Public University Budgets: Not Always So Simple

As noted in Inside Higher Ed recently, despite an upturn in public funding for higher education in some states, most public universities now rely heavily on tuition revenues to cover operating costs. Unfortunately, public officials and governing boards sometimes fail to fully understand the management economics driven by this shift in the source of funding.

Especially for universities significantly dependent on tuition funding, administrators must manage a complex set of internal subsidies and cross-subsidies. Yet dictates and directives often come down from on high that run counter to this reality. Allow me to offer a few examples.

Our former governor in Florida encouraged universities to emphasize STEM (science, technology, engineering and math) degrees by de-emphasizing social science and the humanities. The argument here is that STEM is where the jobs are. But this is a fallacious case for three reasons. First, courses in social sciences and the humanities contribute to a well-rounded education. We educate citizens, not just workers. Second, graduates in the social sciences and humanities actually find jobs and careers. And third, if neither of these arguments is compelling, course work in the social sciences and the humanities actually pays for, or cross-subsidizes, STEM courses.

The math is simple. A $60,000-per-year history professor teaching 200 students a semester, for example, can generate surplus revenue so that a $130,000-per-year engineering professor can teach 30 students a semester. Certainly at most regional public universities, STEM programs would be severely limited without this cross-subsidy. So the focus on STEM directives depends on a commitment to social science.

Likewise, we hear that a solution to student debt is through “2-plus-2” arrangements with community colleges, whereby students receive a two-year associate degree comprised of general education courses and then transfer to a four-year institution to complete their undergraduate degree. For some people, this is a viable path. But often the first two years turns into, in fact, three-plus -- so it turns out to be a “3-plus-2” degree. Moreover, lower divisions of general education courses, on balance, cross-subsidize upper-division courses. So there is an economic limitation on “2-plus-2” agreements.

Many more cases of internal cross-subsidies operate at most public universities. One more example: with rare exceptions, taxpayers and students subsidize athletic departments. Most athletic directors minimize the level of these subsidies, but they exist and are nontrivial -- especially for universities that play football.

So my point in summary is straightforward. The economics of public universities are more complex than frequently understood by governing boards, legislators, governors or the general public. And, as a result, broad declaration or directives from outside can lead to severe unintended consequences. It’s incumbent that those with authority or influence over university operations take the time to understand the essence of the operations they influence. Thus, I urge governing boards, governors and legislators to do just that. If they don’t, to quote my friend General Russel L. Honoré, they can get us all “stuck on stupid.”