Fund Higher Education Adequately

The fact that revenue is scarce is hardly a new problem for government; there never has been enough money to do all the good things that could be done. And the scarcity of revenue here pales in comparison to that experienced by other governments throughout the world. But the current situation seems to be serious for higher education for several reasons. First, there appears finally to be a commitment to balance the federal budget or at least to reduce the federal deficit substantially. Second, several of the major targets for federal budget-cutting are social programs that Washington will pass to the states in whole or in part. These include welfare and health care programs, of course, but they also may include responsibility for student financial aid, medical education, and a host of other activities. Third and finally, the American people show a strong disinclination to continue supporting governments at their current levels. In this phase of our public life, "big government" is in the doghouse. Political opportunists seek their own advancement by bashing government whenever they can, including public colleges and universities.

So, in Virginia we find ourselves with modest revenues from modest taxes, and with government expenditures that are increasing faster than the revenues. Among the "mandatory" expenditures are elementary and secondary education, Medicaid, and prisons and jails. Among the "desirable" expenditures, alas, are higher education and a number of other activities that help to define a civilized society. Higher education's share of the state's general fund revenues is lower today than it was in 1977, a trend which even an occasional good year does not alter.

In fact, Virginia's needs exceed its revenues. Were it not for windfalls of various sorts, the state would not have enough money to provide the services Virginians apparently want. Non-tax revenue has been used for almost a decade to pay for new or expanded services, beginning in 1988 with the use of lottery profits to support capital outlay. Then, during the recession, the lottery profits were used to support state government operations, and the only source of revenue for capital outlay became bonded indebtedness. Now we have about reached the self-imposed limit of our debt capacity. This well, too, is dry for the foreseeable future.

In preparing the budget for 1996-98, the Governor and General Assembly relied upon a one-time payment by Trigon Blue Cross-Blue Shield in return for letting it become a stock-holder's corporation. The money offered up by Trigon came very close to being the amount of new money appropriated to Virginia higher education. What will happen next year and the year after that?

It is easy to trace the diminishing level of support for Virginia higher education. In 1977, the system's share of the state's general fund revenue was 14.4 percent; by 1997 it has dropped to 11.7 percent.

In 1987, I reported that faculty salaries, adjusted for inflation, had increased by more than $5000 in the previous decade (unadjusted, they had more than doubled). But in the past ten years the inflation-adjusted increase has slowed considerably, so our faculty have gained only about $1700.

Most telling are Virginia's standing among the states in funding per student and the extent to which the costs of higher education have been shifted to students and their families. In 1995, Virginia ranked 44th in funding per student, ahead of only Louisiana and West Virginia among the southern states. In 1987, we ranked 27th.

The responsibility for supporting the colleges and universities has been shifted to students and their families because, with less state support, there was nowhere else to go for money. Tuition has become a user-tax on people investing in the future, their own and their children's.

About 20 years ago, Virginia adopted a policy that required the colleges and universities to generate about one-third of their operating revenues for their main educational activities from tuition; the state would provide the remainder. That policy, refined as the system of higher education evolved, was in force until the recession of the early 1990s. Then, as state support was slashed over a period of three years, the colleges and universities sought and were given authority to increase tuition in order to stay afloat. The state provided major increases in student financial aid to help those who simply could not pay the higher prices. But today, slightly less than half of the operating revenues for the main educational activities come from tuition and fees.

From a financial perspective, we probably saved the colleges and universities from disaster by moving quickly to replace the lost state support. It may have been the right decision in a bad situation. But it was not good public policy, and we shall live with its consequences for some time to come. The high tuitions have fueled a widely held perception that higher education is a private rather than a public good. From a consumer standpoint, it is viewed as a service purchased at a high price, with no resulting social or ethical obligation to the recipient. No matter that half the costs of college education still are subsidized by the taxes of citizens, many of whom will never participate in higher education themselves. The notion of higher education as a public good, as one of the cohesive elements that holds society together, is largely discounted today.

Many of the new ideas for funding higher education propose to give money to students rather than to institutions. This, too, may be partly the result of high prices and the evolution of students into consumers. It also may reflect the popular mistrust of institutions in general and of public institutions in particular. The arguments for "vouchers" at the elementary and secondary school levels imply that parents either know best what kind of schooling to choose for their children or, if they do not, should bear the consequences of their own poor choices. But here again the notion of education as a private rather than a public good is implicit.

Some new higher education funding programs give money directly to students regardless of their financial circumstances and based upon average-or-better high school performance; the "HOPE Scholarships" offered by the state of Georgia are a good example. Other programs offer tax benefits, sometimes based upon need (as are the tax rebates and credits proposed by President Clinton during the 1996 campaign) and sometimes not (as is the benefit that results from buying a contract in the Virginia Prepaid Educational Program). Except for those that are based upon financial need, the programs tend mostly to benefit students and families with middle- and upper-level incomes, who are likely to have better academic preparation and grades.

Shifting money for higher education from institutions to students is tempting. But I think that the people of Virginia trust their colleges and universities more than their elected representatives may assume. And shifting support away from them to students is wasteful because too much of the money may go to students whose families can and do pay the cost of attending Virginia institutions. It may channel money away from the neediest students at a time when the state's appropriation for financial aid for needy students is only about one-third of what it should be.

Giving money to students does not increase the base funding of the colleges and universities, which is insufficient. Since 1977, higher education's portion of the state's general fund budget has declined. From the academic year 1988-89 to 1997-98, state funding per student has declined by 19 percent in constant dollars. The instructional programs of the institutions have been supported increasingly by tuition and fees. Providing subsidies to individuals across the board, without regard for ability to pay, is a luxury Virginia cannot afford under present conditions.

Let's put some numbers on the table. In the academic year 1995-96, North Carolina provided $5,874 in state support for each full-time-equivalent student in its colleges and universities. Virginia provided $3,736. To match North Carolina's support, Virginia would have to increase its funding for higher education by more than $460 million per year!

To match Tennessee's support, which places it 25th among the states, Virginia would have to add about $220 million per year. To match Maryland, we'd need to add just slightly less.

Speaking to a group of Virginia business leaders last year, Mark Musick, president of the Southern Regional Education Board, said that, considering the state's low level of funding for higher education, Virginia has better colleges and universities than it deserves. He is right. We cannot maintain faculties that are substantially better than average, for example, with salaries that are substantially lower than average. In the long run, we will get what we pay for.

When Virginia decides that higher education is, in fact, critical to the state's continued economic development as well as to the ability of its citizens to lead good lives, its elected officials will see the wisdom of supporting colleges and universities at least as well as they did in 1987 (that is, about as well as Maryland does). We then should consider additional forms of tuition subsidy for all Virginians. Now, when state financial aid for low-income students is only about one-third of what is needed, and state support for colleges and universities places Virginia 44th among the states, the state should support its institutions adequately and provide financial aid for the needy among our citizens.

Leave Politics at the Door

Twenty Years of Higher Education in Virginia