Funding Trends in Higher Education

1
Funding Trends in Higher Education
Office of Planning Services and Professional
Development (PSPD) University of Rhode
Island October 2004
2
Current Financial Issues

• Drastic decline in state funding across the board
  (Seligo, 2003 Gose, 2002, Gose, 2003 Zemsky,
  2003)
• Many schools currently acquire only 10-20 of
  their funding from state appropriations
• This has put a financial crunch schools budgets,
  leading them to seek new funding opportunities
• Increasingly, higher education is seen as a means
  of personal enhancement, and not as a public good
  (Zemsky, 2003 Selingo, 2003)
• It is important to link higher education to
  economic development, in order to facilitate
  funding increases.

3
Political Plans Perceptions

• Very little emphasis placed on higher education
  by President Bush (Burd, 2004)
• No Child Left Behind Act
• Tax cuts
• They want high access, low tuition, top quality,
  and no tax increases to pay for it Lyall, U
  Wisconsin (Selingo, 2003)
• Want more federal control of colleges and
  missions, not less (Hartle, 2004)
• College Affordability and Accountability Act
  (Tierney, 2004)

4
Priorities The View from Congress, 1990 vs.
2003

• Connection The Journal of the New England Board
  of Higher Education conducted a survey of New
  Englands congressional delegation showing that
  funding for higher education has some strong
  competition, though it has made a small gain.
  Presented is a comparison of regional, national,
  and educational priorities by rank.

5
Priorities The View from Congress, 1990 vs.
2003

• Funding for higher education has made a small
  jump in priority from third to second place from
  1990 to 2003, but in relation to other regional
  and national issues, it is barely on the radar.

6
What are the trends?

• Privatization
• Responsibility-Centered Management (RCM)
• Accountability for less bureaucracy
• Increased emphasis on fundraising and endowments
• State donor ratios
• Voucher programs
• Raising tuition and fees
• Increasing enrollment (especially out-of-state)
• Increased emphasis on grants and research

7
Privatization

• With state appropriations on the decline, many
  schools are relying more on external funding
  (Levine Shifting Ground Selingo, 2003 Zemsky,
  2003)
• Pros
• Schools have more autonomy
• They can invest the money where they see fit
• Better capable of meeting needs of students as
  enrollment increases
• Cons
• Concerns about losing sight of schools missions
• Knowledge may lose its intrinsic value
• Private donors and corporations will have control
  of where money goes

8
Privatization

• Despite privatization concerns, many believe that
  a public private school can still keep the
  public good in mind (Zemsky, 2003)
• Feeling the financial crunch, many schools have
  increased privatization, with positive results

9
Dimensions of Publicness and Privateness
Source D. Bruce Johnstone Privatization in and
of Higher Education in the US
10
Examples of Privatization

• University of Michigan- auxiliary enterprises
  University Hospital
• University of Oregon- contracts for services,
  retain interest from private donations
• South Carolina- radical privatization, governor
  proposing to make schools independent non-profits
• Schools who chose this would receive no direct
  appropriations from the state, but would receive
  title to all buildings, real estate, and capital
  improvements and SC residents would receive a
  preferred tuition rate- no schools have taken
  up the offer as of yet

11
Examples of Privatization

• Virginia (U of V, VTech, Wm Mary)- states allow
  increased autonomy with decreased appropriations.
  Chartering proposed, making these schools public
  corporations.
• State would contribute a reduced appropriation
  (already only 10), but would have decreased
  regulation of personnel, procurement, and capital
  projects,and full control over tuition (with
  increased fin. aid)
• U of V is also breaking off its business and law
  schools, leaving more money for rest of school.

12
Responsibility-Centered Management

• What is RCM (RCB, VCM)?
• RCM is a system based on decentralizing a
  schools budget to each departmental unit, thus
  allowing them increased autonomy

13
Basic Principles of RCM

• Academic units gain
• control of costs and income they generate
• incentives to increase revenue and decrease costs
  by controlling their own plans and budgets
• control of decision-making regarding tuition fees
  and enrollment
• less specific, more global budgets
• clearer understanding and control of service and
  administrative costs

Source Daniel W. Lang, A Primer on
Responsibility Centre Budgeting and
Responsibility Centre Management
14
Which institutions use RCM?

• University of New Hampshire
• Indiana University
• University of Minnesota
• University of Illinois - Urbana-Champaign
• Ohio state University
• Southern Illinois State University
• University of Idaho
• University of South Carolina
• Brandeis University
• University of North Texas
• University of Pennsylvania
• Okanagan University College (British Columbia)
• University of Michigan
• Marquette University

• Mercer University
• Texas AM University
• CalTech University
• Vanderbilt University
• Duke University
• Auburn University
• Clarkson University (considering)
• Purdue University
• Temple University
• University of Oregon
• University of Pennsylvania
• University of Southern California
• University of Toronto
• West Chester University (PA)

15
Which institutions use RCM?Contd

• Central Michigan University
• University of Iowa
• University of Alaska
• University of Connecticut
• McGill University
• Florida International University
• Renssalear Polytechnic Institute

• American University
• University of California at Los Angeles (UCLA)
• Clemson University
• Harvard University
• Washington University of St. Louis
• Indiana University of Pennsylvania
• Cornell University
• Worcester Polytechnic University

16
Accountability

• Colorado, Texas, Washington, Mass College of Art
• South Carolina- entire higher ed budget is based
  on performance
• Florida- proposing performance contracts
• if any key performance measures are not met in a
  particular year, their right to increase tuition
  is suspended until they are reached

17
Accountability

• Performance contracts trade accountability for
  increased autonomy to set tuition levels and fees
  (Breneman, 2004)
• Accountability may be in a variety of areas
  including graduation rates, increased enrollment,
  or meeting state educational needs
• Benefits include predictability, improved
  management, clarity of expectations, recognition
  of varying missions

18
Accountability

• In 2001 North Dakota traded increased
  accountability of graduation rates, student
  retention and economic benefits for total tuition
  control, and lump monetary sums to use as the
  colleges see fit (Symonds, 2004)
• Result has been more entrepreneurial behavior-
  increased emphasis on distance learning,
  out-of-state recruiting, and research work has
  doubled

19
Fundraising and Endowments

• Schools are strengthening capital campaigns,
  though some see it as an unstable means of
  funding (Gose, 2002)
• U. of Michigan Ann Arbor increased ten fold in
  1990s- 200 million to 3.4 billion
• U. of Texas at College Station fundraising
  increased from 212 million in 1990 to 725
  million in 2002
• U. California Berkeley, U. of Virginia- 1.3
  billion each in recent campaigns UCLA- 2
  million
• U. of Minnesota, as a part of RCM, has allowed
  each dept. to appoint its own gift officer

20
Fundraising and Endowments

• Just this week, 23 universities updated their
  billion-dollar capital campaigns (Bartlett, 2004)
• Examples
• Michigan State University, 905.6-million as of
  November 1 (increase of 4-million in the last
  month) the goal is 1.2-billion by 2007.
• New York University, 1.117-billion as of October
  28 (increase of 9.6-million in the last month)
  the goal is 2.5-billion by 2008.
• The University of Virginia, 497.2-million as of
  October 15 the goal is 3-billion by 2011.

21
Funding and Endowments

• California Institute of Technology
• Johns Hopkins University
• Massachusetts Institute of Technology
• Purdue University
• Rensselaer Polytechnic Institute
• Stanford University
• Texas AM University at College Station
• University of Arizona
• University of California at Los Angeles
• University of California at San Diego
• University of California at San Francisco

• University of Chicago
• University of Iowa
• University of Miami
• University of Michigan
• University of North Carolina at Chapel Hill
• University of Pittsburgh
• University of Washington
• University of Wisconsin at Madison
• Vanderbilt University

22
Matching Donors

• Matching donor programs call for states to match
  a certain ratio of funds raised by schools (i.e.
  every 2 raised by the school, the state will
  match it with 1) and have been very successful
• Problem- some campaigns are working too well, and
  states do not have the money to match the
  schools fundraising efforts (Potter, 2003)
• Language is important- if donors are told their
  funds are eligible for matched funding, fewer
  problems emerge
• Utah- reverse matching donor- colleges must match
  state funds with private money

23
Which states/institutions use matching donor
programs?

• Nearly half of states have these programs in
  place (Potter, 2003)
• Louisiana schools- pay for program using states
  oil interest, not state appropriations, in order
  to improve stability
• Alabama, Connecticut, North Carolina, University
  of Massachusetts all have this program in place

24
Vouchers

• Colorado, in a response to a tuition and fee
  limit, has implemented a voucher/student stipend
  system. Students are allotted money from a
  statewide fund to use at the school they choose
  (Selingo, 2003 Breneman, 2004)
• This is supplemented with need-based financial
  aid
• Colorado also has role and mission block grants
  available for research, and a performance
  contract in place
• President Hoffman applying for enterprise status
  for the school (less than 10 of funding received
  from state appropriations)- so they are no longer
  governed by same rules as state agencies

25
Raising Tuition and Fees

• Tuition across the country is increasing very
  quickly to make up for a lack of state funding,
  an average of 6 per year (Loomis Hubbell
  Lapovsky, 2004)
• Many, including politicians, find this to be a
  problem, claiming that it violates states
  missions to serve the public- especially
  low-income students who are finding it more and
  more difficult to pay for college
• Schools are dealing with this in a variety of ways

26
Tuition Schools Responses

• Many schools are raising tuition, but allowing
  some increased revenue to go directly into
  financial aid (Loomis Hubbell Labovsky, 2004
  Gose 2002)
• Miami U. at Ohio- first public school to adopt
  high-price/high-aid model used by private schools
  (Symonds, 2004)
• increased tuition to 19,642 for in-state and
  out-of-state, and supplements students with
  financial aid- residents receive at least 10,000
• Students with greater financial need receive
  higher scholarships

27
Tuition Schools Responses

• U. Virginia- if granted charter status, in-state
  may be raised to 10,200 from 6,600 (with
  increased fin. aid), after state froze tuition
  for four of eight past years
• Penn State already charges 10, 000, but also
  provides significant financial aid to poorer
  students
• U. Michigan Ann Arbor- increased out-of-state
  tuition to private levels of 21,645, while
  keeping in-state tuition manageable at 6,935

28
Increasing Enrollment

• While many schools are finding increasing
  enrollment to be a problem due to a lack of
  resources, some find that increased enrollment,
  especially by non-residents, can help make up for
  a lack of state appropriations
• U. of Michigan Ann Arbor- changed ratio of
  students, allowing for more out-of-state students
  to enroll without increasing in-state tuition
  (Duderstadt, 2003)

29
Grants and Research

• Grants and research are increasingly being used
  to help fund schools
• Some even suggest using a new faculty payment
  formula that would encourage faculty to engage in
  research, thus helping fund both the professor
  and the university
• XYZ funding model (Zappia, 2000)
• X university guaranteed salary
• Y income generated by the professor (largest
  portion)
• Z yearly bonus based on performance

30
Doing Funding Right University of Michigan

• Duderstadt (2002)
• How did they get where they are today?
• Comparable in size and complexity to a Fortune
  500 company
• Financial plan based on three objectives
• Building alternate sources of revenue
• Tuition, research grants, private giving, fed.
  grants, auxiliary enterprises
• Use resources efficiently
• Quality not quantity- saving for future in mind
• Increase universitys autonomy

31
Doing Funding Right University of Michigan

• These objectives were implemented in several
  ways
• Emphasis on research funding
• Increase in-state tuition and increase
  out-of-state enrollment
• Private giving/endowments- strengthened
  fund-raising
• Funds generated by University hospitals
• Reserves- more moneymore autonomy, more to save,
  better credit/loaning ability
• RCM
• Good financial planning- good managers

32
Doing Funding Right University of Michigan

• Duderstadts recommendations
• Management should be left to those who understand
  business- not academics
• Accountability is important
• Think boldly about money
• Diversify funding
• Build reserve capacity
• Manage resources and contain costs
• Appeal to constituencies on a national level,
  while keeping state needs in the forefront

33
References

• American Council on Education, The Futures
  Project. Shifting ground Autonomy,
  accountability, and privatization in higher
  education. May, 2004
• Bartlett, K. Updates on billion-dollar campaigns
  at 23 universities Chronicle of Higher Education
  Online, December 7th, 2004
• Breneman, D. W. Are the states and public higher
  education striking a new bargain? Association of
  Governing Boards of Universities and Colleges
  Public Policy Paper Series, 04-02.
• Burd, S. Election 2004 Where they stand on
  higher education. Chronicle of Higher Education
  Online, September 17th, 2004
• Duderstadt, J. University in the new millennium.
  Paper presented at University of Washington,
  November 29th, 2002.
• Gose, B. The fall of the flagships. Chronicle
  of Higher Education Online, July 5th, 2002
• Gose, B. Belt-tightening by the bay. Chronicle
  of Higher Education Online, April 4th, 2003.

34
References

• Hartle, T. Simmons, C. Billing cycle How
  will New England fair under new federal higher
  education legislation? Connection Journal of New
  England Board of Higher Education, Winter 2004,
  p. 13-14.
• Indiana University Bloomington, Report of the RCM
  review committee responsibility Centered
  Management at Indiana University Bloomington,
  October, 1996.
• Johnstone, D. B. Privatization in and of higher
  education in the U.S.
• Kennedy, E. M. Educational security for all.
  Connection Journal of New England Board of
  Higher Education, Winter 2004, p. 15-17.
• Lang, D. W. A primer on responsibility centre
  budgeting and responsibility centre management,
  The Canadian Society for the Study of Higher
  Education, Winter 1999, 17.
• Loomis Hubbell, L. Lapovsky, L. Widening the
  higher education gateway. NACUBO Business
  Officer, September, 2004, p. 21-29.
• Nelson, K. R. Scoby, J. L. Implementing
  decentralized responsibility centered management
  with budget restructuring and cutting edge
  technologies, paper presented at EDUCAUSE
  Conference, 1998.

35
References

• Potter, W. Breaking a promise. Chronicle of
  Higher Education Online, October 31st, 2003.
• Seligo, J. The disappearing state in public
  higher education. Chronicle of Higher Education
  Online, February 28th, 2003.
• Symonds, W. C. Commentary Should public
  universities behave like private colleges?
  Business Week Online, November 15th, 2004.
• Tierny, J. F. Toward college affordability.
  Connection Journal of New England Board of
  Higher Education, Winter 2004, p. 19-21.
• University of New Hampshire website
  http//www.unh.edu/rcm/
• Zappia, C. A. The private sector and higher
  education. Perspectives American Historical
  Association, May, 2000.
• Zemsky, R. Have we lost the public in higher
  education? Chronicle of Higher Education Online,
  May 30th, 2003.