Big Ten schools searching for a way to balance cost and quality

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A decade of debilitating cuts in state support has left the University of Minnesota to deal with late-1990’s funding levels while paying for 21st century costs.

With two dissenters, the Board of Regents approved a budget in June that gave the University the third-highest tuition among public Big Ten schools for incoming resident students. The regents called the situation “dismal.”

State funding is projected to account for less than 15 percent of the University of Minnesota’s 2011-12 overall revenues, but the figure is far from being the lowest among Big Ten schools. Penn State University and the University of Michigan received 7.9 and 6.2 percent of their revenues from their respective states. The median for the Big Ten as a whole (excluding Northwestern University, a private institution) is now about 15 percent.

One by one, public Big Ten schools have become a statistic in a national trend as higher education funding from states hits its lowest point in decades.

See interactive graphics here: http://www.mndaily.com/interactive-graphic/2011/08/02/big-ten-revenue-tuition

“We’ve seen unprecedented cuts in the last couple of years,” said William Doyle, a higher education analyst. Even at schools like the University of Nebraska, which, unlike many of its peers, receives more state money today than it did five years ago, funding is now on a downward slope.

The problem is figuring out how to deal with it in the long term.

A hole to fill

Higher education funding has always been a rollercoaster that follows states’ economic trends.

But in the past, schools had the option of a “wait-and-see approach” for state funding to make up for the cuts in following years — something that takes longer now, said Jennifer Delaney, educational policy assistant professor at the University of Illinois, who studies state funding recovery trends for higher education with Doyle.

“Currently, the length of time for recovery is 10 years or more in many states — and that’s kind of scary,” Delaney said. “The length of time has gotten so long that there’s some question of whether it can really count as a recovery.”

And even with the state funding becoming a smaller fraction of schools’ budgets, the state funding cuts are in millions, she said.

In response to less state money, states can either raise revenues or cut costs. Most favor a mix.

The University of Minnesota has an ongoing strategy to increase efficiency by cutting costs — from facilities management to class scheduling. Other schools follow a similar path with initiatives like Purdue University’s “Sustaining New Synergies”, which outlines cost-cutting measures like early retirement plans and changes to medical benefits. The University of Minnesota implemented a similar plan just a month ago when it approved shifting some retirement costs from the school to the employees.

The University of Illinois made reductions through administrative cuts, a salary freeze and a number of furloughs, said Sandy Street, the school’s director of budget planning and analysis. Ohio State University‘s administrative cuts allowed the school to keep tuition leveled for a number of years, said spokeswoman Amy Murray.

In a more severe case, Indiana University lost all its state funding for facilities upkeep. In response, the school deferred maintenance on its facilities and imposed a temporary fee of $90 per semester for full-time students on top of tuition to go toward urgent needs.

And while every school is quick to point out its efforts to increase efficiency, all recognize there’s a certain limit to cuts before quality takes a hit.

“The challenge is, you can’t just cut and cut and cut forever,” said Mark Land, Indiana University’s spokesman. “You have to create an organization that’s as efficient as possible, but we’re not going to do things that are going to sacrifice the academic mission or the academic quality of the university.”

Demand for higher education has grown to the point that the highest percentage of high school graduates are going to college, said Tom Mortenson, a higher education policy analyst. Universities are not interested in cutting services.

Instead, he said, the schools are doing what private institutions have always done — raising tuition.

To cope with the gap left from decreasing state funds, the University of Minnesota’s latest hike put average tuition and fees for resident students at about $13,060 for the 2011-12 academic year. Only Penn State and the University of Illinois have higher tuition among public Big Ten universities.

Some schools, like the University of Iowa, are also raising tuition revenue by aiming to increase out-of-state enrollment. In 2011, almost 35 percent of Iowa’s students came from other states.

Schools have other sources of revenue, like donations and research funding. Many have doubled their efforts to attract outside grants. Penn State is in the midst of a fundraising campaign, spokeswoman Annemarie Mountz said. Meanwhile, Land, Indiana University’s spokesman, said the school has just completed its most successful fundraising year ever.

But donations are limited elsewhere, and grants are often earmarked for specific purposes. The University of Minnesota, for instance, received roughly $600 million in “sponsored funds” for the upcoming year — all of that money will go to research projects and cannot be used to alleviate any budget shortfalls.

So while the University of Minnesota’s overall budget grew by roughly a billion dollars in the past decade, there was little opportunity to move money around to make up for a loss of state funds, said Julie Tonneson, University of Minnesota’s vice president for budget and finance.

But tuition can be used at a school’s discretion as a more flexible and reliable source of revenue than the state, Tonneson said.

“We don’t know what the state is going to do. We try to project, to forecast,” Tonneson said, “but beyond two years it’s difficult to do that with any accuracy.”

“The difficulty is how low you want to say the funding is going to go — it becomes a political judgment.”

Doing less is more

Experts say higher education is one of the few discretionary parts left in states’ budgets. Schools can raise revenue from other sources, like tuition, and their funding is not part of states’ or the federal constitution — which are prioritized when it comes to funding.

Sen. Sandra Pappas, DFL-St. Paul, a long-time member and former chairwoman of the state Senate Higher Education Committee, said reversing state funding to higher levels would take four to six years.

“My hope is that we could reverse this in the next couple biennium budgets, but it really depends on who’s in charge,” she said. She cast blame on the Legislature’s Republican majority for the University of Minnesota’s financial troubles.

But Mortenson, who studied higher education policy for more than 40 years and began his career as an analyst at the University of Minnesota, said that on the national level, the cuts do not seem particularly partisan. Schools are a common target for states in fiscal woes, he said.

The reality is that states had trouble keeping up with school spending for a while, said Doyle, who is an assistant professor of higher education at Vanderbilt University.. Even as the states raised support levels, the schools would increase spending.

“Higher education has been kind of like health care — we’ve had this cost spiral where every year it gets more expensive to offer a higher education,” Doyle said.

“You have to pay highly-qualified people — [for] the professors, to offer the classes — and anything you do to change that hurts quality.”

The big question, Doyle said, becomes: Can a school offer the same quality of education with less money?

He said the three big factors in educational economics are cost, quality and access. Changing one prong impacts the other two.

For example, by raising tuition to deal with funding decreases, schools are making themselves less accessible to students. Many are attempting to balance tuition hikes with increased student aid. The University of Nebraska, for example, has raised financial aid proportionally to tuition increases.

The University of Minnesota has also put a sizable chunk of money into student aid, doubling scholarship awards and increasing the amount of aid per student over the past decade — something former President Bob Bruininks often brought up amid testy budget discussions.

But putting more money into financial aid to help low-income students requires larger tuition increases overall, said Peter Radcliffe, executive director of planning and analysis at the University of Minnesota. Private institutions have used the student aid cushioning model for some time, but it’s fairly new to public schools.

Larger tuition increases, however, may actually increase the time it takes the state to reverse its cuts because it appears the schools are generating more cash, Delaney said.

It’s been hard for schools to look for creative solutions, Doyle said, because they had only been thrust into a reactive mode.

Until there is more predictable policy, schools must play it by ear.

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