[The Montana Professor 17.2, Spring 2007 <http://mtprof.msun.edu>]
George M. Dennison
President and Professor of History
The University of Montana
Geoffrey G. Gamble
President and Professor of Anthropology
Montana State University
A. William Muse
Associate Vice President for Planning, Budgeting, and Analysis
The University of Montana
James Rimpau
Executive Director, Planning and Analysis, and Chief Information Officer
Montana State University
Public higher education in the United States experienced severe fiscal challenges during the years after 1980. While fiscal in nature, the challenges resulted from an attitudinal shift in society at large that essentially reversed the presumptions about who benefits from and who should pay for higher education. Within a very few years, American policy makers--governors, legislators, and other custodians of tax dollars--turned on its head the time honored view that the society at large, as the major beneficiary, should pay most of the cost of public higher education. The generation of Americans reaching maturity just prior to and during the period failed to recognize the responsibility incurred from the generation preceding theirs to educate the next generation. But they soon learned to rue this failure, for this change in attitude resulted in funding shortfalls for the maintenance of public higher education which, in turn, led to a shifting of the cost burden to students and their families. As a serious albeit unintended consequence, literally millions of young people found themselves progressively excluded from participation because of cost./1/
Like most other states, Montana followed a similar line of development. If anything, Montana has the dubious distinction of moving farther and faster along this dangerous path than other states. By the close of the period, the cost shifts threatened to exclude a majority of well qualified and motivated Montana residents from participation in college. Having drifted so far from the original position, largely without much policy consideration, Montanans appear more recently to have taken steps to halt or reverse the trend. Whether a reversal actually occurs will depend upon the resilience of another attitudinal shift just emerging and whether it acquires the strength and persistence to support a new trend.
In the last half of the 20th century (c.1950-2000), developments within American society and the larger world drove the dramatic growth of American public higher education. Nationally, enrollments boomed from 1.2 to 11.3 million students and public higher education expenditures blossomed from $1.2 to $122.7 billion./2/ In fact, expenditures (in constant dollars) increased about 56 percent, from roughly $4,100 to $6,400 per full-time equivalent student (FTE) between 1950 and 2000, reflecting a significant commitment to public higher education./3/ As the economy shifted from the earlier resource and heavy manufacturing base to one of technology and services, and as the advent of globalization altered the international competitive framework, people and their governments came to appreciate the critical role of education for social and economic vitality./4/ Economic restructuring intensified during the decade of the 1990s and has continued into the 21st century, adding further impetus to growth in higher education enrollment as people prepared themselves for new opportunities./5/
Richard Florida has argued that the growth trend in higher education reflected the emergence of the "creative economy," using that term to bring together such labels as "the information age," "high tech economy," "internet economy," and "knowledge economy."/6/ According to Florida, "We are shifting from an economy based on physical inputs--land, capital, and labor--to an economy based on intellectual inputs, or human creativity."/7/ He argues that success in the era of the "creative economy" depends heavily upon the development "of our human creative capabilities."
With the advent of the "creative economy," those countries and states failing to nurture their educational systems either have found or will soon find themselves left behind, and those seeking to hang on to an older economy have found or will find it increasingly difficult to compete./8/ The "off-shoring" phenomena and ensuing political debates in the United States and elsewhere about an appropriate strategic response have underscored this lesson in national and regional competitiveness./9/ Higher education provides a key to economic development, whether through workforce training, technical assistance, research and development, and commercialization of new products or as magnets attracting talent and economic activity./10/ Nonetheless, while clearly a necessary component of any development strategy, higher education by itself does not suffice to assure development. Numerous case studies have examined the conjuncture of factors sufficient to foster development, and none has omitted a higher education system of high quality from the list./11/ As Florida noted in response to Tom Friedman's argument that The World is Flat, "really, the world is not flat at all. In fact, from population to production to innovation to science, the world is increasingly mountainous or spiky." A dozen or two mega-regions around the world serve as the centers or spikes, and "the distance between the spikes and the valleys...[grows] wider every day."/12/ Success in economic development depends, of course, on aligning the essential factors and following a carefully planned strategy over a period sufficient for development to occur./13/
Almost as if to test this counsel, during the 1960s and 1970s the states, having the primary policy and fiscal responsibility in the United States for public higher education, rapidly increased their support, responding to the surging demand from the baby-boom generation and the need for an educated and trained citizenry in an increasingly human-resource dominated economy./14/ As virtually all commentators agree, the strategy produced spectacular results in terms of American economic and strategic development./15/ At the beginning of the 1980s, state appropriations provided about $17.4 billion for direct academic expenditures in public higher education, while student tuition contributed about $4.9 billion--almost a four-to-one ratio. Federal funding, then and now, comes primarily in the form of student financial aid. These funds replace some of the tuition that students and their families would otherwise pay directly, and therefore appear in the accounting records as tuition revenue. Public higher education expenditures for academic programming totaled about $22 billion by 1980, with enrollments of approximately 9 million students, up significantly from the $1.2 billion and 1.2 million students in 1950./16/
Direct support for the academic programs--generally referred to as the Education and General (E&G) accounts--excludes sponsored research, sales and services, auxiliaries, donations, construction and renovation, deferred maintenance, and other ancillary funds. These excluded revenues are not fungible; thus, institutions typically cannot use them to support their instructional programs. In fact, most of the growth in public college and university budgets after 1980 has come from rising revenues in these excluded accounts and from student tuition, not from state funding. State appropriations for higher education failed to "keep pace with growth in the state economy in any state. In all states, the real Gross State Product (GSP) increased faster than higher education appropriations" from 1980 to 2003./17/ As a direct result, the portion of total public higher education E&G budgets covered by the states has declined since 1980, even as enrollments have increased.
Growth of this magnitude produced significant strains on the ability of state governments to respond, particularly in view of other increasing pressures on state revenues for health care, aging populations, infrastructure for continued economic viability, K-12 schools, public safety and corrections, natural disasters, and international crises./18/ While state higher education appropriations nationwide have grown significantly, collectively they have declined as a share of total state budgets./19/ Most observers agree that the decline reflected the understandable inclination among legislators to direct available funds to the most pressing needs, especially those for which no alternative revenue support existed. In the case of public higher education, tuition became the alternative source of revenue./20/ By 2005, states appropriated on average about 10 percent of their general operating budgets for higher education, compared to over 13 percent twenty years earlier./21/ This shift subjected public higher education to challenging financial stress, particularly during the years after 1990.
As a direct result, the financial base for public higher education E&G budgets changed radically in the years after 1980. While the federal contribution remained relatively constant, the balance of support between state appropriations and tuition shifted. These two sources together constitute the overwhelming majority of support for E&G budgets. The ratio of support in 1980 stood at roughly 78 to 22 percent, or almost four to one, state appropriations to tuition. By 2000, the balance had changed significantly--to 64 percent state appropriations and 36 percent tuition, or less than two to one; and the trend continued to 63 percent state and 37 percent tuition by 2005./22/ Moreover, these national ratios masked disparate conditions within individual states. For example, Montana presents an unusually atypical ratio, as discussed below. At the same time, higher education enrollments overall increased by some 5.7 million, with the vast majority of the students--about 3.9 million--attending public institutions./23/ In actual dollars, state support for public higher education increased to about $59 billion by 2005, more than three times the 1980 total. Tuition revenue, meanwhile, rose to $34 billion, seven times the 1980 total./24/ Further, while state dollars appropriated for higher education increased in total, the taxpayer's average investment declined from about $10.50 to less than $7.00 per $1,000 of personal income, despite rising per capita income over the same period./25/ One recent report concluded that "because enrollment in public four-year colleges and universities increased by 22 percent over the past decade (and by 38 percent between 1980-81 and 2004-05), inflation-adjusted appropriations per student were lower in 2004-05 than they have been since 1993-94. Over the 24-year period, appropriations per student grew by 9 percent after adjusting for inflation."/26/ In brief, state appropriations per student increased by roughly four-tenths of 1 percent annually for the period.
During the same period, the societal commitment so evident in the 1960s, supporting access to higher education through financial assistance, deteriorated as well./27/ Beginning with the Higher Education Act of 1965, the federal government initiated what became in 1972 the Basic Educational Opportunity Grants and then subsequently Pell Grants for students otherwise unable to afford the costs of attending college./28/ The approach reflected the successful experience of the G.I. Bill in providing educational opportunities to returning veterans after World War II./29/ The Pell grants required a means test, and they initially covered more than the average cost of tuition at public institutions. However, over time, inflation, tuition increases, and insufficient increments for the Pell Grants ultimately lowered the effective worth to the student, so that the Grants covered significantly less than the average cost of tuition by 2006./30/ As the total cost of Pell Grant funding rose concurrently with booming enrollments and higher costs, however, Congress moved increasingly toward subsidized and then unsubsidized loans as an alternative./31/ As two scholars concluded in 1995, "The strategy Congress adopted in the early 1970s of granting and lending to students rather than institutions has become the financial aid system's hallmark."/32/
By the decade of the '80s, total loan funding had exceeded grant funding, and the disparity widened during the '90s, with the result that loans accounted for $63 billion and grants for only $13 billion in 2005./33/ During those years, "the anti-poverty origins of the 1960s legislation...faded into history as eligibility for federal student aid has been extended up the economic ladder."/34/ Congress also implemented tax incentives to increase access, but the incentives assisted middle-income families rather than those with the greatest need, and the $8 billion cost of those incentives almost equaled that of grant aid by 2005./35/ Finally, institutions and states found it necessary to supplement the federal funding in order to alleviate the challenges to access./36/ Exacerbating the situation of students with need, states tended over time to accelerate the funding for merit-based aid; some commentators have argued that this development came at the expense of need-based aid./37/ Institutional aid has followed a similar trend, but remained more balanced for a time./38/ More recent reports present a radically different picture of trends in institutional aid. An Education Trust press release in 2006 announcing a comprehensive report on institutional aid noted that "between 1995 and 2003, flagship and other research-intensive universities actually decreased aid by 13 percent for students from families with an annual income of $20,000 or less, while they increased aid to students from families who make more than $100,000 by 406 percent."/39/ By 2003, the flagship state universities dedicated $257 million for students from families with incomes above $100,000 annually, an increase of more than $200 million since 1995./40/ Given these trends, experts predict that "two million qualified high school graduates from low and moderate income families will be shut out of college entirely by financial concerns," unless drastic policy changes restore the balance./41/ The policy changes envisioned would refocus the federal, state, and institutional financial aid programs on support for students with need./42/
This developmental pattern has struck many commentators as counter-intuitive. Most recognize the critical importance of a higher education system of high quality for economic development./43/ A system of high quality with limited access seems illogical in terms of the anticipated benefits. Observers have long celebrated the apparent relationship between years of college and personal income./44/ While even attending college without securing a degree makes a noteworthy difference, the lifetime earnings of a person with a bachelor's degree exceed those of a high school graduate by an estimated $1 million currently, and the earning gap continues to widen./45/ Similarly, "college graduates working full time year-round paid more than 100 percent more in federal income taxes and about 82 percent more in federal, state, and local taxes combined than...high school graduates in 2003."/46/ According to another recent analysis, the "share of federal individual income tax revenues paid by households headed by persons with college educations has grown steadily since 1970," from about 27 percent for those with bachelor's degrees in 1970 to 51 percent in 2000, and from 42 percent for those with some college to 75 percent./47/ Still another report notes that "controlling for other differences, a 1 percentage point increase in the proportion of four-year college graduates in a city increases the wages of workers without a high school diploma by 1.9 percent and...of high school graduates by 1.6 percent."/48/ Finally, those with a college education more often engage in philanthropy, participate in political and community life, save or invest, and start and own businesses, while availing themselves less often of public assistance programs or becoming incarcerated./49/
All in all, states have every reason to invest in higher education because of the obvious return on the investment to their citizenry, the positive impact on their tax receipts, and the economic, political, and social benefits of an educated citizenry. But the argument that has prevailed in recent years depicts higher education as merely a private benefit, thus deserving private rather than public support./50/ This novel and very modern perception displaced the older concept of a "social compact," referring specifically to the obligation of the current generation to educate the next./51/ Short-sighted at best, simply mistaken at worst, the persistence of this misguided thinking threatens the cultural, economic, social, and strategic well being of the United States.
Montana public higher education has led the way into the brave, new world of higher education finance in the 21st century./52/ The proportion of funding provided by states in general has shifted significantly, as noted above, but in Montana this change, while starting about mid-way through the period between 1980 and 2006, proceeded much more rapidly and precipitously. In 1989, state appropriations still accounted for about 74 percent of the E&G funding for the Montana University System (MUS). By 2000, that proportion had declined to 50 percent, and it fell to 39 percent by 2005, compared to the national average of 63 percent./53/
Most states provide financial support only for their own residents enrolled in their public institutions, since resident taxpayers provide the revenue for the state appropriations to support public higher education./54/ With exceptions largely confined to special resource-sharing initiatives or some forms of state-funded financial aid, non-resident students typically pay in tuition and fees all, and often more than, the cost of the education they receive, essentially helping to subsidize the education of resident students. Since the early 1990s, Montana has followed this approach, except for some resource sharing with other states and in programs with excess capacity, but without an explicit agreement about the portion of the cost of educating a resident student borne by the state./55/ Using a formulaic "cost-of-education" (COE) model adopted in the mid-1990s, the MUS Board of Regents allocated the biennial "lump sum" state appropriation among the several campuses largely with regard to resident student enrollments./56/ To achieve an equitable distribution among the several campuses of the System, the COE funding model established an expenditure level for each campus based on comparisons with peer groups of institutions similar in terms of program array, size, and mission. The methodology aggregated average institutional expenditures per FTE student and then used those averages as expenditure targets for the Montana institutions. State funds provided support only for resident students, with most non-residents paying the full cost, defined as the expenditure target./57/ In addition, the COE model presumed sufficient state funding to maintain tuition rates similar to the averages of the peers. Finally, although not in explicit terms, the model also presumed that resident tuition rates would float up or down based on the level of state support to assure achievement of the model's target expenditures.
During the years after the adoption of the model, however, state appropriations consistently fell short of the level necessary to maintain tuition rates at the peer institution averages. Because of concern for access, however, the Regents did not allow resident tuition to float. As a direct result, the campuses missed the target expenditures by margins that widened every year. Although during the early years the Regents limited tuition increases to reasonable amounts at the same percentage for all campuses and for nonresidents as well as residents, the increases necessary to sustain programs and access quickly surpassed the inflation rate./58/ At the same time, some campuses dropped even farther behind in their expenditures, since the actual tuition revenue left widening gaps caused by lower-than-anticipated state support, restraints on tuition increases to assure access, and rising resident enrollments.
Compounding this problem for the MUS, total tuition revenue on some campuses increased much faster because of the larger presence of non-resident students who initially paid tuition set at the expenditure targets. Because non-resident students paid 100 percent of the cost of education (as dictated by the COE model), the campuses that attracted larger numbers of non-residents had budgets with more tuition revenue, thus allowing higher expenditures per FTE for all students. While increasing initially at the same percentage as resident tuition, non-resident tuition became an increasingly important source of funding for the campuses that attracted non-residents. At the same time--as Montana campuses fell farther and farther behind both regional and national peers for expenditures per FTE student--the portion of the E&G budgets covered by state appropriations on the Montana campuses fell dramatically. By the end of the period, the Montana campuses had widely varying percentages of their E&G budgets covered by state support, with the flagship campuses in the worst position--an inevitable result of the implementation of the funding approach./59/ The campuses also had widely varying differences between their target and actual expenditures, in large part because state appropriations failed to keep pace, the Regents' policies and decisions restrained tuition increases, and enrollments continued to rise during most of the period. Simply stated, the COE model failed to provide either adequate support for or equity among the institutions, its twin primary purposes./60/
How and why did this happen? Was the COE model flawed from the outset? Was the outcome simply an inevitable result of the state failure to provide the necessary support? Were the institutions to blame for allowing expenditures to run out of control? Did the Regents contribute by refusing to allow tuition to increase sufficiently to meet needs? Or did all of these factors, plus others such as rising enrollments and cost increases beyond the control of the institutions, explain the outcome? As it happened, a complex interrelationship among various factors influenced the outcome. Analysis of this complex interrelationship helps to identify major causal factors.
Every funding model presumes a certain level of support for its implementation. If the appropriations in support of the model do not match its assumptions and expectations, it will fail. Moreover, if the policy makers implement it without attending to all its presumptions and assumptions, it will fail. The Montana COE model proved no exception to these rules. Had the state appropriations matched the need at the outset and kept pace, then the annual tuition increases could have been much lower than they actually were, thereby allowing the colleges and universities to achieve the target expenditures without excessively burdening the students. In the absence of adequate state appropriations, had the Regents allowed tuition to float as necessary to fulfill the target expenditures, the Montana institutions would have maintained more nearly adequate budgets. But the students and their families would have incurred even heavier cost shifts than actually occurred.
On the other hand, a funding model that fails to take account of fiscal reality will fail. However, fiscal reality means something different to different people. It can refer to the limited amount of tax revenue available in a state such as Montana with a small population and a large land mass. Or, it might signify the unwillingness of Montanans to pay higher taxes so as to provide the necessary state appropriations. Or, it might mean that the funding model presumed higher target expenditures than needed, even considering the comparative bases for them. Or, finally, it could impugn the policy makers for failure to secure the necessary revenue. Whatever fiscal reality signifies, the Montana COE funding model failed. However, no one or any combination of those scenarios necessarily indicates that the model did not take account of fiscal reality. Nations and states in situations similar to that of Montana during the 1980s and 1990s have reacted by making the necessary investments with very different results, as for examples North Dakota, North Carolina, and Ireland./61/
Understanding what happened in Montana requires a careful analysis of enrollments, state appropriations, tuition rates, and cost and revenue trends. Public colleges and universities have fundamentally two sources of funding to support their instructional programs: state appropriations and tuition. While student financial aid from the state and federal governments and private donors provides valuable, at times even absolutely essential, support to allow students to attend college, financial aid funds typically appear in E&G budgets as tuition income./62/ Therefore, these funds do not increase the revenue assumed on the basis of a designated number of students at predetermined tuition rates. The alternative of direct appropriations to the students, who then take the funds to their campuses of choice, changes that relationship considerably, since all or nearly all public support takes the form of tuition. However, to date, only Colorado has adopted the so-called voucher approach to public higher education finance, and then only because of unique funding circumstances in that state./63/ The efficacy of such an approach remains for experience and analysis to demonstrate. Some private funding supports endowed chairs and programs, and, thus, exerts a restraining effect on tuition increases needed to sustain the academic programs. However, endowments for other than student financial aid, because of their rarity and relatively recent establishment, had a minimal impact on the E&G budgets of public institutions in Montana during the period./64/
Some people also speculate that graduate education and externally sponsored and funded research programs impose a drain on E&G budgets and have an inflationary impact on tuition. Certainly, graduate education costs more than undergraduate education, and graduate tuition rates exceed undergraduate tuition rates for that reason./65/ However, the Montana COE model assumed similar program arrays by campus--including sponsored research programs, state support, and tuition rates by student level./66/ Moreover, externally sponsored research projects typically bring with them funds to support both the direct and indirect costs of the projects./67/ In addition, sponsored research programs provide significant opportunities for undergraduate and graduate students to engage in research and to work in laboratories equipped through sponsored research projects, and thus enhance the scope and quality of the education at no additional cost to the state or the student. Finally, most sponsored research projects support graduate students as research assistants, paying the tuition for and providing a stipend to the student. Nonetheless, since indirect cost recoveries--now referred to as facilities and administration expenses--come as reimbursements to the host institution for indirect costs incurred in the conduct of the projects, those reimbursable costs do have an impact on an institution's operating budgets. Once involved in externally sponsored and funded research, however, an institution always has the prior year's recoveries to support the ongoing expenses./68/ On balance, sponsored and funded research more than pays its way and provides essential support for graduate programs, especially at the doctoral level, as the COE model assumed./69/ No university, public or private, can support research and graduate education at the doctoral level without the assistance that comes from external funding. Montana's two flagship universities have mandates for involvement in sponsored research, not only to sustain their graduate programs, but also to contribute to economic development in the state./70/ In fact, although Montana ranks near the bottom of the fifty states in venture capital and initial public offering (IPO) activity, it ranks in the middle in both total and federal research and development activity--due almost entirely to the volume of externally sponsored and funded research the flagship universities attract./71/
In the Montana context, total enrollment in public higher education increased 39 percent between 1990 and 2006, reaching about 34,400 FTE students in Fall Semester 2005./72/ Resident enrollment rose by 34 percent to about 28,000 FTE students./73/ Residents of Montana clearly accounted for most of the FTE enrollments, from 83 percent in 1990 to 80 percent in 2006. At the same time, the state appropriations to support the education of resident students, with annual variations, went from $105.4 million in 1990 to $124 million in 2006, an increase of less than an 18 percent./74/ The average tuition rate for resident students enrolled in the MUS, meanwhile, more than tripled between 1990 and 2006./75/ As a result, the ratio in funding for the E&G budgets between state appropriations (72 percent) and tuition (28 percent) in 1990 had nearly reversed by 2006. By the latter date, state appropriations accounted for about 39 percent and tuition roughly 61 percent./76/ Once again, however, the percentages of E&G budgets covered by state appropriations varied widely by campus, with the two flagship campuses having by far the lowest percentages./77/ Maintaining the 1990 ratio would have required an increase in state funding of roughly $134 million over the period, rather than the $19 million that actually occurred. Had the appropriations increased by that amount, the required rise in tuition revenue over the period would have fallen by nearly $100 million./78/ Annual tuition increases of the resultant lower magnitudes would have paralleled more closely the inflation rate for the period./79/
This analysis identifies less-than-adequate state appropriations, combined with enrollment increases, as the major factors explaining the rapid rise in tuition. To avoid those tuition increases, the institutions faced the alternative of cutting enrollments and/or programs, thereby hindering their ability to serve the needs of Montana's people and economy. To have made that draconian choice would have denied many Montanans the opportunity to prepare for success in the "creative economy" of the 21st century. Those responsible for the viability of the institutions, usually with the support of the students themselves, opted instead for tuition increases as the means to maintain the quality of the educational programs, respond to needs, and sustain access. Thus, in the mid-1990s, students agreed to support tuition increases dedicated to fund faculty salary increases to assure the quality of the education they received./80/ In 2001, at the initiative of the Student Regent, students supported 13 percent increases for the two years of the 2003 biennium, with 1 percent of the increase each year dedicated to quality enhancement on the campuses./81/
Nonetheless, the rising cost to students and their families inevitably engendered deep and legitimate concerns about affordability for many Montanans. By 2004 and thereafter, Montana received a grade of "F" on affordability from the National Center for Policy and Higher Education in its "Measuring Up" assessments of the states./82/ Tuition increases in most other states stirred similar concerns nationally, so much so that Congress ultimately charged a special commission to study the causes and consequences./83/ The special commission concluded that the failure of states to sustain appropriations, particularly during economic downturns, explained most of the cost shifts, with rising expenditures for information technology, health care, and salaries contributing as well./84/ Undoubtedly, public colleges and universities must also assume some of the blame because of their inattention to cost controls, as the special commission and other studies have argued./85/ However, the funding available to the Montana public colleges and universities, coupled with the drive to sustain access, has resulted in an expenditure rate per student lower than all but one or two in the country, possible only by scrupulously controlling costs./86/
As most states in the Rocky Mountain region, Montana began historically with a low-tuition, low-financial-aid approach to funding public higher education./87/ During the years before the 1990s, state-funded financial aid essentially took the form of tuition waivers for designated purposes and work-study funds, primarily to match federal allocations./88/ However, as state appropriations lagged and tuition rates escalated, the older approach gave way to high-tuition, low-financial-aid, creating severe challenges for students from median income families in the state./89/ As a result, the Regents collected supporting evidence, developed a rationale, and urged the state to appropriate funds directly for student financial assistance. The Baker Grants--first labeled Montana Tuition Assistance Program (MTAP) Grants--of the mid-1990s provided some relief, but also required the recipients to contribute in order to qualify./90/ In addition, the Regents continued and subsequently modified the high school honors scholarship program./91/
While Montana residents could and did rely on federal grants and loans for assistance, the rapid rise in tuition and fees that occurred during the 1990s and into the 21st century led an undetermined but significant number of students with need to conclude that college was not for them./92/ With a high school graduation rate among the highest in the country, Montana has one of the lowest college participation rates./93/ Because of the relatively small amounts of funds appropriated during the years before 2005 for student financial aid in Montana, the inter-state comparisons revealed huge disparities for Montana residents./94/ Thus, in 2006, Montana provided $82 per FTE student in state-funded financial aid, while the states in the region provided an average of $210./95/ As a result, most students found it necessary to find employment while enrolled and reduced their credit loads accordingly. Other more serious consequences manifested themselves as well. As an example, institutional researchers at The University of Montana noted in 2005 increased Fall-to-Spring attrition among resident juniors and seniors, largely attributed to financial pressures./96/ In response, the University developed special loan and grant programs with academic criteria for participation to assist students in need./97/ Overall, the relatively low retention and graduation rates of the Montana colleges and universities attest to the persistence of this pervasive problem./98/
This funding analysis does not take into account any one-time-only funds appropriated by the state for specific purposes during the period, and also excludes the funds dedicated by the Legislature to retire General Obligation bonds issued by the state to finance the renovation or construction of campus facilities. The institutions cannot use funds provided specifically to retire bonds or for one-time-only special purposes to pay ongoing operating costs. To do so violates state law and policy. And, even if legally permissible, to resort to such expenditure practices will subject the institution doing so to insolvency. The support of known ongoing expenses requires base funding.
Nonetheless, one-time-only funds can make a critical difference. Carefully targeted uses of such funds can achieve important objectives, such as responding to deferred maintenance needs, financing equipment acquisitions, or providing for new program development./99/ In any event, leaving aside funds provided to retire bonds, the campuses received very little one-time-only funding during the period until the 2007 biennial appropriation./100/ Unless carefully identified, the presence of one-time-only funds heightens the apparent volatility of annual budgets by obscuring the special purpose uses./101/ As mentioned, less than adequate state appropriations to support ongoing operations, combined with enrollment increases and the unwillingness of the Regents and the institutions to limit access and cut programs while demand for them existed, explain the shift of the cost burden to students and their families in Montana. To restore a more appropriate balance between state appropriations and tuition revenue requires long-term re-investment in public higher education.
In September 2006, the Governor of Montana proposed to halt the trend that had shifted the balance from state appropriations to student tuition with a significant increase of state funding--an estimated $50 million--in his College Affordability Plan./102/ Under the provisions of this Plan, if fully implemented, the campuses will receive sufficient funds to pay for inflationary and salary increases for the next biennium without raising resident tuition. The Plan became possible because of the better than anticipated performance of the Montana economy, the relatively large increase in tax collections during the 2007 biennium, and the commitment of this first-term Democratic Governor to support education at all levels./103/ However, the Governor and his Budget Director have expressed serious concerns about the stability of the recent revenue windfall for the state, and have refused to consider new taxes to increase revenue./104/
As the Governor made clear in his announcement of the Plan, the effort to prevent or moderate tuition increases can in time restore a more appropriate balance between state appropriations and tuition revenue and thus assure affordability and access for more Montana resident students./105/ But since the imbalance developed over an extended period, restoring an appropriate balance will require at least two or three biennia with elevated state appropriations to the E&G bases of the public institutions as the foundation for minimal or no tuition increases. Once an appropriate balance exists, more normal inflationary adjustments to tuition, combined with student financial assistance to assure access for students with demonstrated need, can occur. In any event, this initiative has historic importance because of the effort to halt a trend that began in 1989 for public higher education financing in Montana. Since leaders of the Republican Party announced publicly during the electoral campaign of 2006 a plan to reduce tuition rates, one might tentatively envision the beginning of a new trend./106/ In time, Montana students and their families will learn from experience whether the old has given way to something new.
However, even if implemented fully, the Plan will not immediately alter the balance between state appropriations and tuition, as mentioned. For example, the 2006 E&G budgets of The University of Montana and Montana State University had roughly 35 percent support from state appropriations and 65 percent from tuition./107/ That balance will shift by at most 2 percentage points for those two institutions toward state support during the two years of the 2009 biennium. However, the balance will change considerably more for the two separately accredited Colleges of Technology and the smaller four-year campuses./108/ The Plan will have a different impact by campus because of the mix of resident and non-resident enrollments, as explained below. The differences in impact will ameliorate many of the funding challenges confronted by the smaller campuses during the years since 1995--challenges that resulted from the COE funding model and required voluntary reallocations of state-appropriated funds from Missoula and Bozeman to the smaller campuses to fend off reductions in force and programs./109/ The new approach producing this favorable outcome requires an explanation.
In detail, the new dispensation amounts to an increment-to-base funding model for the several campuses, an abrupt departure from the COE model used by the Regents to allocate the appropriated "lump sum" among the campuses./110/ Specifically, the state appropriations for the 2009 biennium will fund necessary inflationary increases, including salaries, to maintain current services for all Montana residents and Western Undergraduate Exchange (WUE) students enrolled on the MUS campuses./111/ Development of the new approach began with an agreement on definitions to calculate the increase for each campus and funding the percentage of the total increase for each campus in accordance with the percentage that resident and WUE students comprise of total FTE student enrollments during FY 2006 on that campus./112/ Non-resident tuition will have to increase on each campus by at least the percentage necessary to fund the remainder of the inflationary increases for each campus./113/ Further, the Plan provides no base funding for any enrollment increases or programmatic changes during the biennium. Those two caveats or limitations reflect the concern about authorizing base increases not clearly sustainable in the future. The Plan holds the campuses harmless from the effects of no resident tuition increases. However, contrary to some public speculation, it does not provide a "windfall" of new money, since the state funds replace the resident tuition revenue otherwise required to maintain current services for existing enrollments of resident students./114/
Over the longer term, the approach, if continued, will require some refinement in order to meet the needs of the MUS. In that regard, it seems clear that enrollments of Montana residents must increase to allow more Montanans to protect their options in a rapidly changing world so as to participate fully in the "creative economy." Currently, about one-half of the 10,000 high school seniors graduating in Montana each year go immediately to college, with some two-thirds of them attending Montana public institutions./115/ The evidence suggests that cost and the unwillingness to assume a large debt burden help to explain the low college participation rate./116/ A financial incentive program to increase participation of Montana residents by emphasizing appropriate preparation and academic success appears necessary. Other states have such programs, and the Governor has implemented a student financial aid program that has the potential when fully funded to make a significant difference for Montana families./117/ In addition, The University of Montana has a pilot project in progress that links financial assistance to academic preparedness and commitment. The University has very promising results from that program to date./118/ Developing these initiatives fully and implementing them systematically will require more base funding. In addition, the campuses and the Regents will have to implement policies and procedures to sustain the dual foci on involving more Montana high school graduates in all levels of postsecondary education while also enhancing the retention and graduation rates of the public colleges and universities./119/
As mentioned, the Plan as currently implemented assumes static enrollments. However, Montana needs more and higher performance participation in college at all levels in order to meet the challenges of the future. With adequate student financial assistance, enrollment will increase./120/ As a result, the new approach to public higher education finance will have to deal with enrollment growth, if only at the beginning of each biennium on the basis of actual numbers of residents during the preceding biennium./121/ While not optimal, since it forces the institutions to educate resident students enrolled during a biennium above the appropriated number with tuition revenue only, thereby affecting quality by reducing expenditures per student, the approach has the merit of enforcing discipline and eliminating all possibility of inflated estimates of future enrollments.
Of equal importance, the new approach must have some explicit provision to support the development of new programs. Changes in the society and economy require that the institutions respond with carefully targeted and designed programs based on identified needs. Once in place, programs pay for themselves through their enrollments. However, a new program typically requires two or more years to attain enrollment sufficient to pay the associated costs. A provision to fund prospectively any enrollment increases that occur during a biennium will resolve the long-term problem of rising enrollments, while supporting new program start-ups for one biennium with one-time-only funding will provide the critical support for initiatives of high priority until actual enrollments support sustainability.
Including features of this kind in the increment-to-base funding model will require careful planning and evaluation by the campuses and the Board of Regents to assure the integrity of the approach and the achievement of state objectives, a goal pursued by the Regents and the state policy makers during recent years./122/ In that regard, the Plan currently has within it two pools of one-time-only funds, one for equipment acquisition and the other for new programs./123/ Resolving the challenge of program development requires making the two pools of one-time-only funds into permanent components of the Plan, assuring that one of the pools has adequate funds to finance new program development, and authorizing the use of funds from both pools under clear guidelines as to purposes and outcomes set in advance by the Regents. The Regents currently have a process in place to assess needs and establish program priorities and schedules that meshes well with such an approach./124/ Thus, by periodically updating the budgeted number of resident enrollments and continuing the one-time-only pools for equipment and new program development, the new approach has the potential to initiate a new era in Montana public higher education finance.
It appears that the State of Montana has reached a crossroads with regard to funding public higher education./125/ Recent developments provide good cause for optimism about the future, but success of a new approach depends upon the experience of several biennia. As mentioned earlier, any funding model can succeed only if (1) its assumptions match reality; (2) those responsible for its implementation accept and respect its assumptions; and (3) state funding provides the support necessary to assure quality and access. In addition, those responsible must make certain that the chosen funding model responds to articulated state goals and objectives rather than to institutional equity or other concerns. Under these conditions, a new trend in financing public higher education in Montana can indeed begin.
In the final analysis, however, historic sea-changes of this magnitude and potential impact typically occur when attitudes and opinions within the surrounding society shift. Of primary importance, Americans must assign highest priority once again to educating the next generation. Other states and countries have successfully responded to the challenges involved, such as North Carolina, North Dakota, and Ireland./126/ To foster the emergence of a new attitude, the American Council on Education (ACE) has launched a national effort to revive the "social compact" that historically emphasized the generational responsibility for education in the United States./127/ Entitled "Solutions for Our Future," the ACE campaign has attracted private financing and the involvement of public colleges and universities in every state under the tag line that "American colleges and universities teach the people who solve the problems and change the world."/128/ Other individuals, groups, and organizations have launched efforts to enhance the quality and responsiveness of, as well as the support for, higher education.
In January 2006, Secretary of State Condoleezza Rice and Secretary of Education Margaret Spellings convened the U. S. President's Summit on International Education in Washington, D.C., to address the national need for broader international education and exchange efforts and critical language development./129/ Secretary of Education Margaret Spellings created and charged a Commission to report on the state of American higher education and make recommendations for improvement./130/ The Commission report ranged widely, covering topics from preparedness to timely and relevant information to accreditation to financing to student assistance to outcomes assessment for quality control./131/ The National Academies--Engineering, Medicine, Science, etc.--presented a report to Congress and the nation (under the revealing title of Rising Above the Gathering Storm) to focus attention on education--especially in science, technology, engineering, and mathematics, but including teacher preparation--in order to assure national security and competitiveness./132/ The National Association of State Universities and Land Grant Colleges (NASULGC) devoted the entire meeting for the Presidents in 2006 to the recommendations of the Spellings Commission--specifically on outcomes assessment for quality--and the National Academies' call for reform of and financial support for research and education, including teacher preparation, in the national interest./133/ Finally, the National Center on Education and the Economy published in December 2006 the report of its new Commission on the Skills of the American Workforce calling for major educational reforms and revitalization to assure national competitiveness./134/
These recent developments support the suggestion that a shift in public attitudes has occurred or will soon occur, whether sufficient to impel the process of change remains for time to tell. However, experience proves that failure to take action at the right moment typically forestalls change./135/ In the absence of change, the United States, with Montana leading the way, will find it exceedingly difficult to sustain the quality of life most Americans have come to cherish. The international comparisons indicate clearly that we have begun to lose ground among the nations of the world, educationally, economically, creatively, and strategically./136/ The daily newspapers carry reports of the atrophy of "social capital," as Robert Putnam identifies the glue that holds a society together./137/ Success in the effort to "re-invent" or re-invigorate the "social compact" requires attention to the social, economic, and strategic benefits of higher education./138/ An exclusive focus on the economic benefits narrows the perspective, as experience of the last fifty years reveals, to a seemingly inevitable but pervasive view that the private beneficiary should pay the costs. However, a broadened focus brings into view (1) the dependence of a democratic government on an educated citizenry and a civil society; and (2) the risks to national security that the lack of educated human capital entails./139/ As Howard Bowen argued so elegantly almost a half-century ago in response to the question of "who benefits from and who pays for higher education," the public--as the major beneficiary--has the obligation to pay most of the costs./140/ In analytical terms, Bowen articulated the "social compact" between generations that has made the United States the educational, social, and economic marvel of the 20th century. Whether that statement will hold for the 21st century depends on the road we, as a nation and a state, choose today.
Notes
[The Montana Professor 17.2, Spring 2007 <http://mtprof.msun.edu>]