quite often because it’s not really their fault).

I also believe we are seriously underestimating the cost of these new data palaces. Projects to connect disparate information systems have an amazing ability to always cost more than initially projected — usually a lot more. And that’s just putting them in place. I’ve not seen evidence that people are thinking carefully about the long-term costs of maintenance and analysis. There’s no denying there can be value in the systems, but balancing that against true costs isn’t being done.

Like the resultari, the datarati are winning. My office is now making its first hires in two years and they will all be for a federally funded longitudinal data system. After years of bleeding vital staff positions, this project is not anywhere near the top of our priority list. Worse, when the federal dollars are gone, the first of any new state monies will likely have to go to maintaining the effort. In short, the new data system will be the devourer of rational priorities; I’m thinking we’ll call it Grendel.

Failure to Use Technology

Another issue to consider is whether more use of technology will sharply lower the cost of instruction and in consequence, as a great many reformers argue, contain costs and make higher education much more affordable. The idea of transformational change through technology is certainly an appealing one, but is it based on solid fact or does it contain an important amount of wishful thinking? Unfortunately, I think it’s the latter. I’ll cite three reasons.

First, instructional technology buffs have a habit of using “new” as an explicit or implicit modifier. But the reality is that the technology that’s around today has been there for quite a while. Faculty were using computers to offload drill from the classroom 35 years ago and such use has been pervasive for at least a decade and a half (remember that the Web and HTML have been around for this long). Given the history, and the fact that today’s technology is better but not dramatically different, we don’t have evidence to support the idea that breakthroughs in transforming learning and productivity through technology are on the horizon.

Carol Twigg, head of the excellent Course Redesign effort at the National Center for Academic Transformation, argues that the potential is there with existing technology, but laments that faculty want to keep technology as an adjunct to instruction and will not take the major steps needed to allow it to lower costs. Twigg knows the topic better than anyone else, so I won’t dispute her conclusion about faculty reluctance. On the other hand, I really don’t buy the idea that their recalcitrance simply reflects a desire to preserve their own jobs. Instead, I think the faculty are generally right in seeing limits on replacing people with machines.

This leads to the second point about technology — the human side. Talk to people who deal with students and they’ll tell you there’s a psychological breaking point — most people like to work directly with other people and don’t want to do everything on the computer. Highly motivated adults are certainly an exception (and I’m helping to develop programs based on that belief). But it’s not the same for undergraduates. For example, a recent study showed that three-quarters of those surveyed believed that “online courses are not as appropriate for traditional-age college students, who they believe are better served by classroom courses.”

A third dimension of the potential of technology can be seen in the evidence about staffing. All of the college and university leaders I’ve talked to say that, with few exceptions, online courses are more expensive than the classroom equivalent because they require more instructor time, therefore cutting section size. This also appears to be the case in the for-profit sector, where institutions typically charge more for online education than for the classroom equivalent — about 30% more, in the case of the University of Phoenix. Leaders at this university told me the same thing as their public peers — in consequence of the large number of one-to-one vs. one-to-many communications that occur online, instructors can handle fewer students per section and costs therefore go up.

If you add these three things — 1) the already existing proliferation of technology in instruction; 2) the natural limits to human-computer interactions (in this vein I encourage people to read E.M. Forster’s powerful short story "The Machine Stops"); and 3) the fact that experience so far does not suggest technology will lower costs (indeed much of the evidence is in the opposite direction) — then it’s hard to be as sanguine as the resultari about more technology leading to sharply lowered costs.

Put another way: Will technology give us further improvements in learning while also helping to reduce costs? Sure. Will the change be transformational and make college notably more affordable for traditional undergraduates? No.

What Do Proprietary Colleges Tell Us?

Critics and supporters of higher education alike tend to forget that public and private colleges and universities aren’t the only game in town. There’s a growing for-profit sector. In considering the management/efficiency issue, what can we learn from them?

Let’s begin with an important question: Why don’t the for-profits compete on price?

The easy answer is that the public has an accepted price of what it is willing to pay for education, so the proprietaries are able to use savings from greater efficiencies to add to their profit rather than to lower their prices. It’s true that in luxury markets “low price” doesn’t compete well, or not totally (BMW and Lexus do advertise discounts). So, if higher education is presumed to be this kind of market, a low-price alternative probably wouldn’t work — even if you could show comparable learning outcomes (“Learn-A-Lot U — Just as Good as Harvard at Half the Price”).

But this argument has several flaws. First, while the for-profit sector has long been doing well for investors (with the usual market hiccups in stock prices), I haven’t seen evidence that they are making the kind of profits that, if applied to cost reduction at public institutions, would equate to significantly lower tuition — even in the face of lower state support. Again, remember this kind of change is what some are saying we would get if only public universities would operate efficiently.

Second, the for-profits compete against each other to a significant extent, and it would be natural for someone to lower prices at least temporarily to grab market share (as the luxury vehicle makers do). At least that would be true if someone did in fact have much lower costs.

Third, you really ought to see price competition in the lower part of the market — technical programs — where luxury effects don’t apply. But it’s not there. Indeed, after several decades of working with the technically focused for-profit institutions, my observation is that a major part of their marketing sell is that they are “hands-on,” and that students will be able to work closely with accomplished practitioners. Emphasizing personal instruction by highly qualified individuals in a knowledge economy is not how you lower costs.

Conclusion

Here are some suggestions for resultari, datarati, et al.

Do go ahead and, over time and with appropriate care for balance, implement formulas that primarily reflect outcomes — especially course completions and, to the extent reasonable and practicable, graduation. This only makes sense; funding formulas should always have been constructed on outcomes. But…

Do not describe the change to outcomes as a major structural improvement in higher education that will bring great benefits to students and the public. If the formulas are carefully weighted to reflect the varying inputs — principally in terms of student preparation and background in education culture — we’ll find that, with few exceptions, differences between institutions will be very small and not statistically significant. Those using crude data to support winner-loser formulas point out that right now some universities are doing better than others in, for example, graduation rates. Of course. In part that’s a function of different inputs. If we have just a few simple measures to compare disparate entities, we’re going to get simpleminded results that won’t convince anyone — garbage in, garbage out.

Also, even after you control for inputs, variation will exist. In any environment with a lot of players it’s always the case that at any given time some are doing better than others. That’s not a reason to conclude, as resultari seem to do, that the ones doing less well are lagging because they really don’t care and aren’t trying hard. The punitive spirit of formulas designed to create winners and losers serves no one well, not least in the gratuitous damage to students at the allegedly “underperforming” institutions.

Do invest to improve performance. Universities are more deprived of spare funds than at any time in recent history, with the result that start-up monies for new faculty-led initiatives, such as rethinking strategies in general education, are almost impossible to find. State-level incentive programs, ideally ones that are peer-reviewed, could be used to further encourage faculty creativity in both improved learning and improved productivity (Lumina’s Tuning USA project appears to be a great example of what should be done). Investments of this kind will have the added benefit of setting a positive tone.

Do not add more data unless state and campus leaders agree they meet two key criteria: 1) Will the new information lead to better decisions in the real world?; 2) What is the opportunity cost — are there other things we could do with the money that would have greater impact? It’s curious that the “culture of evidence” crowd seems to think there’s little requirement to provide evidence for the value of new data before it’s gathered. A better approach for the datarati would be to shift gears, focus only on what can be shown to matter, and help us avoid creating a voracious new consumer of educational resources without any clear evidence of proportional benefit.

Finally, do change the tone. I agree that there are actions we can take to suppress the cost spiral — among the things that appeal to me are dropping uncompetitive doctoral programs, more shared and/or outsourced instructional and operating services, and in some cases even merging of institutions — but I don’t believe the best way to advocate for change is by implying that only the self-interested will disagree with me. We need fewer leaders of numerical lynch mobs and more people who are willing to offer a truly thoughtful challenge along the lines of, “We recognize these are good and capable people leading our universities and our faculties, and that they are going against some really tough problems. But, as with any organization, there’s more we can do and we have some suggestions.”

I can’t quantify the difference this change in tone would make, but I think it would be huge.

Author/s: 
Garrison Walters
Author's email: 
newsroom@insidehighered.com

Garrison Walters is executive director of the South Carolina Commission on Higher Education.

Mend, Don't End, State Systems

In this very chaotic and difficult budget year, where funding cuts in the neighborhood of 20 percent are becoming commonplace for higher education, another troubling movement is under way: to use the funding crisis to further dilute the public responsibilities of some of the country’s leading universities.

In the name of deregulation, a number of flagship institutions are seeking to be exempted from complying with state funding and personnel regulations, as well as to be allowed to live outside of the higher education governance systems in their states. They argue that they need this autonomy to compete in the national and international markets, and that their special status is justified because of the reductions in state appropriations.

They’ve got half of this right. Relief from obsolete and ineffective state controls is appropriate for all of higher education, not just a few of the research universities, and not just because of funding reductions. The myriad rules and regulations still operating in many states were developed in another time and place, before the universities grew into multi-billion dollar enterprises with hundreds of thousands of students and tens of thousands of employees.

Yet to this day, many states still require prior approval for purchasing, dictate line-item funding in silos, and maintain fund management requirements that perpetuate bad habits such as year-end spending sprees rather than building prudent contingency reserves. There is no question that these bureaucratic mandates hurt rather than help the institutions to be accountable for efficiency and effectiveness.

But this is no time to weaken the public responsibilities of the flagship institutions, to allow them to opt out of obligations to meet state needs. It’s true that state funds are now the minority of resources in research universities, and in some cases a very small fraction. But the disinvestment of state revenues hasn’t happened to the research universities alone; it has also hurt the regional institutions and the community colleges.

More to the point, the flagship institutions got to where they are through the state investments of billions of dollars over the last century and more, giving them a funding advantage over the other publics, in total revenues, in assets and often in state funding per student, an advantage they certainly aren’t offering to give up as part of the new privatized state they envision.

While system boards work imperfectly, their core purpose is more important now than ever before: to balance institutional aspirations with broader public needs, through planning, differentiation of missions, program review, and attention to student flow across institutions. Weakening the authority of higher education system boards will only serve to advantage the already privileged. The institutions will inevitably gravitate even more away from public needs, and toward institutional self-interest: selective admissions, merit rather than need-based aid, more research, and greater academic specialization. The teaching function and service to poor and working students and to underserved geographic areas lose out in this equation. This will accelerate the declines in educational attainment our country is already experiencing.

We have to increase college access and degree production for all students. To do that the relationship between state government and public institutions needs to be reestablished on a different basis. States need to mend their budgeting systems, to put greater responsibility for fiscal management in the hands of the institutions, and to focus their own attention on how to stabilize state subsidies to meet public priorities. Institutions need to do more to improve efficiency and effectiveness, and to generate savings to build investment pools for things that won’t be coming from "new money" any more.

Both sides need to get away from the year-at-a-time focus that is killing public institutions, toward more of a multi-year investment approach that recognizes that state funds are just one of the many sources of revenue that will be needed to accomplish public purposes. And everyone needs to do more to remove barriers between institutions that keep them from serving students well, not to find ways to drive them apart.

The regulatory and funding model for higher education needs to be mended, not ended.

Author/s: 
Jane Wellman and Charles B. Reed
Author's email: 
info@insidehighered.com

Jane Wellman is executive director of the National Association of System Heads and executive director of the Delta Project on Postsecondary Costs, Productivity, and Accountability. Charles B. Reed is chancellor of the California State University System and president of NASH.

The Equity Gap in State Funding

In 1971, a lawsuit was filed in Los Angeles County Superior Court that would have a profound impact on the way American schools are funded. Serrano v. Priest was the first in a wave of elementary and secondary school finance cases that would touch nearly every state in the nation and continues to this day. Existing funding regimes have been torn down, constitutional crises provoked, and billions of dollars spent in the name of achieving financial equity between school districts that serve the rich and the poor.

Nothing similar has ever happened in higher education. Desegregation lawsuits have brought some increased equity, but states have never had to defend the fairness of their higher education financing systems in court -- at least not on grounds of economic discrimination as opposed to racial bias.

Why not?

It's certainly not because no inequities exist. Nationally, public four-year universities whose students arrive with an average SAT score (or ACT equivalent) greater than 1050 spend roughly $3,725, or 45 percent, more per student than universities where student scores fall below that cutoff. These numbers only include spending on instruction, academic support, and student services -- not research.

Because SAT scores track closely with family income, first-generation status, and the quality of high school preparation, they're a good proxy for how states choose to allocate resources between advantaged and disadvantaged students.

And as the table below shows, some states disparities are far above the national average. (My methodology is available here.)

***

Per Student Funding Gap
at Institutions With Lower SAT Averages

California -$10,421 Oklahoma -$4,042 Idaho -$1,689
Minnesota -$9,046 Kansas -$3,931 Indiana -$1,589
South Dakota -$8,822 North Dakota -$3,893 Maryland -$1,579
Vermont -$8,001 Tennessee -$3,844 Maine -$1,457
Connecticut -$7,515 Arizona -$3,755 Alaska -$1,165
Washington -$7,139 New Hampshire -$3,220 Mississippi -$706
Nevada -$6,971 Nebraska -$3,111 Illinois -$417
Colorado -$6,301 Virginia -$3,073 Arkansas -$404
Utah -$5,968 Texas -$2,786 New York -$281
Kentucky -$5,914 Wisconsin -$2,727 Florida -$236
North Carolina -$5,467 Oregon -$2,594 Montana +$145
Alabama -$5,387 Rhode Island -$2,563 Pennsylvania +216
Hawaii -$5,243 West Virginia -$2,465 Delaware n/a
Massachusetts -$5,003 Louisiana -$2,440 D.C. n/a
New Jersey -$4,370 Missouri -$2,382 New Mexico n/a
Ohio -$4,251 South Carolina -$2,286 Iowa n/a
Michigan -$4,150 Georgia -$2,002 Wyoming n/a

This kind of analysis works better in some states than others. In Iowa, all three institutions are above the threshold. In Washington, D.C., the one public university is well below. (Overall, the ratio of students attending public four-year institutions where median student SAT scores above 1050 to those attending institutions at or below that threshold is about 3 to 2).

But some states have a lot of both kinds of university, and spending on students is almost uniformly higher in the institutions with higher SATs. And no state has a larger disparity than in California, the home of Serrano v. Priest, where the elite public universities spend over $10,000 more per student than the rest. That's more than the total amount of student spending at most public four-year institutions. This analysis, moreover, doesn't include the community colleges that enroll nearly half of all new freshmen every year. If it did, the disparities would be larger still, particularly in states like California where the majority of students begin in low-spending two-year institutions. Yet nobody is agitating for a higher education spending lawsuit in the Golden State.

This is partly because the legal hurdles are lower for elementary and secondary students seeking redress. While all state constitutions have an "education clause" mandating the provision of free K–12 schools, they don’t offer similar guarantees of postsecondary education. Serrano, however, was based on the California constitution's equal protection clause. States might contend that college students, unlike their K–12 counterparts, aren't bound to under-funded local schools. But it's hard to argue that disadvantaged undergraduates have equal access to high-spending public universities that limit admission to the "top" 10 percent of high school graduates -- students who are disproportionately well-off -- and routinely cite the number of applicants they reject as a measure of their success.

But the true causes of complacency run deeper. Money and opportunity are distributed this way because many people believe it is right and just to do so. Indeed, the California system has served as a model since it was developed by Clark Kerr and others 50 years ago. It reflects the ideals of meritocracy, of great universities open to all who are willing to work hard enough to merit admission. There's truth in this, of course, as first-generation college students enrolled at Berkeley, UCLA, and other University of California campuses can surely attest. People also believe that the best and brightest represent a wise place to invest resources, to ensure that the nation's future political, economic, and cultural leaders are properly educated and trained.

But in the long run, the great pyramid of American higher education, which gives more to those who arrive with more and less to those with less, represents an ethos and theory of resource allocation whose time is passing. There are few -- if any -- opportunities today for students who stop learning once they reach adulthood. Higher education is for everyone now. That's why nearly 70 percent of high school graduates are going directly to college -- a record high. If the wise men who enshrined education into state constitutions as an inalienable right in the 19th century confronted the same task today, they might well conclude that those guarantees should extend beyond the secondary years.

And everything we know from educational research -- at both the K–12 and higher education level -- suggests that academically at-risk students are more sensitive than their higher-achieving peers to differences in the quality of education they receive. Elite institutions packed to the gills with valedictorians are showering resources on students whose abundance of economic, academic, and social capital all but guarantee success, regardless of where they go to college.

Low-wealth, less-selective institutions, by contrast, serve many students with only a tenuous grasp on the ladder of opportunity. Many of those students got a lousy high school education, struggle to pay for college, and contend with multiple demands of employment and family. These are people for whom higher education is everything, the difference between one kind of life and another. And while there are surely countless professors at their colleges who are giving them a fantastic education, they do so in spite of our current financial priorities, not because of them.

These inequities are partly an artifact of history. The K–12 schools developed from the ground up, with tens of thousands of local districts serving all classes of students. The higher education sector, by contrast, was built from the top down, starting with the most well-off students and expanding to include the masses only in the last 60 years or so. Long-established institutions like Berkeley have had many decades to accumulate resources, and in some ways it's hard to blame universities for striving to be bigger, richer, and better.

But the leading institutions are failing to meet their obligation to the greater public good. Instead, the flagship universities routinely throw their weight around in statehouses, seducing politicians with promises of the next Silicon Valley or Research Triangle while gobbling up a disproportionate share of public dollars and leaving crumbs for the community colleges, regional campuses, and former normal schools that actually educate most undergraduates. Their lobbyists in Washington pursue a similar agenda at the national level.

And instead of working to make the higher education pyramid a little less steep, many less-elite institutions are trying to climb it, funneling money to marketing campaigns and enrollment management consultants in an effort to attract "better" students -- even as more and more students (who are by that way of thinking, "worse") are arriving at the front door of the academy, desperately needing to learn. These institutions are responding to the reigning system of values and institutional incentives, driven by popular college rankings and a sense that institutional quality is a function of how smart students are when they arrive, not how much they learn before they leave. As F. King Alexander, president of California State Long Beach, recently said in explaining why he wants to buck this trend, "all of the pressure flows in one way -- to do a good job with the best prepared students."

Last year, the state of New York settled a contentious, decade-long school finance lawsuit, a direct descendent of the original Serrano litigation. Despite millions spent on expensive lawyers, attorneys for the state couldn't convince New York's highest court that routinely providing thousands of dollars less per student to the mostly-poor, mostly-minority students in New York City was constitutionally permissible. The resulting billion-dollar settlement will provide smaller class sizes, better early education, and competitive teacher salaries in schools serving disadvantaged students. Advocates and civil rights groups praised the ruling as justice, delayed but certainly deserved.

In many states, students who have benefited from similar efforts at the K-12 level will enter a higher education system with a very different attitude toward economic fairness. Nobody is standing at the courthouse door waiting to petition on their behalf. At least, not yet.

Author/s: 
Kevin Carey
Author's email: 
info@insidehighered.com

Kevin Carey is research and policy manager at Education Sector.

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