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Business Officer Magazine

Katharine Lyall Looks at Funding Trends

By Ric Porreca

In this interview, Lyall explains the need for a substantive public policy debate about where these trends are taking public higher education and the probable consequences for states, the nation, and our economic future.

How do you see declining levels of public funding impacting public higher education accountability?
This is a key topic for public discussion if we are to reach realistic solutions to growing market competition. The real question is: “Accountability to whom and for what?” As public universities receive more of their revenues from non-public sources, their accountability will naturally shift to recognize the needs and demands of those sources.
For example, many research universities now receive more revenue from students and research funders than from their states. It should not surprise us that institutions are responding to student demands for more student services and more luxurious residence facilities—paid for by student fees—and are paying more attention to accountability for research results to government and private funders of research. The public, and many legislators, see this and accuse the university of misallocating its funds when, in fact, it is simply responding to those providing the funds—a natural market result.

What should states expect?
States that are providing less than 25 percent of the support for a public university can realistically expect accountability for only the functions those public dollars support. What’s needed is a clearer and more realistic specification of what the state funds are supporting and the performance goals for those funds. States that fail to recognize that they are minority shareholders in a complex enterprise will increasingly find that many university functions have been spun off to private subsidiaries, institutes, and other private non-profit entities. Interestingly, all those years that our critics claimed that higher education should run more like a business—well, they are beginning to get their wish. 

Is continued reduction in public funding inevitable?
When you look at what’s driving reduced funding—both financial and political drivers—continued funding declines are inevitable. There is growing research showing that other claims on and reductions to resources, such as Medicaid and the “tax cut and small government” mantra, which have been embraced by both parties, will continue to reduce dollars available for higher education.

What should chief business officers do to embrace or resist this trend?
Higher education must fight hard for remaining funding, make clear what is sacrificed as funding is cut, and look diligently for other resources. Part of this is keeping an eye on educational quality and managing enrollments to ensure they do not outstrip the resources necessary for quality education. 

Some believe that talking about how declines in state funding lead to greater need for private resources actually creates a self-fulfilling prophecy. 
We are already well on our way down the privatization path. Failing to talk about it and plan for it carefully will increase the chance of losing many great public universities to mediocrity, or worse. I would rather not have to answer why we stood silent while our great public universities slipped away. In many ways, we have been too good at managing the decline—making it difficult for the public to see what isn’t getting done and thereby understand the resulting implications of reduced public support. We would be much better off being upfront about the likely continuing shift to non-state resources and allowing institutions to plan more openly to deal with it.

Elected officials often view talk about the privatization of public institutions as threatening. How can we have this discussion without it becoming confrontational?
First, we can learn from states that have undertaken experiments in higher education reform, including Virginia’s charter approach, Colorado’s vouchers, and the Cornell model of half public and half private [funding], among other examples. Some states have leaders who are willing to recognize the changing market and address it realistically. Perhaps these governors could exert some influence on their colleagues in the National Governors Association or elsewhere to come to the table.
For their part, university leaders need to recognize that we have exacerbated the problem in recent years by increasing enrollments faster than available funding and being less than transparent about costs that affect tuition. The dialogue needs to focus on defining realistic common public goals and not on finger pointing about the trends.

Whenever conversation about lack of resources is raised with governing boards and legislatures, the topic of improved efficiency emerges. Is this relevant to this discussion?
Of course. An interest in being efficient is not limited to politicians. If you look at the numbers over time, you will see that higher education has been at least as efficient as private industry. We can always strive to be more efficient, but many of the options are restricted in some way by state requirements. We need to be more aggressive about seeking flexibility from state regulations where greater efficiency can be demonstrated. As an economist, I would say that if you make me a more market-driven entity, then you make efficiency my problem and focus my attention on that, not on mandated adherence to arbitrary state standards.

Is this issue primarily a state-level one?
It’s mostly a state-level debate, since public universities are creatures of their states. However, the national interest lies in ensuring that the overall capacity and quality of our higher education institutions meet the needs of the United States in the global economy. This has been done in the past through financial aid to individuals and federal support of science and technology. These are growing national demands of an increasingly mobile population and workforce. If we privatize our higher education industry or rely solely on state funding, we will surely shrink our national capacity to educate Americans for the future.

Do you think the drive for America to maintain its global competitiveness will result in a mandate for greater levels of funding for public institutions?
I doubt it, although it may shift the form of public support from funding of institutions to funding of individuals. In doing so, that may put some pressure on private businesses to finance higher education either by providing grants upfront or by paying off student loans to attract skilled employees. The United States is facing a shrinking labor force beginning in 2012. Businesses will find they have to compete more for talent and/or outsource more of their business. From a macro perspective, it may be more cost-effective to provide tax support to higher education rather than create labor-cost stress on individual businesses.

Where do you think we are in the evolution of this issue, and in what direction might this issue turn?
I'd say we’re over the early stages of recognizing the privatization pressures on higher education and perhaps entering a middle phase where more observers are willing to think creatively about solutions. Even so, I expect we have a way to go and may take another decade or so to evolve practical outcomes that are stable in the sense of being sustainable under future fiscal conditions.

How are role and mission impacted by this change in the economic model of public higher education?
Most higher education leaders and faculty carry a personal commitment to the public benefits of higher education; and we strain to continue providing access, outreach, and public service despite falling public support. But the practical limits of this are appearing. Universities are now defining which parts of their public mission they can continue and which they must abandon. It would be good to have public dialogue about these choices, but it has proven very difficult to do this in many states. I think we will find our way to a new definition of our public mission by subtraction—that is, by eliminating services and seeing who complains and how loudly.

RIC PORRECA is senior vice chancellor of the University of Colorado at Boulder and is chair of NACUBO’s Research Universities Council.