Public Universities In Peril

Public universities in the U.S. are in distress. Nowhere is that more apparent than in the cash-strapped state of South Carolina, which slashed higher education funding per full-time student by 32% between 2006 and 2011, according to the State Higher Education Executive Officers association.

From South Carolina to California (see page 32), state funding for higher education has been declining for decades. The recent economic downturn has only accelerated that trend.

The drop in state funding has occurred at the same time that more and more people have come to appreciate the value of higher education. Universities have been forced to plug holes in their budgets with money from other sources, including private philanthropy, the federal government, and students themselves in the form of increased tuition.

Universities are running out of options. The economic and political climate makes federal funding levels uncertain at best. Philanthropy is limited and unable to bridge the huge gap created by decreased state appropriations. Students have taken on as much debt as they can handle, and maybe more.

What universities can do about the fiscal challenges before them is unclear, despite calls for reform from many corners. The most recent is the National Research Council (NRC) report “Research Universities and the Future of America: Ten Breakthrough Actions Vital to Our Nation’s Prosperity and Security.” Released last month, the report characterizes the underfunding of U.S. public universities as a grave threat to the global leadership positions of U.S. academic research institutions.

The future didn’t always look so bleak.

The system of public universities as we know them got its start on July 2, 1862, when President Abraham Lincoln signed the Morrill Act, or the Land Grant College Act, into law. The Morrill Act gave each state 30,000 acres of federal land per representative and senator. The law required the states to sell the land and use the money to endow at least one college to teach, in addition to conventional scientific and classical studies, subjects “related to agriculture and the mechanic arts” in order “to promote the liberal and practical education of the industrial classes in the several pursuits and professions of life.”

From the days of the Morrill Act, public universities were meant to perform research and also educate citizens. The universities’ research function grew in the years during and after World War II. As a result of various bills intended to help soldiers returning from World War II, the Korean War, and the Vietnam War readjust to civilian life, universities educated even more students. The bills included education benefits and helped turn higher education into a middle-class expectation.

“America’s public research universities really are the backbone of advanced education and research in the U.S. today,” says James J. Duderstadt, an engineering professor and president emeritus at the University of Michigan. “In the same way that public higher education writ large educates 70 to 80% of the students in this country, the public research universities do about 65% of the academic research.”

Implicit in the U.S. system of public universities is a social contract: Public universities would provide broad access to education for a low cost to the student, while fulfilling their mission to expand society’s knowledge through research. The government—federal and state—would provide the funds to make this possible.

That social contract is in serious danger. Various university presidents and chancellors describe it as being “in tatters” and “frayed.”

“You have a partnership between the university, the students, and the government in the educational experience,” says C. Daniel Mote Jr., an engineering professor and former president of the University of Maryland, College Park. “It’s an unwritten partnership between three partners that never really negotiated a deal. But it’s there, and there’s an expectation that these three partners will put in resources to make it work.”

Underfunding may be an obvious cause of the social contract’s fraying, but changing expectations may be a factor, too. Even as public universities have become an integral part of the research structure and education has become an increasingly important part of American life, citizens and their elected representatives have begun to see education as a private benefit instead of a public good.

“Over a period of roughly 40 years, we have had a situation where legislators, governors, and other leaders, and even universities themselves, have noted that a large portion of the benefit from education is a private benefit,” says Larry R. Faulkner, president emeritus of the University of Texas, Austin. “They have elected to ask the recipient to bear a larger portion of the cost. At the outset of this trend, that was entirely defensible and probably wise.”

Now, some say the cost shifting from the state to individuals has moved beyond what is defensible. “Public universities have had to raise tuition and fees to levels that are uncomfortable for economically average students,” says Eric W. Kaler, president of the University of Minnesota. “That really has changed the conversation about the value that states place on an educated population.”

“We have reached a point,” Faulk-ner says, “where the cost of higher education—the educational cost, what it takes to go to school, not what it takes to live—has reached in many states a sizable fraction of the median family incomes in those states.” The annual cost at UT Austin, he notes, is close to 20% of the Texas median family income, which was $49,646 in 2011.

Students’ costs have grown because many flagship public universities now receive only a small fraction of their funding from the state. The University of Michigan, for example, receives less than 5% of its total operating revenues from state appropriations. At the University of California, Berkeley, state funding represents about 10% of overall revenue. Even at the University of North Carolina, Chapel Hill, one of the most generously funded universities on a percentage basis, the state contributes only about 18% of the overall budget.

Universities try to replace some of the lost state appropriation with private philanthropy, but the hole is too big. At the University of Minnesota, for example, the state’s contribution was about $700 million in 2008 and $550 million this year, a decrease of $150 million. “It’s tough to raise $150 million to spend every year,” Kaler says. “That’s equivalent to the expenditures from a $3 billion endowment.”

The tight funding climate has driven many schools to be more frugal than ever. H. Holden Thorp became chancellor at UNC Chapel Hill in 2008, as the economic crisis was ramping up. That year, Thorp hired the consulting firm Bain & Company to assess the university’s operations. The consultants identified ways for the university to save $50 million in administrative costs, which the school has implemented over the past three years.

UNC Chapel Hill is not alone. The University of Minnesota, for example, has shaved costs through three years of furloughs, salary freezes, and reduced hiring, Kaler says. UC San Diego has restructured debt and tapped financial reserves, says Marye Anne Fox, who will step down as chancellor on Aug. 1 (see page 35).

Meanwhile, with so many other sources surpassing state funding, public universities are finding themselves with an increasingly broad array of stakeholders. But these stakeholders are not represented on university governing boards, which typically answer to the state.

“The publics that are served by and support these flagship universities are no longer defined by state boundaries,” Duderstadt says. “At the University of Michigan, 90% of our support comes from outside the state of Michigan.” The university is technically owned by the state, which provides only enough money to make it a minority shareholder.

Many such universities could now be considered hybrids—part state, part national; part public, part private. A growing number of students at flagship campuses come from out of state, or even out of the country, and they pay tuitions comparable to those at private institutions. Duderstadt predicts that states will continue to provide some support for undergraduate education but graduate education and research functions will be nationalized. To some extent, nationalization is already happening because of how research is funded.

“On the research and scholarship front, science and engineering departments have been much less affected,” Robert J. Birgeneau, chancellor at UC Berkeley, says. Faculty members “are still getting their summer salaries. They’re able to support graduate students. Undergraduate chemistry majors can find research opportunities in chemistry labs. But that’s because of federal money, not state money.”

The large role of the federal government in funding scientific research might suggest that the sciences are more protected from the problems of declining state budgets than are other disciplines. But in at least one way, the sciences are vulnerable, Thorp says.

Using the chemistry programs at public research universities as an example, Thorp explains that the programs have been so large partly because universities need graduate students as teaching assistants (TAs) for undergraduate courses. “The resources that are used to pay the graduate students to be TAs come from the instructional budgets,” Thorp, himself a chemist, says. And those instructional budgets are funded by state appropriations. Because the same pool of money also funds faculty salaries, declining state appropriations are “also potentially constraining the number of young faculty we can bring to the university,” he says.

Public research universities must convince citizens and legislators of their importance to undergraduate education, Thorp asserts. “We’ve got to be able to make the case that public research universities are the best places to get an undergraduate education,” he says. “If you want people to be exposed to chemistry research, then the best place for them to go to college is a research university. The public flagships, in terms of training chemists in an environment where they can get a feel for what chemistry research is, serve an absolutely vital purpose. We need the wider public to understand the importance of that.”

What public universities can or should do is the big question now.

In February, Birgeneau, collaborating with UC Berkeley Vice Chancellor Frank Yeary and graduate student Seth Garz, published a draft white paper outlining a funding model for the top 100 public universities based on a new private-public partnership, dubbed the American Opportunity Challenge Grants. According to the model, the federal government would provide $1 billion per year for 10 years in challenge grants to match 1:1 philanthropic contributions to university endowments for research and teaching. At the same time, state governments would be required to match the federal contribution in addition to at least maintaining their existing funding level.

NRC floated another set of recommendations in its June report about research universities. Among them is increasing the autonomy of public research universities so they can become more nimble and take advantage of new opportunities.

“The oversight and administrative structures at many public universities are more reflective of the time when the state paid 75 to 95% of the cost of an undergraduate education,” says David M. Dooley, president of the University of Rhode Island, who was not on the NRC committee. “We could be a lot more efficient with the money we bring in if we had greater autonomy from the states. That autonomy simply reflects the new economic reality where only a fraction of the money we spend annually is derived from taxpayers.”

At the same time, the report urges states to restore appropriations to the mean level for the period 1987–2002, adjusted for inflation. The committee chose a 15-year period to smooth out year-to-year fluctuations in state appropriations. They ended the period with 2002 because that year marked the beginning of a significant downward trend.

Committee members have no illusions that funding increases will happen quickly. “We don’t think state support is going to recover for at least a generation, meaning a couple of decades,” says Duderstadt, who served on the committee. “The challenge is how to get these terribly valuable national assets through a two- to three-decade period when the states have neither the capacity nor really the will to support them and maintain them at world-class levels.”

Faulkner, not an NRC committee member, is even less optimistic, given the pressures on state governments from obligations like public pensions and other entitlements. “The idea that suddenly we’re going to turn around and resubsidize higher education, however wise it might be, doesn’t seem realistic,” he says. “We’re in a box, and it’s going to take some really powerful invention within the higher education community to get us out of this box.”

Privatization is not an appealing option to public university leaders. “We don’t like to use the word ‘privatization’: We believe education is a public good that addresses the needs of the nation as well as the individual,” Fox says.

Birgeneau considers the public character of public universities part of their competitive advantage. “If we were to privatize, we’d become another Stanford or MIT,” he says. “We would no longer be able to attract the kind of idealistic faculty who can go wherever they want, but want to teach the kind of students we have here at Berkeley. It would fundamentally alter the character of the university.”

“I believe very strongly in the public mission of education,” says U of Maryland’s Mote. “Taking very successful public universities and privatizing them—essentially walking away from the public mission—is a very bad idea. It would be a huge loss for our country.”

“Privatization would mean that those institutions would increasingly be dedicated to the education of the well-off,” Faulkner says. “The role that they would play socially would be very different.” But even if the idea were on the table, privatization would be impractical for all but the top public universities, he says. “We’re not going to take all 38 public institutions in the state of Texas and turn them into a private base. Could we get UT Austin there? We probably could.”

At this point, questions outnumber answers, and nobody really knows what the future holds for public research universities. “Many things will have to be tried out,” Faulkner says. “The idea that we’re going to keep on doing things in public institutions the way we have been doing them is completely forlorn.”