The Tuition is Too Damn High, Part IV — How important are state higher ed cuts?

August 29, 2013

Arizona Gov. Jan Brewer, who has presided over the most draconian cuts to state college and university budgets in the nation. (Ross D. Franklin/Associated Press)

After voting to approve yet another tuition increase in 2011, University of California regent Bonnie Reiss lamented, "Faced with enormous financial cuts forced on us by political leaders, we only have a handful of options open to us, and all are horrible options.” Andrea Newman, a regent at the University of Michigan, agrees. Justifying her vote for higher tuition, Newman explained, “The budget cuts passed by the legislature are impossible to make up otherwise.”

The budget cuts are real. Some states, such as Arizona and New Hampshire, have cut as much of 50 percent of their per-student state spending on education since the financial crisis hit, according to a report by the Center for Budget and Policy Priorities:


So what’s driving these budget cuts, as a political matter? Well, for one thing every state but Vermont is required by its constitution to balance its budget every year. That means that in recessions, when tax revenues fall and payouts of social welfare programs like Medicaid and TANF increase, states have to cut something or raise taxes to make up the difference.

And they’ve chosen to cut higher education. It makes sense. Tax increases are politically unpopular. Other programs, like Medicaid, have already been cut nearly to the bone; indeed, the significant health care costs involved in higher education make it among the more attractive options for health care cuts. Cutting higher education spending, which is often a subsidy to middle class families at the expense of upper-income and lower-income ones, is a logical option in that environment -- particularly because you can just raise tuition on higher-income students to offset it.

As we discussed in yesterday’s installment, this is basically the entire story of what’s happened to tuition increases at most public schools. At community colleges, states pulled support and the schools responded by cutting spending and jacking up tuition to make up the difference. For public bachelor’s and master’s colleges, spending cuts didn’t materialize, meaning that reductions in state support were made up for almost entirely through tuition increases.

The story is different at public research universities like Reiss’s University of California. Their revenue actually increased from 2000 to 2010. It increased a lot, in fact: 17.6 percent over that 10-year period, after adjusting for inflation. It dipped a bit in 2008 and 2009, but by 2010 it was above its 2007 level.

And while some of the money is earmarked for specific purposes, that doesn't change the fact that money is fungible. As Burton Weisbrod, Jeffrey Ballou, and Evelyn Asch write in Mission and Money, "A gift that is restricted, or 'earmarked' for, say, financial aid to able but needy students would not be restrictive at all if the school could simply substitute the gift for aid it would have given anyway, thereby releasing those funds for any other purpose." Revenue is revenue, and revenue at public research universities is up. The recession is no excuse here.

Here’s the trick: In 2000, tuition made up 16.6 percent of public research universities’ revenue. In 2010, that was up to 22.2 percent. There’s no doubt that students are paying more. The question is why.

State budget cuts didn’t make those colleges increase their overall revenue by 17.6 percent. In fact, if schools had frozen tuition at the 2000 level, they still would have seen revenue rise by 8 percent (again, after adjusting for inflation) by 2010 simply due to increased federal aid and money coming in from university-affiliated hospitals. But that wasn’t enough for the universities. So they increased tuition, too, to enable them to increase spending by twice as much the existing revenue increases would have let them do.

Whether that spending increase is justifiable is a question we’ll return to. For now, it suffices to say that it just isn’t the case that state budget cuts alone necessitated tuition increases at research universities. The only thing that necessitated those hikes was the college and university systems’ desire to increase spending by 17.6 percent rather than 8 percent.

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