Public Colleges as Funding Sources

Many American public universities have attempted to address funding shortages through complicated restructuring agreements.

Under such plans, like in Louisiana and like policymakers tried in New York, state legislatures give up their control over tuition and state universities get great independence to raise their own money. This may not be such great solution for students and families (for whom college just becomes more expensive) but at least such agreements are supposed to help make state universities stronger and financially stable.

It turns out it doesn’t quite work out like that. According to an article by Jack Stripling in Inside Higher Ed:

Virginia’s “restructuring” agreements, which provided select universities greater autonomy over finances in exchange for less state support, have emerged as a model that some public institutions in cash-strapped areas of the country would like to emulate. But to hear it from finance chiefs at Virginia universities now covered by restructuring, the agreements with the state haven’t been fully honored during the budget crunch.

It turns out the restructuring agreements were pretty favorable toward the state. Charles Steger, the president of Virginia Tech, points out that in many ways the state universities were still paying money to the state. As the article explains:

The state is required to make payments into the Virginia Retirement System for university employees and other public workers, but lawmakers chose this legislative session to reduce payments into the system by $620 million. …University officials assumed that the reduction in retirement contributions would translate into savings for their campuses. But that’s not what happened. The state clawed back those dollars to fill deficit holes in other areas, denying restructured universities the opportunity to use tuition and auxiliary funds for offsetting campus budget cuts, boosting financial aid offerings or investing in capital projects.

So, in effect, it seems to work like this: the state supports the colleges less generously. The colleges raise tuition to cover the difference. Then the state redirects the money toward general funds and mandatory state projects it has to fund. Colleges raise tuition but then they can’t always use that tuition to make campus improvements, fund research, or increase scholarships.

Michael Maul, associate director of Virginia’s Department of Planning and Budget, maintains that it all kind of works out in the end: “It’s sort of disingenuous argument to say we’re taking the students’ tuition money. It really helped the greater cause. It helped everybody so we wouldn’t have to cut as much.”

Ah, the greater cause. In this case, however, “the greater cause” appears to be Virginia’s budget problems. Wow, doesn’t that make everyone feel better? The state’s decision to redirect tuition to the state retirement fund is really a form of charity and sacrifice. How magnanimous of, um, the state budget department.

Daniel Luzer

Daniel Luzer is the news editor at Governing Magazine and former web editor of the Washington Monthly. Find him on Twitter: @Daniel_Luzer