George M. Dennison
President
UM-Missoula
Presented at the Governor's Conference on Higher Education, October 2002. Printed here with minor revision.
Several of the newspapers in the State have featured editorials and articles during the last few weeks that analyze the effects of the actions taken by the Governor and the Special Session of the Legislature in response to the decline in tax revenue and the need to balance the State budget./1/ For the most part, the commentators have discussed the effects without considering the context. In what follows, I will provide a context defined by a long-term trend that most Montanans--or most Americans for that matter--have not recognized or understood. The trend began nearly three decades ago and its effects have recently become apparent. I refer to the so-called privatization of public higher education that has occurred as policy makers have incrementally shifted the cost of public higher education from the State to the students and their families./2/ I will focus on this trend not to point fingers and assign blame, but because I believe it raises one of the most significant public policy issues of our time. As such, it requires the full attention and careful deliberation of the citizenry at large for resolution. A great deal hangs in the balance.
In a recent issue of the Chronicle of Higher Education, David Breneman--former President of Kalamazoo College, former Brookings Institute Fellow, and current Dean of Education of the University of Virginia--warned that this recession differs from those in the past because of its surprising intensity, likely duration, and predictable impact on higher education./3/ As he argued, the rising pressures on state finances now apparent will persist for some years, and public higher education will at last have to come to terms with the trend that has taken its toll in the health care industry, other businesses and industries, governments at all levels, and society at large. Devising strategies to assure viability in a situation severely constrained by resource scarcity will become the key to success. Down-sizing, or right-sizing, austerity, and cost control have become the watchwords. In his view, the best hope for most public institutions, especially the majority lacking extensive research infrastructure and adequate endowments, will require them to model their strategies after the successful community colleges that have adopted a just-in-time approach to academic programming and staffing and moved aggressively to exploit the efficiencies and effectiveness of information technology. Others have made similar predictions, most notably Peter Drucker, the management guru, who once described the research university as a rapidly deteriorating relic of the industrial past. According to this prognosis, failure to make the leap into the 21st century will lead to massive closures of public institutions for lack of resources.
To illustrate the point in detail, the revenue supporting private and public higher education in the United States amounted to $150.1 billion in 1998, with $64.6 billion (43%) from state and local governments, $13.7 billion (9.1%) from the federal government, and $71.8 (47.8%) from students and families./4/ The federal expenditures relate only to students and their education, not to research, technology transfer, economic development, or other such activities of a university. One student of higher education finance observed that despite the seemingly large funding base, "This is the first time since 1952 that the combined efforts of federal, state, and local taxpayers and families has produced five consecutive years of declining share of Gross Domestic Product devoted to higher education investments."/5/ Between 1993 and 1998, higher education's share of GDP went from 1.83 to 1.71 percent, a loss of $10.2 billion. More significantly, as Tom Mortenson concluded, "Since 1975 the state and local government share of the total effort has been shrinking, from about 55 percent of the total in the late 1970s to 43 percent by 1998," while the federal share has remained stable. Over the interim, states have dedicated more and more of their resources to health care and corrections to the detriment of higher education and almost all other state programs. As a result, students and their families have increased their share of the cost of higher education from about 35 percent in the late 1970s to 48 percent in the late 1990s. Between 1990 and 1998, for example, tuition and fees as a component of higher education revenue rose from $44 billion to $71.8 billion, an increase of $27.8 billion (63%), well above the inflation rate.
Scholars have identified two major periods with regard to student and family contributions toward financing higher education: 1950 to 1975 and 1975 to 1998. From 1950 until the late 1970s, the contributions of students and their families declined from some 60 percent of the total cost to just over 35 percent. During this period, a host of new public institutions emerged in response to the demand for access to higher education, and governments at all levels provided increasing support. From the late 1970s until 1998, the reverse occurred, with the contributions of students and their families going from 35.3 percent of the total cost to almost 48 percent, while the state and local contributions fell from more than 55 percent to less than 43 percent. At the same time, however, personal spending stabilized and began to decline, only to surge again after 2001. This new trend altered dramatically the historic pattern in the United States, as Mortenson concluded:
The United States started moving into the human capital economy about 1873. Since then the welfare of persons, families, cities, states, and the country...[has] been increasingly determined by the amount of postsecondary education and training in the workforce. There is now good evidence that we [Americans] are under-investing in higher education, with apparent surpluses of workers with high school educations and less, and shortages of workers with college educations or more. The shirking of the states of their historic role in financing higher education is primarily to blame for this skilled workforce shortage./6/
Whether one agrees with the conclusion matters far less than the significance of the change that has occurred. As situations change, so do rationalizations and justifications.
In my view, Breneman's dismal prospect and Mortenson's analysis rest more solidly than have other such discussions on an understanding of economic and societal developments during the last 30 years, the effects of which will impact public higher education into the next decade. The dominant trend became evident during the decade of the 1980s, gained strength during the 1990s (even if somewhat obscured by the economic prosperity induced by the dot.com bubble), and hit with full force in the year after 9/11 delayed or perhaps derailed the maturation of the so-called "new economy." In fact, as Mortenson noted, the trend originated in the late 1970s when the states began to reduce their appropriations per thousand dollars of average per capita income and to decrease the percentages of their budgets dedicated to public higher education./7/ Most people do not fully appreciate the cost shifting that occurred as a result, with student tuition rising much more rapidly than the inflation rate in order to make up for the decline in state support. In the absence of general awareness of the relationship between State support and tuition rates, the public at large misconstrues what has happened and perceives costs, or perhaps expenditures, running out of control./8/ Even more disconcerting, another trend reveals that until at least 2001 students and their families also committed a smaller portion of their incomes to higher education./9/ As a sector of the national economy, higher education lost market share during a period when need for its services increased.
If we define need as a function of economic and technological change, then clearly higher education will become even more critical to all levels of government and all people as they struggle to remain competitive in the face of the new demands of the 21st century. Luminaries such as Alan Greenspan have noted the relationships between a vibrant higher educational system and a robust economy./10/ Everyone appears to agree that higher education must play a vital part in economic and social development. However, not everyone agrees that state government must assign priority to higher education in preference to other needs when state revenues flatten or fall. In response to recessions, including the current one, state governments reduce appropriations for higher education just at the time when people need the services most and have fewer resources to finance access. These reductions explain the long-term trend mentioned earlier that will persist into the foreseeable future. The late Harold Hovey, an economist who devoted his entire professional career to analyses of state fiscal policies and expenditures, demonstrated conclusively that state revenues simply cannot grow fast enough during the next decade to sustain existing services at current levels and meet all identified needs, now expanded significantly by the emergence of homeland security concerns after 9/11./11/ With growing need and rising demand for access coupled with declining state support, can higher education fulfill its public mission?
That question strikes me as one that will require close attention during the next decade and beyond. During the 1960s and 1970s, when states appropriated a much larger share of their revenues to support higher education, the question of who benefits from and who pays for higher education typically elicited the response that the public should pay from 70 to 85 percent of the cost, with students and their families paying the remainder in tuition. Economists such as the late Howard Bowen, with most people in agreement, argued that the public should pay the majority of the cost because the public at large benefits most from an educated and engaged citizenry, a productive labor force, increased tax revenues, and the economic and cultural development stimulated by the creativity and productivity resulting from the research and training higher education provides./12/ As a trade-off in exchange for the sacrifices they make in foregone income and the dedication of savings to pay for college expenses, those who attend college receive incidental benefits in the form of higher salaries and lifetime incomes and a higher quality of life. This argument persuaded policy makers to support the public investments in higher education that sustained the growth during the 1950s, 1960s, and early 1970s.
The dominant argument varied from state to state because of historic traditions and customary practices. Along the eastern and western seaboards, the early establishment of private colleges and universities led to a pattern of state financial support for students attending those institutions as well as the public institutions. In the Rocky Mountain West with few private institutions, the state institutions kept tuition low to assure ease of access, with the result that the Rocky Mountain states had relatively low student financial assistance programs. In any event, the student contribution of 15 to 25 percent of the cost typically included financial assistance in the high tuition states and very little in the low tuition states./13/ This arrangement worked well, so long as the states and the federal government helped to keep the student contribution low. As tuition began to rise, but without corresponding increases in student financial assistance, cost shifting resulted./14/ Explaining the outcome required new thought about the relationships involved.
In the 1960s and early 1970s, the federal government became increasingly involved in assuring access to higher education. However, even in this arena the privatization trend manifested itself. Within a relatively brief period, the reliance on grants to needy students gave way to loan programs requiring students to repay the funds./15/ Moreover, as the requirements for participation in the loan programs became more permissive, the federal government imposed strict penalties on those who failed to meet their obligations. At the same time, student financial assistance began to diverge from its original purpose and mutated into various forms of tax relief for essentially the middle class rather than those without the wherewithal to attend college. As federal assistance came increasingly to resemble an entitlement program, the rationale for it lost its historic roots in the public benefits to society at large and focused more on the individual benefits derived from education. Serious scholars of student financial assistance argue persuasively for a new approach that returns the focus to the historic purpose by providing assistance only to the needy. More importantly, they insist that existing funding will suffice under such an approach./16/
Today the question of who benefits and who pays elicits a diametrically opposite response from that prevalent in the 1960s and 1970s. According to economists and the public in general, the student should pay the larger portion of the cost because the student receives the major benefits in the form of a higher salary, increased lifetime income, and better quality of life./17/ Without question, the new argument rationalizes the reality of inadequate state revenues to satisfy all needs. The pressures on state dollars have increased dramatically to attend to the rising costs of health care for an aging population, the demand for an effective penal system, the escalating needs of K-12 education in response to reform and equalization efforts, and the need to refurbish aging infrastructure such as transportation and water systems. Because higher education has an alternative funding source from tuition and fees, policy makers shift the cost to the students and explain tuition as a form of user fee. Even the student assistance programs rely on arguments relating to economic benefits to the recipients. To some extent, educators have contributed to this reversal of rationale by emphasizing the purely economic returns to the individual and neglecting the larger social benefits of higher education. How often have you heard that a college education pays because of the return on the investment made by the graduates? But what about the public benefits? What will happen if we ignore them for an extended period? What about the return on investment by the society at large? Can we sustain a vigorous democracy without an educated and engaged citizenry? What has happened to the public purpose?/18/ This nation attained its enviable world position because of the commitment to public higher education. We must find ways to continue that commitment, however we manage the finances.
The situation in Montana mirrors that in the nation. Not all states have moved in lock-step to respond to recessions. Some have sustained a portion of their investments in higher education to assist with economic restructuring and recovery. For the most part, however, the trend I described has manifested itself in one way or another in virtually all the states. For The University of Montana, these developments have required aggressive efforts to diversify the revenue streams that support the institution in the performance of its public mission in education, research, and service to benefit the people of Montana. I will illustrate the changes that have occurred by reviewing a few numbers relating to The University of Montana. With divergences in detail because of institutional differences, painting by the numbers from the other campuses presents similar pictures.
In 1992, the annual budget of the University totaled roughly $100 million, with $47 million dedicated to support the educational programs serving some 10,000 FTE students./19/ The $47 million for educational programs consisted of about $3 of State-appropriated funds for every $1 of tuition and fees. For 2003, taking account of the budget adjustments required because of the State revenue shortfall, the University will have a total budget of $255 million, with $97 million dedicated to support the educational programs that will serve about 12,000 FTE students. The $97 million consists of about $1 of State appropriations for every $2 of tuition and fees. Those who discern a trend toward what they call privatization of public higher education have this dramatic reversal in mind. In 1992, the State provided almost 34 percent of the University's overall budget for the educational programs, research, auxiliaries (such as student housing and food service), public service, and technology transfer; and supported fully 73 percent of the cost of the educational programs. In 2003, the State will provide about 14 percent of the University's total budget and only 36 percent of the support for the educational programs. As a matter of fact, despite a doubling of the University budget during the years from 1992 to 2003, the University has only $1.4 million more State dollars in 2003 than in 1992, without taking account of inflation, but with 2,000 more FTE students to educate. The budget for the educational programs more than doubled, but tuition and fees accounted for nearly 98 percent of the increase. Quite clearly, the additional revenue to fund the University has come from student tuition and fees, research and technology transfer, auxiliary services, and private support, not from the State. This kind of radical change inspired Jim Duderstadt, former President of the University of Michigan, to comment that public universities have seen their status change rapidly from state supported to state assisted and finally to state located. In recognition of an insistence upon more control as State financing declines, Duderstadt suggested state annoyed as the next stage of development./20/
I have devoted attention to this dominant national and State trend in order to explain the context for what has happened to public higher education. In a phrase made popular by science fiction writers and a few astronomers, we are not alone. What happened in Montana occurred in other states as well, although the impact in Montana appears more dramatic because of the relatively low beginning point. Because of the low level of investment historically, Montana colleges and universities have felt the impact of the privatization trend more immediately and severely./21/ In response, those responsible for public higher education in Montana have spent a great deal of time and energy during the last decade assessing the meaning of the trend and seeking ways to respond.
Comparative analysis of developments in surrounding states reveals that the State of Montana has allowed privatization to proceed well beyond what has occurred elsewhere. To illustrate the point, over the decade from 1992 to 2002, the State of Montana increased the appropriation for higher education by only 7 percent--including the amount rescinded in June and August 2002--compared to the average of 52 percent for states in the region--i.e., Colorado, Idaho, Minnesota, North Dakota, Oregon, South Dakota, Utah, Washington, and Wyoming./22/ Using the years from 1992 to 2002--before the rescissions for 2003, in order to avoid a comparison flawed by the emergency of the moment--demonstrates the validity of that observation in an institutional context./23/ In 1992, the Missoula campus relied on tuition and fees for 26.9 percent of the budget for the educational programs. The Universities of South Dakota and North Dakota alone among the comparitor institutions had a larger reliance--30.7 and 38.5 percent, respectively--while Washington State University (17.8 %), Idaho State University (14.5 %), and the Universities of Idaho (11.4 %) and Wyoming (17.9 %) had lower reliance. By 2002, the Missoula reliance had more than doubled to 57.9 percent, with only the University of North Dakota, at 40.3 percent (an increase of only 2 points), and the University of South Dakota, at 37.8 percent (an increase of only 7 points), even close. These data indicate clearly what has happened over the interim, with Montana leading the way toward privatization.
I have borrowed a term in common usage to describe a long-term trend in public higher education financing. As the foregoing discussion reveals, the burden of support has shifted in recent years from the State to the student, with an accompanying change in the rationale for public higher education. As I have used it, the privatization term refers only to the finances, not to the mission, of public higher education. Nonetheless, many commentators ask whether the institutions can sustain the larger public mission when the financing changes./24/ The challenge of fulfilling the public mission will preoccupy those in public higher education as they seek ways to deal with a changing financial base.
At least since the adoption of the Morrill Act in 1864, Americans have sought to assure access to higher education because of the larger benefits to the society in general. The benefits/pays equation initially produced an emphasis on the responsibility of the State to provide for access to an education of the highest possible quality. According to the initial argument, because the major benefits accrue to the larger society, the society has the primary responsibility to pay for higher education. More recently, the new argument for higher education has focused on the benefits to the individual, with a corresponding insistence that the individual has the responsibility to pay for it, either now or later. Without question, the reversal occurred as pressures on the state dollar increased and policy makers sought alternative funding mechanisms.
Reversing the emergent trend will involve an exercise of will by the voting public, likely to occur only if and when large numbers of people understand the consequences of a failure to act. Moreover, such a change will require committed and persistent leadership in the public and private sectors. It will not happen in six months or a year, just as the current situation developed incrementally and almost unnoticed. Other societies have confronted the challenge and succeeded. For example, a generation of Irishmen decided in the 1980s to invest in the future of Ireland and its people by paying for a higher education system to provide the education, training, research, technology transfer, and cultural outreach necessary to sustain a great society./25/ During the years after the Irish made that decision, out-migration continued as educated Irishmen sought their main chance elsewhere. Nonetheless, the Irish persisted. As one wag remarked, the Irish had the best-educated émigrés of any country in the world. In the end, the investment paid off. When the Irish economy rebounded and boomed in the 1990s, the émigrés returned to Ireland and helped in the continued development and maturation of the Irish economy.
Some years ago the National Association of State Universities and Land Grant Colleges published a brochure explaining the critical importance of great universities to great societies./26/ In paraphrase, the syllogism insists that we cannot have great societies without great universities; and that we cannot have great universities without adequate public and private support. The facts of the current situation make it plain for all to see that the time has come to redress the balance, or to devise a new approach. Failure to act places in jeopardy the future of our State and our children.
Responding to this imperative, and recognizing that the public at large has almost no awareness or understanding of the dominant trend I have described, concerned citizens in the private sector established The Alliance for Montana's Future dedicated to informing Montanans at large that public higher education represents an investment in the future, not a drain on resources./27/ Functioning as an educational organization and not as a lobbying group, and directed by representatives of business and industry in the State, the Alliance helped immensely during the recent Special Legislative Session by interacting with the policy leaders and urging them to consider the consequences of their actions in the struggle to restructure Montana's economy. With ongoing direction from the private sector, and the support of the higher education community, this educational effort will continue to make certain that all Montanans understand the critical role of higher education for the maintenance of economic and social well being.
Notes
Editorial, The Great Falls Tribune (18 Aug. 2002): 10A.[Back]
See Robert Zemsky, Gregory R. Wegner, and Maria Iannozzi, "A Perspective on Privatization," in Patrick M. Callan and Joni E. Finney, eds., Public and Private Financing of Higher Education (Phoenix: Onyx Press and American Council on Education, 1997), 74-77.[Back]
David W. Breneman, "For Colleges: This Is Not Just Another Recession," Chronicle of Higher Education, 14 June 2002, B7.[Back]
Thomas G. Mortenson, "Refinancing Higher Education: The National Income and Product Accounts," Postsecondary Education Opportunity: The Mortenson Research Seminar on Public Policy Analysis of Opportunity for Postsecondary Education (#97; July 2000): 10-16; Brian M. Roherty, "The Price of Passive Resistance in Financing Higher Education," in Callan and Finney, Public and Private Financing, 3-29; and David W. Breneman and Joni E. Finney, "The Changing Landscape: Higher Education Finance in the 1990s," in Callan and Finney, Public and Private Financing, 31-59.[Back]
Mortenson, "Refinancing," passim.[Back]
Ibid.[Back]
Ibid.[Back]
National Commission on the Cost of Higher Education, Straight Talk About College Costs and Prices: Report of the National Commission on the Cost of Higher Education (21 Jan. 1998), <http://www.acenet.edu/washington/college_costs/1998/07july/straight_talk.html>.[Back]
See Mortenson, "Refinancing," passim.[Back]
Alan Greenspan, "Special 1999 Annual Meeting: Issue of Higher Education and National Affairs," Plenary Session, ACE 81st Annual Meeting: "The Academy in Motion," Washington, D.C., 13-16 Feb. 1999.[Back]
See Harold Hovey, Can the States Afford Devolution? (New York and Washington: Brookings Institution Press, 1998), passim.[Back]
Howard Bowen, Investment in Learning: The Individual and Social Value of American Higher Education (San Francisco: Jossey-Bass, 1997), passim; and Howard Bowen, Who Benefits from Higher Education--and Who Should Pay? (Washington, D.C.: American Association for Higher Education, ERIC Clearinghouse on Higher Education, August 1972), passim.[Back]
Task Force on Financial Aid Reform, "Meeting the Challenge: Helping Montana Students Finance College: Report of the Task Force on Financial Aid Reform for the Commissioner of Higher Education, State of Montana" (1996), passim; Mario C. Martinez and Thad Nodine, "California: Financing Higher Education Amid Policy Drift" in Callan and Finney, Public and Private Financing, 96-98; Kathy Reeves Bracco and Yolanda Sanchez-Penley, "New York: Politics and the Funding of Higher Education," in Callan and Finney, Public and Private Financing, 218-222; and Breneman and Finney, "Changing Landscape," in Callan and Finney, Public and Private Financing, 48-55.[Back]
See National Commission, Straight Talk, passim.[Back]
National Center for Higher Education Statistics, "Trends in Student Borrowing: Subsidized and Unsubsidized Loans" (1999), <http://nces.ed.gov/pubs.99/condition99/indicator-42.html>.[Back]
See Michael S. McPherson and Morton Owen Schapiro, The Student Aid Game: Meeting Need and Rewarding Talent in American Higher Education (Princeton: Princeton University Press, 1998), 49-51, 135-143; Sandy Baum, Higher Education Dollars and Sense (New York: College Entrance Examination Board, 2001), passim; Francis Dummer Fisher, "More Higher Learning, But Less College," Change 19 (Jan.-Feb. 1987): 40; Frederick J. Fisher, "State Financing of Higher Education: A New Look at an Old Problem," Change 22 (Jan.-Feb. 1990): 42-56; National Commission on Responsibilities for Financing Postsecondary Education, "Making College Affordable Again: Final Report" (Washington, D.C., Feb. 1993): xv, 3-4, 6-7, 23, and passim; among others.[Back]
One can find the argument in virtually any article, speech, or report today. Few, however, comment about the public benefits. See Zemsky and Wegner, "Shaping the Future," in Callan and Finney, Public and Private Financing, 60-73.[Back]
For a discussion of this critical issue in the international context, see CHEA Institute for Research and Study of Accreditation and Quality Assurance, "International Quality Review: Values, Opportunities, and Issues," (CHEA Occasional Paper, Aug. 2002): passim, esp. 3, 5, 19, 38-39.[Back]
All data provided by the Office of Planning, Budget, and Analysis, The University of Montana-Missoula.[Back]
James Duderstadt, A University for the 21st Century (Ann Arbor: University of Michigan Press, 2000), passim.[Back]
Sandy Whitney, "Legislative Fiscal Division Report Presented to the Post-Secondary Education Policy and Budget Subcommittee," (28 Jan. 2000), passim.[Back]
See Center for the Study of Educational State Policy, Grapevine, "50 State Summary Table, 2002," (Illinois State University, 2002), passim.[Back]
See Appendices A and B prepared by the Office of Budget, Planning, and Analysis, The University of Montana-Missoula.[Back]
See Rachel Hartigan Shea, "The Students Keep on Coming: But can State Universities educate them all?" U.S. News & World Report, 23 Sept. 2002, 65-68; and Zemsky and Wegner, "Shaping the Future," in Callan and Finney, Public and Private Financing, 60-73.[Back]
Presentation at the Economic Summit, Great Falls, Montana (Aug. 2001).[Back]
Report, National Association of State Universities and Land Grant Colleges (1990), passim.[Back]
The Alliance for Montana's Future, <http://www.montanasfuture.com/higher3.html>.[Back]