New ways to fund higher ed: in several states, legislators are taking advantage of the changing economy to consider new options for funding higher education.

Bell, Julie Davis

It's almost as predictable as the swallows returning to Capistrano. Every l0 years or so when state fiscal conditions tighten up, legislatures cut higher education to help balance their budgets.

Sixteen pared that line item during FY 2003. At least 30 states cut higher education for FY 2004.

States spend between 8 percent and 15 percent of their budgets on colleges and universities, making it the third largest slice of the budget pie, after K-12 education and Medicaid. What makes it a relatively easy target for cuts is that universities and colleges can make up for the losses in other ways--primarily by raising tuition. Nearly every state has raised tuition for 2003-2004. Arizona, California, Iowa, New York and Oklahoma have increased tuition 20 percent or more.

BOOM AND BUST

It's the "boom and bust" phenomenon. Some years, tuition increases are in the double digits. Other years, they are at zero or even rolled back. During healthy economic times, legislatures reinvest money in higher education. States spent some $63 billion in 2002 (not including an additional $5 billion on state financial aid), an increase of more than 60 percent from the beginning of the 1990s.

Over the last 20 years, however, the burden of paying for college has shifted from state government to students. The relationship among states, colleges and students is changing. Institutions receive funding from many sources other than tuition, including appropriations, grants and student financial aid from state and local governments; research and other grants from the federal government; and donations and gifts from the private sector. In 1980, 45 percent of total institution revenues came from state appropriations and 13 percent from tuition. By 1997, state funding accounted for 36 percent of institution revenues, and tuition for 19 percent.

The constant ebb and flow of state support raises havoc with students, as well as institutions. What's hardest is that tuition increases often come during times of economic downturn, precisely when students and families can least afford to pay more.

"Tuition increases are hitting schools and students at a particularly bad time," says Pat Callan, president of the National Center for Public Policy and Higher Education. "We've never had a recession before when the number of high school graduates is increasing. In 2009, we will graduate the largest high school class in history," he says.

And with most of the enrollment growth in states with high child poverty rates, such as California, Texas and Florida, raising tuition will hurt more students who are least likely to be able to afford it, Callan says. "Legislators need to be careful about passing off state budget shortfalls to these students.

Are state legislators, universities, students and families doomed to this boom and bust cycle? Or is there a different way to manage funding? In several states, legislators are taking advantage of the changing economy to consider new options.

COLORADO LOOKS AT VOUCHERS

Colorado legislators considered funding students rather than institutions this session. The bill didn't pass, but sponsor Representative Keith King says the idea will be back in 2004.

After passing a statewide K-12 voucher law, lawmakers looked at a similar system for Colorado's colleges and universities. Instead of appropriating money to individual universities, the state would set up an account for students called a "college opportunity savings account." Every undergraduate student would receive an estimated $3,200 a year, to spend at any two- or four-year state supported institution. Graduate students would receive $6,756. Students would choose which college receives their allocation of state money, rather than institutions receiving a lump sum from the state every year.

King proposed the higher education voucher system as a way to increase access to higher education, specifically for minority students. "In Colorado, a large percentage of students are dropping out of high school and not going to college. This is especially true for Hispanic males," he says.

"We also hoped this program would show prospective students how much the state is investing in their education," says King. Savings accounts would help students feel more in control of their futures and let them know that a college education is within their grasp, he says.

The problem is that while the vouchers would save the state considerable money, it may cost some students considerably more.

That's because the state now gives colleges and universities different per pupil amounts. Where state aid is higher than the proposed $3,200 voucher, students would have to make up the difference. For example, students at Metropolitan State College of Denver would pay nothing extra, but those at the University of Colorado at Boulder and Adams State College would have to come up with an extra $1,700 to $1,800.

Jana Everett, associate dean for the College of Arts and Sciences at the University of Colorado at Denver, says that college vouchers have potential, but the amount would be key. "State universities worry about the level of funding and how that funding may change over time."

Another concern is that vouchers would fundamentally change the relationship between the state and higher education.

"After more than 20 years of state control, higher education vouchers shift the balance from the state to the student," says Travis Reindl, director of state policy analysis for the American Association of State Colleges and Universities. "The surest way that the voucher plan would fail is by underfunding students."

Reindl says that if this type of legislation moves forward, there needs to be a degree of flexibility in order for different institutions to adjust to unexpected tribulations. "If this bill is passed in the future, the state must be prepared to make changes as needed. These policies will affect populations and institutions differently. You cannot look only at one monolithic group," he says.

Some college officials favored the voucher plan because of its potential to free the schools from constitutional restrictions on raising tuition. A 1992 Colorado voter initiative, the TABOR (tax payer bill of rights) Amendment, prevents schools from increasing tuition and fees at a rate faster than population growth or inflation. With money going directly to students rather than institutions, 2colleges and universities might have more control and flexibility over tuition levels.

"College presidents helped shape the concept because we understand that the time has come to take some bold new steps in higher education," says University of Colorado President Betsy Hoffman. "My feeling is that when we're raising most of the money to run this institution, we need the flexibility to price our tuition at the market rate."

Why didn't the plan pass? Some legislators believed the bill would have created expensive entitlements. Others felt that the program was not comprehensive enough because it provided a stipend for only 140 credit hours, equal to four years of college. This amount does not leave any flexibility for students who change their major or want to complete a double bachelor's degree.

ILLINOIS TAKES CONTROL

Illinois passed a new law that takes a different approach. Instead of considering greater flexibility, legislators are tightening controls. With support from newly elected Governor Rod Blagojevich, lawmakers are stressing accountability, accountability and more accountability through a comprehensive higher education reform package requiring line item appropriations and tuition guarantees.

The new law requires universities to submit line item budgets for approval by the legislature and the governor. The General Assembly currently makes lump sum appropriations to each school. Higher education budgets have grown considerably over the last few years. For the University of Illinois alone, the state appropriation is $829 million for the 2004-2005 school year.

Senate sponsor Miguel del Valle says the law gives a clearer picture of where tuition and tax dollars are being allocated and holds schools more accountable. "The governor and I agreed that public universities should spell out how public money is being spent," says del Valle. "Given the pressure of tuition increases and the escalating cost of higher education, there cannot be accountability if there is not budgetary information."

Steve Rugg, vice president of administration at the University of Illinois, agrees. "Returning to line item appropriations provides reassurance to the General Assembly and represents a full accountability for the spending of scarce state resources," he says.

Others are more wary of the increased control of the state over college budgets. Terry McLennand, assistant director for state relations at the University of Illinois, says that the governor's office is removed from the day-to-day operations of the universities. And when the legislators examine the budget, he says, "Do they really know what they will be moving around?"

The second component of the state's higher education reform, called "truth in tuition," aims to stem rising tuition costs. Between 1974 and 1995, any student who entered a public college or university in Illinois found his or her tuition increased 20 percent from freshman to senior year. For example, in 2000-2001 tuition was $4,994 at the University of Illinois at Urbana-Champaign. This year, students are paying $7,010 or an increase of $2,016 or 71 percent from three years ago.

The new law requires that students be given a set rate for tuition for four years of college. For example, students paying $125 a credit hour their freshman year will still be paying that amount their senior year.

"We want to provide a degree of certainty, especially in these times of uncertainty," says Representative Kevin Joyce who introduced the legislation.

After months of research, Joyce began formulating this idea during his election campaign. As a high school football and wrestling coach, Joyce saw many of his former students dropping out of college when rates went up. Their savings couldn't match the price fluctuations, so students were forced to take a year off to work.

Providing an affordable college education became his top priority. "We can now tell you what it is going to cost to educate a child. Families need a sense of consistency and predictability," Joyce says.

The universities are pleased with this new proposal. McLennand says that students will be "paying a little more at the beginning of their college career and less at the end of it." The first year the legislation is implemented, he says that freshman may see their tuition frontloaded by 14 percent to make up for the loss in tuition revenue during their four years. In the years following, each incoming class is expected to see at least a 3 percent increase in their tuition. McLennand says these numbers are subject to change however, and ultimately will be determined by the economy and state appropriations.

TUITION "FLEXIBILITY" IN TEXAS

Higher education is a complex issue in Texas. Not only does the state operate the second largest system of public colleges and universities in the country, but it also has an elaborate method for setting tuition at its 50 community colleges and 35 public four-year institutions. Tuition is broken into two components: state-mandated and designated. Added together, they comprise the cost of a credit hour and ultimately the cost of a student's tuition. Both facets of the tuition puzzle, however, are determined by separate mechanisms.

State-mandated tuition was passed by the Legislature in 1997 and dictates a $2 increase per semester credit hour every year until it caps at $50. This fall, state-mandated tuition will be $46 a credit hour.

Under the watchful eye of the Legislature, the board of regents of each college has the power to control designated or "university authorized tuition." In the past, the Legislature required that it not be higher than the state-mandated portion, thus limiting their tuition-increasing power to $2 a year. State-mandated and designated tuition are then added together to determine the full cost of a credit hour.

This session, after cutting millions from higher education appropriations, the Legislature passed a bill sponsored by Senator Florence Shapiro to allow each board of regents to freely control the rate of designated tuition. Essentially, this gives universities flexibility to control one-half of the cost of tuition and raise fees to make up for budget shortfalls.

Shapiro says the economic downturn made it impossible for the state to fund higher education at the level needed. "This bill was precipitated by a lack of money in the state budget. The state was not able to fund higher education at an adequate level," she says.

Senator Royce West added an additional stipulation to the tuition deregulation bill that will create a legislative oversight committee to monitor a college or university's performance in areas such as academic success, enrollment growth, graduation rate, affordability and diversity of students. The committee will make sure the board of regents doesn't raise tuition too quickly and risk compromising the goals of the university and Legislature (such as higher enrollment and greater affordability).

"We need to move toward this cautiously. We do not want to create Nieman Marcus institutions of higher education that students cannot afford. The legislative oversight committee will hold these institutions accountable," says West.

Texas Commissioner of Higher Education Don Brown is optimistic, but cautious, about the reforms. "If you open up the flexibility too fast, tuition and fees become the spigot for additional revenues."

Lara Couturier of the Futures Project studying higher education reform suggests that a well-designed tradeoff between autonomy and accountability can benefit the state, the institutions, and students. "The tradeoff between autonomy and accountability leaves all parties feeling that they got something out of the deal. Academic leaders get autonomy and political leaders gain leverage for reinforcing public needs. Most importantly this relationship creates the conditions for a higher education system that is flexible, entrepreneurial, customized, accountable, and able to meet the state's needs."

THE TRADEOFFS

Other states are experimenting with tradeoffs between specific institutions. In 2002, Oregon public universities developed what they informally call "the Deal"--greater flexibility for the universities in return for stable funding from the state. As part of the deal, the universities will report to the state performance in areas such as enrollments, research, graduation rates and costs.

In 1999, the Maryland General Assembly voted to make the University System of Maryland a public corporation. The 13 institutions of the system were freed from many state reporting requirements and were given, in particular, more freedom to create new programs. In return, the state loosened its control of universities' budgets and missions.

Maryland is also one of three states to approve a "charter" college. St. Mary's College of Maryland negotiated a lump-sum budget and freedom from most state regulations, including more control over areas such as employment and procurement. In return, St. Mary's agreed to recycle a portion of new tuition revenues into need-based aid, take responsibility for more external fundraising and accept a cap on state support.

In 2001, the Colorado legislature granted "exemplary" status to the Colorado School of Mines. This gave Mines a lump-sum budget and more control over tuition and academic programs in return for a performance agreement. Performance criteria include graduation rates, satisfaction surveys from employers, transfer agreements with community colleges, and pass rates on the fundamentals of engineering examination.

The latest charter college is the Massachusetts College of Art. This year Massachusetts and the college created a five-year trial partnership. In return for reduced, but regular, funding levels, Massachusetts College of Art will have the flexibility to set tuition. The college pledges to keep tuition affordable and accessible; seek out ways to save on cost-saving activities; expand graduate and continuing education programs; and strengthen its public fundraising.

MAKING HIGHER ED MORE EFFICIENT

So what are state legislators to do? Callan says that lawmakers need to look at how to make higher education more efficient. "By using the same old responses, we may jeopardize long-term opportunity by our short-term budget decisions. You can't solve efficiency and productivity with appropriations and tuition policy."

Legislators need to ask colleges and universities what they can do to cut costs. Still, Callan says we should applaud Colorado and other states for looking at new ideas. "The voucher isn't a panacea, but it's one of the more interesting ideas coming forward," he says. "As in all policy, the devil is in the details."

Callan also says legislators must not forget community colleges. "Make sure the education 'safety net' stays in place. Everybody needs a place to go. Legislators can create opportunities for universities to better collaborate with community colleges to make transfer easier."

Couturier adds, "It is critical that, in the negotiations between the institutions and the state, the legislature make its expectations very clear. Academic presidents often feel that the legislature sends mixed and contradictory signals. Past research has shown that states that make their expectations clear receive better performance from their institutions.

"Use the hard times to create a long-term policy agenda," he says.

REPRESENTATIVE

KEITH KING

COLORADO

SENATE SPONSOR

MIGUEL DEL VALLE

ILLINOIS

REPRESENTATIVE

KEVIN JOYCE

ILLINOIS

SENATOR

FLORENCE SHAPIRO

TEXAS

SENATOR

ROYCE WEST

TEXAS

Christine Walton tracks higher education issues for NCSL. Julie Davis Bell heads NCSL's Education Program.