Private Scholarship, Public Funds

Washington State creates public-private scholarship where corporate donors call the shots on how to spend and invest the fund, which includes state money.

November 29, 2011

Washington State’s politicians want corporations to kick in more money for financial aid, so they’re handing the keys to a new public-private scholarship program to business leaders.

The fund, dubbed the Opportunity Scholarship Program, will collect private donations and match them with contributions from the state. That money will be used for scholarships of at least $1,000 for qualifying lower- and middle-income students who attend Washington’s public universities. (Students at private colleges will not be eligible.)

Gov. Christine (Chris) Gregoire and the state Legislature are currently selecting private sector members for the fund's governing board. They will finalize rules for the scholarship and oversee investment of its endowment, with a goal of hitting $1 billion within a decade.

Private sector management of state scholarship money is rare, experts say.

“It’s an innovative idea,” said David Longanecker, president of the Western Interstate Commission for Higher Education, which has helped advise the state on how to set up the fund. “It’s not standard practice. They’re carving out new ground here.”

Fund-raising for scholarships can be a tough sell. State-administered funds generally feature lots of red tape. And a big scholarship gift doesn’t come with the same bling factor as a name on a new building.

The thinking in Washington was that if corporations had more direct control of how their donations were used, they might be more inclined to give. And it seems to be working so far: Microsoft and Boeing each pledged $25 million to the fund after its creation in June.

“The generosity of Washington’s private sector is what makes this bill possible,” said State Rep. Tim Probst, a Democrat who introduced legislation that created the program.

Microsoft and Boeing, the state’s two largest employers, have been at the table from the beginning. In fact, several observers said the private fund is the brainchild of Microsoft executives, particularly Brad Smith, the company’s general counsel and executive vice president of legal and corporate affairs.

The process began last year with Governor Gregoire’s appointment of a 16-member higher education funding task force, which was given marching orders to help “create a sustainable funding model and develop strategies that increase accountability.” The group included several heavy hitters from Washington’s business community, including a Boeing executive and Smith, who was tapped as its chairman.

“This is a creative way to try to bring people into the discussion,” said Don Bennett, executive director of the state’s Higher Education Coordinating Board.

In a January report, the task force recommended the creation of the private scholarship endowment. The report also stressed the value of a nongovernmental governance structure.

“By establishing this as a private nonprofit fund, the state can guarantee these funds will always be used for one purpose and one purpose only,” the task force said, “ensuring that the gates of our community colleges and public universities remain open to students of all economic backgrounds.”

Longanecker said the private scholarship fund has drawn broad national attention. “Other states are very interested in the model,” he said.

The approach could become more common, said Louis Soares, director of the postsecondary education program at the Center for American Progress, noting that several such efforts exist in the K-12 sphere.

However, Soares cautioned that corporate support can be fickle. “Interest tends to change with the business cycle,” he said, adding that a successful public-private scholarship requires long-term support.

Of course, Washington has a particularly engaged partner in Microsoft, which spawned the Bill & Melinda Gates Foundation, arguably the nation’s most powerful private player in education. Few states have that sort of corporate clout.

“Is it replicable [in other states]?" Soares asked. “It’s an open question. My gut would say no.”

Input from Industry

Washington is one of a handful of states that don’t collect personal income tax, leading to boom and bust budget cycles.

In the recession’s wake, Washington's public universities and community colleges have absorbed large cuts to state contributions, and lawmakers have in turn allowed double-digit tuition increases -- with more looming in future years.

Washington also struggles to keep pace with its relatively large demand for highly educated workers, importing many bachelor's-degree holders from outside the state. Meanwhile, the flagship University of Washington is increasing its out-of-state student numbers, and Washington’s community colleges will turn away an estimated 40,000 students because of budget cuts in this biennium.

The state has relatively generous need-based scholarships. And the Legislature actually increased funding for the state-financed grant program, which serves lower-income students, by 32 percent for the next biennial budget cycle. Even so, the tuition increases still sting, and middle-income students will be hit hardest.

The new fund should help cover the gap. Bennett said it would in no way replace existing state grants, calling it a “complement, not a replacement.”

Scholarships will be aimed at students who are pursuing bachelor's degrees, particularly in high-demand fields. Community college students will be eligible, but they should intend to eventually transfer to a public four-year institution.

Fittingly, observers said one of the best descriptions of the new program is a news release from Microsoft. Students from families with incomes of up to 125 percent of the state median income will be eligible for the scholarship, according to the release. (The median income for a family of four in Washington is $80,404, which would mean families earning up to about $100,000 would be eligible.)

The bill that authorized the program’s creation calls for a seven-member governing board. Three are to be selected by the governor, and the others will come from a list of nominations by donors to the fund.

Those four board members should hail from foundations or businesses from “among the state's most productive industries such as aerospace, manufacturing, health sciences, information technology and others,” according to the legislation.

Donors can also designate whether their gifts go to immediate scholarships or the longer-term pool of endowment money. The state will match donations to both accounts, with a cap of $50 million for annual state contributions.

The legislation requires the scholarships to be for at least $1,000. And the grants “may be increased on an income-based, sliding scale basis up to the amount necessary to cover all reasonable annual eligible expenses.”

Probst, when describing the bill to his fellow lawmakers, said the scholarship could make college a possibility for tens of thousands of Washingtonians.

“It’s aimed right at those families for whom tuition is a deal-breaker,” Probst said.


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