College Costs: Do the states still want to support public institutions of higher learning?

Nov 1, 2003

Walter Wendler appreciates society’s changing attitudes about its responsibility for higher education. As a scholar, Wendler, who also is chancellor of Southern Illinois University at Carbondale, enjoys the nuances of this evolution. He’s intimate with the details of the federal Morrill Act of 1862, which marked the first federal aid aimed at institutions of higher learning. The land grant act, as it’s called, conveyed to the states parcels for developing colleges of agriculture. This led to the establishment of state universities, including the University of Illinois at Urbana-Champaign.

It also planted the notion that higher education is a collective responsibility. Though an individual experiences private gain in taking advantage of higher education, the ultimate gain would be to the public good. “The opportunity to go to school was seen not as a property interest,” Wendler observes, “but as a tremendous opportunity that was undergirded by both the federal government and the state government through the Morrill Act.

“When people went to school back then, they were changing their economic destiny and the destiny of their children. They were ceded this opportunity, provided literally by and for the state, to build an economy and bring agriculture and manufacturing out of the handcraft industry into the modern mechanized era.”

Wendler acknowledges the changes that began in the decades following World War II. The postwar years brought unprecedented growth in the nation’s colleges and universities. 

And this fueled the transformation of the nation’s view of higher education: from a public good to a private benefit that confers, primarily, individual economic rewards. 

As the second and third generations of families headed for college, higher education increasingly was seen as a right. “It started to be seen, instead of as an opportunity to be seized, as more of an expectation,” Wendler says. “The offspring of professional people, who themselves have a college education, are typically expected to pursue that same course of action.”

Wendler recognizes all this. But as a leader of a major state university, he has to grapple with practicalities. As chancellor, he’s responsible for the future of a university campus with a $334.4 million budget, at a time when public colleges and universities must increasingly generate financial support outside the halls of the state Capitol. 

“Growth in higher education has not come from the taxpayers,” he says. “It’s come from students who pay higher fees. It’s come from the federal government and private enterprises that fund research projects. And it’s come from donors who make gifts to the institution.”

While it’s true that state appropriated support for Illinois’ public colleges and universities has increased over the years, it hasn’t grown by as much as other sources of funding, including tuition and government contracts. In fact, the state of Illinois each year covers a smaller portion of operating expenses at Southern and other public universities, as lawmakers struggle to balance such competing priorities as health care for poor people, prisons and K-12 education.

This trend, and the political pressures behind it, has been apparent for at least a decade, some say since the 1970s. It’s expected to continue. And it suggests a more fundamental shift: To the extent that they’re increasingly seeking support independent of government dollars, public institutions more often resemble their private counterparts. 

Wendler has data that show the state’s share of operating funds at SIU’s Carbondale campus decreased from 56.4 percent in 1978 to 40.2 percent in 1998. Operating revenue generated from tuition and fees, meanwhile, increased from 15.6 percent to 19.4 percent during that 20-year period, while government grants and contracts more than doubled, from 6.1 percent to 13.1 percent.

This is consistent with a statewide trend. According to the Illinois Board of Higher Education, state appropriated funds to public universities increased by 42.2 percent from fiscal years 1992 to 2002, while university income funds (tuition and fee revenue) increased by 77.8 percent. 

The fastest-growing source of funding was nonappropriated government grants and contracts. Local government grants and contracts grew 211 percent, while those from the state grew 164 percent and those from the federal government grew 108 percent. Much of this money is dedicated for specific purposes and is not rolled into general operations.

The trend is national, too. According to data compiled by the National Center for Education Statistics — adjusted to constant dollars by the State Higher Education Executive Officers — the share of revenue for public degree-granting institutions generated by tuition and fees increased from 12.8 percent of the total in the 1974-75 school year to 18.5 percent in the 1999-2000 school year, while the share of state government appropriations decreased from 42.5 percent to 32.3 percent.

This illustrates how far public institutions have been pushed toward the private realm. James Palmer, a professor of higher education at Illinois State University in Normal who conducts an annual 50-state survey of higher education funding, says there’s no centralized set of data that would allow him to determine which institutions “really crossed that line, and there’s probably no real agreement about where that line is.” But, he says, public higher education institutions have demonstrated a renewed emphasis on private funds since the mid-1970s. “Even commu-nity colleges have built up their foundations to the extent that flagship universities have,” he says. “The private funding is now part and parcel of the funding package to public higher education in a way that it probably wasn’t before the 1970s.”

For their part, policymakers say they don’t detect a deliberate philosophical shift in the government’s commitment to higher ed. But Republican state Sen. Steven Rauschenberger of Elgin, who is vice president of the National Conference of State Legislatures, says lawmakers in Illinois and other states do appear to be backing into the concept of aiding the student and making the institution more self-sufficient.

“I think we’re tracking in that direction, but it’s certainly not an organized effort or philosophical change,” he says. “It just comes down to when you have to cut budgets, it’s much easier to tell the U of I to figure something out than to tell 14,000 families who were hoping for one more year of [financial aid] so they can finish school.”

Yet, in praise that’s reminiscent of support for school vouchers, the longtime critic of higher ed spending notes that grants funded through the state’s Monetary Award Program can be spent at private institutions as well as public ones. “When you scholarship students instead of aiding campuses, it makes the universities compete more robustly to attract students by controlling their costs and fees and enriching their programs. In theory, you’re really improving the system for the student because the student directs the cash instead of the appropriation committee.”

The General Assembly consistently has demonstrated strong support for MAP grants. The budget for this fiscal year increases funding for the Illinois Student Assistance Commission, which administers those grants, by 3.3 percent to $398 million. Gov. Rod Blagojevich reduced the legislature’s appropriation by $6 million, and this figure reflects that.

The role of higher education itself may be undergoing change. “I think states are really in a position where they’ve got to think through what a public university means and if they really want them or not,” says Joni Finney, vice president of the San Jose, Calif.-based National Center for Public Policy and Higher Education.

David Wright, senior research analyst for State Higher Education Executive Officers, a think tank and advocacy group based in Denver, says this: “I think as long as there is state funding, there will be a public purpose. But I think legislatures are starting to see higher education more as a private good than a public good.”

This would be a major historical shift. The country’s founding coincided with a statement of government support for education. Two months before the U.S. Constitution was submitted to the 13 states for ratification, Congress established a precedent. The Second Continental Congress, in July 1787, adopted the Northwest Ordinance to govern the Northwest Territory. The law provided that, “Religion, morality and knowledge being necessary to good government and the happiness of mankind, schools and the means of education shall forever be encouraged.”

Direct financial support for higher education began with the Morrill Act, which promoted the education of citizens who couldn’t afford to attend private universities on the East Coast. Congress intended that each state would “claim the benefit of this act, [for] the endowment, support, and maintenance of at least one college where the leading object shall be, without excluding other scientific and classical studies, and including military tactics, to teach such branches of learning as are related to agriculture and the mechanic arts, in such manner as the legislatures of the states may respectively prescribe, in order to promote the liberal and practical education of the industrial classes in the several pursuits and professions in life.”

A little more than a century later, though, criticism of unchecked university expansion was widespread. And increasingly there were other pressing government priorities, including health care and crime. 

As budgets at public universities continued to grow, the share of state support shrank.

Marvin Lazerson, a University of Pennsylvania educational historian, argues in the September 1998 edition of the Annals of the American Academy of Political and Social Science that higher education became “a victim of its own successes” in the postwar years. 

“Able to assume a continuing clientele, to capitalize on the aspirations for upward mobility that so marked American society in the postwar era, and to attract a seemingly unending stream of government funds, higher education charged what the traffic would bear,” he wrote. 

“By the 1980s, those costs would so substantially outpace inflation and the growth rate of median family income that higher education looked like yet another greedy industry.” 

By the 1990s, he wrote, higher education had “come to look like other monopolies and powerful industries of postwar America.

“Like the U.S. auto industry in the 1970s, it dominated the market, produced the best products, and paid off those who invested and worked in it. But also like the auto industry, higher education failed to recognize its hubris and the environmental changes occurring around it.”

Last year, the National Center for Public Policy and Higher Education issued Losing Ground, a report that identified five national trends relative to public colleges and universities: College has become “less affordable” from the perspective of American families; federal and state financial aid has not kept pace with tuition increases; more students and families at all income levels are “borrowing more money than ever before”; the steepest increases in tuition are imposed during economic downturns, when higher education budgets tend to absorb disproportionately larger cuts than other state-funded services; and tuition increased at a greater rate than state appropriations to higher ed during the 1980s and most of the 1990s.

University officials contend they’re raising tuition and fees to make up for dwindling state support, while state and federal policymakers, who don’t accept the argument, are moving to block this fiscal strategy. 

Blagojevich, a Democrat who made criticism of rapidly rising tuition a centerpiece of his campaign last year, approved a law in July requiring universities to cap tuition for four years. Under that law, the state’s public universities must guarantee all first-time undergraduates who are state residents the same tuition rate for four consecutive academic years — or longer for degrees that ordinarily take more time. Students beginning college next fall will be the first class to benefit from this mandate.

State budget officials take a practical approach to the subject; they steer clear of the larger philosophical debate. Rather, they frame their position on higher ed funding in the context of the strained state budget. “There is absolutely no question that in the middle of the fiscal crisis, priorities do have to be set. And the governor has been very specific as to what his priorities are,” says Brenda Holmes, the deputy chief of staff for education. “He’s also indicated that we do need to do more with less, and we want to make sure that we direct more money to the classrooms. So I don’t know that this is a particular shift; I don’t believe it is a particular shift.” Universities, just like elementary and secondary schools, she says, simply must focus dollars on the classroom rather than administration.

Neither she nor Ginger Ostro, the governor’s higher ed budget analyst, adopts Rauschenberger's suggestion that funds are better spent on students than on campuses. Ostro says state funding targets “two sides” of higher education: financial aid for students to support their choice in schools, and direct aid to community colleges and public universities. 

She also insists that any dialogue on higher ed funding should consider capital spending. The higher education capital budget for the current fiscal year is $111.7 million, down from $338.3 million in fiscal year 2003, according to the state Board of Higher Education. 

Ostro notes also that public universities received $1.3 billion for this fiscal year’s operations. “That’s not an insignificant contribution,” she says. 

“I think there’s real commitment there.”

The state’s budget crisis has further increased pressure on colleges and universities, as policymakers moved last spring to eliminate an estimated $5 billion deficit. The General Assembly cut higher education appropriations for the current fiscal year by $108.2 million, or 7.7 percent. And there’s concern among higher ed officials the administration will seek more cuts in this month’s legislative veto session. 

“That gap is growing and that will have to be resolved,” says Chester Gardner, vice president for academic affairs at the University of Illinois system. “Certainly there’s a potential that the University of Illinois may see a midyear cut. I hope we don’t.” He says cuts made earlier this year had a “deleterious” impact on students. “If we have a midyear cut, that’s simply going to further exacerbate that.”The governor’ education and budget staff, however, say they don’t anticipate seeking such a recision.

It’s more likely the schools will face continuing pressure from state and federal politicians to hold down tuition. GOP leaders in Washington, D.C., are setting the stage already for a tough, accountability-driven approach to higher ed funding as they prepare to reauthorize the federal Higher Education Act next year. U.S. Rep. Howard McKeon, a California Republican who chairs the committee handling the rewrite, proposes cutting federal aid for campuses that raise tuition at twice the rate of inflation two years in a row. At the end of September, the seasonally adjusted annual rate of inflation was 2.5 percent. The first year, schools would be required to detail how they intend to hold tuition down in the future. If tuition rises at twice the rate of inflation the next year, the feds would impose sanctions, perhaps stripping an entire campus of eligibility for student aid programs. 

McKeon calls himself “a friend of education,” but he says he’s “fed up” with skyrocketing tuition costs that close the doors of higher education to prospective students. He accuses universities of taking advantage of federal funding by simply raising tuition to attract more dollars. “Why should we continue to subsidize that? Right now we’re giving [universities] incentives. Let’s withdraw those incentives. They will call it penalizing them. 

I say let’s stop subsidizing their ability to increase tuition.”The U.S. Department of Education identifies three major types of campus-based federal aid: grants, work study aid and loans. The department says these three programs accounted for $1.93 billion in aid in fiscal year 2003: $760 million through supplemental grants, $1.004 billion through work-study assistance and $166.4 million through Perkins loans. Combined, they provided $34.4 million in aid to 25,613 students at Illinois’ public universities in fiscal year 2002, according to the Illinois Board of Higher Education.

The White House also could be preparing a tough stance. According to a report published in the Chronicle of Higher Education, President George W. Bush’s staff is weighing whether, as part of his re-election bid next year, he should issue a scathing critique. The report says Bush would accuse colleges of “closing the doors of higher education” by making it unaffordable to students of low- and middle-income families, and reprimand the schools for “allowing” too many students to drop out. 

Illinois’ university officials are paying attention to these moves. Gardner, with the University of Illinois, calls McKeon’s proposal misguided. “They fail to understand that the reason tuition is rising is not that university costs are out of control. It’s just that costs are being shifted from what has been state support over to students and their families.”

Nevertheless, higher ed leaders will have to respond to Blagojevich’s “truth in tuition” law. As a result, several campuses are raising tuition at extraordinary rates to overcompensate for revenue they say will be lost. Southern’s Board of Trustees, for example, is mulling an increase of 15.9 percent over this year’s tuition. It could vote on the issue this month.

Undergraduate students at that university pay $4,245 a year. Should the board vote to adopt the increase, first-year undergraduates will pay $4,920 next year. 

“Setting rates that will hold for four years requires careful planning and excellent forecasting,” Wendler said when Southern announced its proposal. “This rate figures out to about a 4 percent annual increase over four years.”

The University of Illinois raised tuition 5 percent this year after raising it 10 percent last year. School administrators sought an 8 percent increase this year, but ran into opposition from Blagojevich, who called that too high in light of last year’s increase. Tuition for undergraduates beginning school this fall is up $266 to $5,568 per year at the flagship Urbana-Champaign campus; up $234 to $4,898 at the Chicago campus; and up $164 to $3,450 at the Springfield campus. 

Illinois universities are taking other action to balance their budgets. They’re eyeing administrative costs and faculty productivity — both subjects of much controversy. James Kaplan, a Chicago attorney and chair of the Illinois Board of Higher Education, says all public universities in Illinois have agreed to reduce administrative costs by 25 percent over three years — fiscal years 2003, 2004 and 2005. He also says the board’s faculty advisory council is negotiating with university faculty to increase productivity.

Sen. Rauschenberger, the chief budget negotiator for his chamber’s GOP caucus, complains, as do others, that universities spend too much on administration and that the faculty doesn’t spend enough time in the classroom.

Dan Layzell, the higher ed board’s deputy director for planning and budgeting, says the reduction in administrative spending should save about $100 million annually once the cuts are implemented. But he calls the amount of savings associated with increased productivity an “open question.” Indeed, Kaplan says the first step toward increased productivity is defining it. Negotiators must address such concerns as the extent to which research should count. “Dealing with faculty is a very, very complicated and emotional circumstance,” he says. “What I’ve tried to do is say to them, ‘Come to us with your plan.’”

Kaplan also suggests the budget crisis presents an opportunity to trim excessive spending. “A lot of things that we did, when money was not as scarce as it is now, we did because it was a no-brainer: ‘Just do it, spend the money, we’ve got it, what the heck.’ We can’t do that.”

The debate over public university operational costs is likely to continue. A report compiled last year for the University Professionals of Illinois by Robert Ginsburg, director of the Chicago-based Center on Work and Community Development, a private research and consulting group, concluded that administrative positions at Illinois’ public universities — defined generally as workers who don’t teach — increased nearly 10 times faster than teaching positions between fiscal year 1993 and fiscal year 2003.

Higher education officials dispute the study, saying it oversimplifies university structure. They cite historic demand for their services. “About 80 percent of our operating expenses is personnel. And so it’s driven in large part by our personnel costs — raises in salaries that are keyed to inflation,” U of I’s Gardner says. “But there’s also expense portions of that budget, where things like utilities have a big impact. The actual ‘administrative services’ component of our budget is quite small; it’s less than 5 percent.” 

Still, Finney, with the National Center for Public Policy and Higher Education, says leaders of top public universities should share culpability. “I think state governments have been culpable for the situation, as have the leaders of the elite public institutions in the country; they are more concerned about maximizing revenue than meeting state needs.

“You’ve got to understand that if it weren’t for the taxpayers of those states, those institutions would not exist. It is an asset that the state has developed and has invested in. I think both parties are culpable here. And I think, absent any kind of public policy leadership, they could turn more into sort of private enterprises.”

Critics of higher ed spending also contend public universities have veered from their core mission — undergraduate education — by putting too much emphasis on research. Developments last month, though, cast favorable light on publicly funded research and could fuel the fight for sustained support. Two University of Illinois professors won Nobel Prizes, and advocates for higher education touted their accomplishments as evidence of the need for publicly funded research.

U.S. Rep. Rahm Emanuel, a Chicago Democrat, wrote in a letter published in the Chicago Tribune, “Some of my congressional colleagues often incorrectly point to public institutions as a drain on our society. One needs to look no further than these extraordinary individuals to see the benefit of investment in research.” Research institutions, he wrote, “are dependent on the public’s funding in order to provide common good.” 

Questions remain. As this public/ private contract changes, will legis-latures demand the same level of accountability? Wright, with the State Higher Education Executive Officers, expects so. “My sense is the legislature will be very hesitant to give up any level of authority that they have over higher education, even as public institutions get less and less of their money from the state legislature.” 

Southern’s Wendler says state-mandated accountability already is on the upswing. “We respond to more requests for information now generally. I don’t want to be portrayed as complaining about reports, but we do feel that we do a lot of reports to the state legislature right now on what we are doing with state appropriated funds — actually, all funds. I think the expectation is for increased accountability.”

And what does the public expect? Demand for higher education hasn’t waned. This fall, Illinois’ public universities are experiencing unprecedented interest from potential students. The University of Illinois’ Urbana-Champaign campus, for instance, reported a record 6,801 freshmen this fall. Higher education officials attribute this to population growth and to sustained interest in postsecondary education. And they blame this increased demand for their increased costs. 

“Because the state and federal governments cannot afford to address the number of people that want to attend — this population of potential college attendees continues to grow by sheer population growth and by expectation by their families — we no longer are able to support the demand solely off the tax dollar,” says Wendler.

The system of public higher education does appear on track to become more user-financed. Nevertheless, public institutions have a long way to go before they mirror their private sector counterparts. 

And Wendler, the chancellor at Southern, emphasizes that state support, albeit limited, nonetheless provides the foundation of his university’s community. “Am I worried about privatization of the institutions? Not a bit,” he says. “Even though the [state] portion of our total budget at Southern Illinois University-Carbondale has shrunk from around 56 percent to around 40 percent, that 40 percent is the most important part of the whole budget because it’s seed corn for the rest of it. It’s stable. It is the absolute spine of the university.” 

Illinois Issues, November 2003