Huge Problem, Problematic 'Solution'

There is no dispute about just how bad things are for public higher education in Colorado. The governance structure has been weakened, and, like that of many states, Colorado's budget is a big-time mess. So nobody questions that something needed to be done, and fast, to get the state and its colleges through the next two years.

May 14, 2010

There is no dispute about just how bad things are for public higher education in Colorado. The governance structure has been weakened, and, like that of many states, Colorado's budget is a big-time mess. So nobody questions that something needed to be done, and fast, to get the state and its colleges through the next two years.

But the legislation on which lawmakers have settled (at the urging of the state's most visible public institution, the University of Colorado) strikes some college leaders in Colorado and leading experts on public higher education as flawed, with the potential to hurt students from low-income families and the public institutions -- community colleges and non-selective four-year universities -- that are likeliest to enroll such students.

The legislation, SB 10-003, would enable public colleges that choose to do so to ratchet up their tuition to make up for the expected loss of state funds, enroll more foreign students to help bolster their tuition dollars, and give the colleges significantly more flexibility on a range of fronts.

"This is a short-term attempt to deal with a budget situation," said Rico Munn, executive director of the Colorado Department of Higher Education. "We've got a long-term strategy group talking about where we want to go with Colorado [higher education], but an alternative to this situation is not readily available, short of finding revenue magically. We had to provide some flexibility to deal with what we have in front of us."

“This bill reflected broad consensus that something had to be done in Colorado immediately to preserve reasonable access to a viable public system of higher education," said David Longanecker, executive director of the Western Interstate Commission for Higher Education and a longtime observer of Colorado higher education policy. "The problem, however, is that research demonstrates quite clearly that the solution adopted is wrongheaded and will place access for financially needy students and viability of less-well-heeled institutions at great risk.”

The Situation

How bad are things in Colorado? They may not be California-style bad -- yet -- but they appear to be heading in that direction. As is the case in many states, fiscal demands from Medicaid, prisons, unemployment insurance and other priorities are colliding and combing at a time of declining state revenues. Legal requirements prevent sizable cuts from elementary and secondary education, and anti-tax sentiment is fervent in the fairly conservative state. The confluence of events has been called a "budget tsunami."

State lawmakers approved an $18.2 billion budget last month that assumes tax revenues will rise to close a budget gap of more than $1 billion. If that doesn't happen, though, higher education could face a cut of $300 million -- about half the total amount that public colleges and universities are receiving this year. That would be on top of a $150 million cut in 2008-9, which was sustained (but largely offset with federal stimulus money) in the current 2009-10 fiscal year.

Higher education policy making in Colorado has been a mess of a different kind of late. The state's key body, the Colorado Commission on Higher Education, has had four executive directors in six years, and the turnover has at times resulted in a vacuum that has led to scattershot policy making -- not the best climate for dealing with a crisis of this magnitude. (Munn took the reins of the agency about six months ago.)

So it's perhaps not surprising that the current legislation appeared to pop out of nowhere, with many college leaders in the state seeing it for the first time late last month, and following a breakneck path to passage (with some adjustments) over just three weeks. The measure awaits signing by Gov. Bill Ritter, but is expected to go into law largely unchanged.

The strongest proponent for it within higher education is Bruce Benson, president of the University of Colorado system. He explains his support for the legislation primarily by lavishing praise on its least controversial aspects: the significantly greater flexibility and freedom that campuses like his would gain from state oversight and approval in such areas as purchasing and capital construction.

Colorado's universities, particularly its more ambitious (and wealthier) institutions like Colorado's Boulder campus and Colorado State University, have sought such freedoms for years, and they are long overdue, Benson said. "Some of these state policies have put us in positions where we would get so bogged down," he said. The university has had to pull out of some potential consortium agreements that would have saved the state millions of dollars "because we were taking so long" to win approval, Benson said.

The state is willing to loosen some of its reins now in ways that it wasn't previously, of course, because it now has significantly less to offer all of its public institutions in terms of cash, given the disastrous financial situation. The deal that the legislation strikes is designed to give the public colleges and universities more freedom to raise their own money -- through tuition increases, primarily -- to replace the withdrawal of up to 50 percent of the operating funds they now receive from the state.

Under the plan, which is designed to last for five years, each institution would by November submit a plan for how it would deal with a 50 percent reduction in its current allocation of state funds. (The Colorado Commission on Higher Education would take those plans into consideration in framing its budget request for the 2011-12 fiscal year.) In exchange, individual universities would, beginning in 2011-12, be allowed to increase their tuition by up to 9 percent a year with no restrictions, but would need approval from the Colorado Commission on Higher Education to exceed that level.

Colleges would continue to be required to have at least two-thirds of their students be Coloradans, with one major exception: International students would no longer count as out-of-state students from an enrollment perspective under such a calculation, and the foreign-born could make up as much as 12 percent of a campus's students, up from the current 4 percent. (Foreign students would, of course, continue to pay out-of-state tuition rates, so campuses that added significant numbers of international students could significantly increase their tuition revenue.)

Lastly, the state commission would no longer require institutions that stay under the 9 percent limit on tuition increases to ensure that they dedicate a portion of their revenues to need-based financial aid; instead, each campus would be responsible for ensuring that it provides sufficient financial aid to remain affordable.

Supporters of the legislation argue that, given the financial crisis, the tradeoff may be the best way to get through the short-term mess, giving public colleges needed (and long-desired) flexibility. Even an organization that has generally opposed Colorado's drift away from public funding of higher education and toward a high-tuition, high financial aid model offered its backing for the legislation this month.

"[W]e ... recognize that Colorado faces an unprecedented funding problem -- not just for higher education, but for all of state government -- which could bring the very real threat of program and service reductions or institutional closures," Frank Waterous, a senior policy analyst at the Bell Policy Center, testified last week. "Given these circumstances, we reluctantly view limited tuition flexibility as the lesser of two policy evils."

Disproportionate Impact

But while some say they recognize Colorado's dire situation, and acknowledge the need for extreme steps, several national experts on higher education policy strongly oppose the measure, citing what they perceive as two major flaws.

First, the legislation appears to set up a system in which each individual institution could see its state allocation cut by the same percentage (as much as 50 percent), which critics argue would disproportionately affect those colleges that are most dependent on state funds.

"At the institutions that serve the state's poorest students," such as Metropolitan State College of Denver and the Community College of Denver, "[general fund support] per student is more than 50 percent of the institutions' total funding," Aims McGuinness, an analyst at the National Center for Higher Education Management Systems, wrote in an e-mail about the legislation. At Colorado's exclusive Boulder campus, in turn, it is 19 percent. "This means that a 50 percent cut in general funds at Metro would be about a 25 percent in total funding; at CU Boulder, it would be only a 10 percent cut."

"It is absolutely essential that any cuts in [general funds] be addressed from a statewide perspective taking into consideration state priorities, differing levels of general fund funding, and different capacities to raise tuition," McGuinness wrote.

Munn said that the outside critics were misreading the legislation to mean that Colorado's public colleges would necessarily see comparably sized budget cuts if money is tight. The measure calls for the commission to review the institutions' plans for cuts and to make recommendations to legislators on how they should allocate whatever state funds are available. That process would allow the commission to account for differences in how state cuts would affect institutions differently, he said, and to protect the access institutions the critics worry about. "Higher education as a group might take a 10 percent cut, but that doesn't mean every institution takes a 10 percent cut," he said.

Perhaps, said Longanecker, but any process that gives the legislature the final say in allocating money directly to institutions, as the legislation would, is unlikely to treat poorer institutions equitably, given that the wealthier institutions also tend to have the stronger lobbying might.

'Seductive' Approach

The other major problem with the legislation, in the eyes of its critics, involves how the funding changes would intersect with the changes in financial aid policies. As written, the measure relies on institutions themselves, instead of the Colorado commission, to ensure that the colleges provide enough financial aid to meet the needs of students.

While it's a "very seductive policy" for colleges to say "give us tuition authority, we'll assure you that we protect the students," the approach has both philosophical and practical problems, said Longanecker of WICHE, who once headed Colorado's higher education commission. First, "institutions don't provide institution-based aid to the most needy students" -- they very quickly end up using merit-based financial aid to compete to attract higher-quality students, he said.

Second, the institutions that would bear the biggest cuts under the new legislation's financing structure are also generally those who would benefit least from the newfound tuition flexibility the measure would give colleges, and be most hamstrung by a requirement that they meet students' financial needs. A university like Boulder that charges relatively high tuition (and can now increase the number of full-paying students, with the change in how foreign students are counted) could relatively easily produce enough tuition revenue to offset a state funding cut, Longanecker said. And because it has comparatively few low-income students, and can raise significant dollars through fund raising and other means, the financial aid requirement would not be too onerous for it.

Given the fact that large proportions of its students come from lower-income backgrounds, Metro State would have to use a significant portion of whatever additional revenue it generated through a larger tuition increase to cover financial aid costs -- probably requiring it to cut into instructional funds to cover the difference if it faced a major cut in state funds, Longanecker said.

"The question for us is are you generating enough money with the incremental tuition increases to cover what you lose from the state," said Stephen M. Jordan, Metro State's president. "For us, it doesn't seem to work, and the damage is likely to be to things like our effort on our first-time freshman retention rate, which has gone from 58 percent to 68 percent in the four years I've been here. I don't see how we can raise tuition enough to hire full time-faculty or do the other things we've done to keep that rate going. It puts that whole thing in jeopardy."

Munn insists that the state commission has no intention of letting institutions diminish their commitment to low-income students or to college completion, and that it has many other accountability tools to keep colleges honest on those and other fronts. And the strategic planning committee appointed in December by Gov. Bill Ritter to study higher education, as well as the directive to the higher education commission to develop a new master plan for higher education, will ensure that college affordability and access remain high priorities, Munn said.

What the state needed, and what the new legislation represents, were additional tools to deal with the short-term prospect of continued economic trauma, he said.

"Nobody sees this as a solution. It's a short-term fix trying to address the significant budget issues we’re facing."


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