Chairman of the University System of Maryland James Brady and Chancellor Robert Caret at a legislative hearing in Annapolis on Aug. 25, 2016.  (Photo by Linda Davidson / The Washington Post)

Robert L. Caret left Massachusetts, where he had served as president of the five-campus state system, a year ago to lead a network of universities twice that size. Caret started his tenure as Maryland’s new chancellor with tough fiscal decisions before him.

The state’s $1.2 billion budget shortfall had put tuition policy and public funding levels up in the air. The university system, which includes 12 schools and 152,000 students, had to make $25 million in cuts and raise tuition by 2 percent.

Caret, who succeeded William E. Kirwan, forged ahead with this predecessor’s efforts to make public universities more efficient and collaborative. The former president of Towson University helped shepherd legislation allowing the University of Maryland at Baltimore to join forces with the flagship campus in College Park, winning praise from the Board of Regents.

Within months of that deal, Caret became ensnared in controversy surrounding his compensation. State lawmakers took aim at a $75,000 bonus awarded to the chancellor, with an annual salary of $600,000. The fight culminated in a hearing that led the Board of Regents to strip performance bonuses from Caret’s contract.

Caret recently spoke with The Washington Post, reflecting on the episode and sharing some of what he has in the works for one of the top public university systems in the country. Here’s an edited version of the conversation:

What’s on the top of your mind as you head into the new school year and look at the entire university system?

A big part of my job is to ensure adequate and robust operating and capital budgets, that’s what we start every year doing. We’re a $5.3 billion business. We get about $1.3 billion of that from the state of Maryland. We used to get more on a percentage basis from the state, but Maryland is still one of the best in the country in terms of the percentage of higher education funding that comes from the state. The capital budget, similarly, we get $250 million to $350 million of capital money from the state. We get the new budget for the year, we launch it July 1, and by July 30 we’re putting the budget proposal together for the next July. You’re always in the middle of that.

Then there is the legislation that we feel is important to us. We’ve had a number of pieces over the last couple of years that relate to more creative ways we can help the state help us finance what we need to do. For example, we got the state to allow us to take a certain portion of our operating reserves and put them into the endowment. States don’t necessarily like to do that because once you put it into the endowment it’s no longer liquid. But we had enough of a reserve that they allowed us to put $50 million into an endowment that’s invested with our other funds. It was used as a catalytic source of funds to help us help the campuses hire staff, hire researchers to help us with the fundraising efforts so that we can bring more money in. Because as federal and state money becomes tighter, private money becomes more important.

There is a lot of discussion about what percentage of universities’ endowments go toward helping low-income students with financial aid. What are you doing on that front?

We’re still a very affordable state. You can go to most of our campuses all in for $24,000 to $26,000 a year. Half of that is room and board, so it’s not fair to build that into what you’re paying for education because that child has to eat and sleep some place. And it’s not likely to be a whole lot less expensive no matter where it is. So the real cost is in the order of about $13,000. That’s tuition, fees and books. Then 70 percent of our students get aid, so the net price on average is something around $8,000 to $9,000. It’s half the price of a Ford Focus. It’s still pretty affordable. I’m not saying the whole package hasn’t caused a lot of problems, because it has.

The average debt across the country, and on our campuses, is in the mid- to high-20s. If we can keep the cost down to a Ford Focus, it’s still not an unreasonable investment. We’re reasonably affordable, but because of family income problems, room and board and other costs associated with education is still a challenge for our young people to graduate with no debt.

We try to bring in the endowment in any way that we can that is useful for our mission, so most of the endowment is aimed at scholarships. One of the things that Congress and others have to grapple with is all of our funds are guided by a memorandum of understanding with the donor that says it will be used for X. We don’t have a lot of unrestricted dollars in the endowment, almost none.

Luckily, a lot of it does go to scholarships. Most of it, I would say a high percentage to merit-based scholarships, but there is a significant percentage that goes to need-based scholarships also. If you take what we get out of the endowment, the 4 percent to 5 percent spend rate, and you take what we as institutions put into financial aid ourselves — which is over $100 million dollars out of our operating budget — we’re spending almost as much, perhaps more than the state in providing aid to students.

Twenty-five years ago when I got into this business as an administrator, we did not provide aid with institutional dollars other than the endowment. The rule back then was privately raised money was for merit and any other sort of aid was need based. It’s just become more of a challenge. We’re doing what’s called tuition discounting and if you look at where that $100 million is coming from it’s tuition. Students who are paying are helping to fund the ones that can’t afford to pay as much.

Privates are funded that way, they’ve done that for years, but publics never had to do that. All of a sudden not only are we becoming more tuition driven, we’re becoming more tuition driven in a way that increases the discount rate. That means the tuition dollars aren’t coming in necessarily to pay for something other than to get another student in. The danger when you become more private is that to make the business model work you’re going to be more expensive, more restrictive in who you let in. And that’s not good for society. We’ve got to keep the support for the student at some reasonable level, if we’re going to continue to provide the access other generations had to the upper middle class.

How responsive is the state to the concerns that you’ve raised about the system becoming more like private universities?

They’re very sensitive to it. There’s been a drive for high level principled reasons, but also political reasons, to keep state support high. That’s why half of the piece of the pie is state support. In Massachusetts that’s down to close to a third. In some states, it’s down to 20 percent or 15 percent. It’s just a struggle when you look at prison costs have gone up, health costs have gone up, retiree costs have gone up, K-12 costs have gone up because of mandates, which they deserve but its a fixed costs.

Higher education gets jammed because we’re the next big piece and they’re not forced by law to fund us. And they say ‘hey, by the way you can raise tuition.’ Then we raise tuition and they get mad at us. I think it is going to be politically, if not impossible, highly undesirable to look at a future in which we’re raising tuition and fees any more than inflation. The states are angry. The population is angry.

There’s been a lot of discussion about administrative costs in the context of rising tuition. There was a lot of discussion about your pay package, in particular. How does that factor into the conversation about costs?

Everything we do in higher education is market driven. From a pragmatic point of view, the salary they pay me, the salary we pay the president or the salary we pay the faculty is all driven by the market. Our target was to try to be average to better than average, so 50th to 75th percentile being the average we try to achieve for everybody. Without being defensive, I’ve run two campuses, two systems for 25 years, so you’re paying for the experience. And that’s what the market drives. They matched my Massachusetts salary. I didn’t ask for a penny more. I had just signed a new five-year contract in Massachusetts. I wasn’t about to walk away from it for less money. I’m not a missionary; I’m an educator. Based on my track record, I believe I deserve and earn what they pay me.

However, I think it is a political problem. When you get to salaries at this level, which is well beyond anything I ever thought I’d earn and what the average man or woman in the street is earning, it’s always a problem because people don’t understand. They say ‘why are we paying the football coach this, why are we paying the president that?’ It’s because you want them. All of the people that we hire aren’t mercenaries, they’re just realists. I hired a guy at Amherst that earned 20 percent more than I did as a system head. People would question why is this guy earning $700,000 a year? Because he brings in $10 million to $20 million in grants every year.

My first job at Towson University in 1974 paid $9,400. When I became a dean I earned $26,000, so it’s been incremental. The thing that was so disconcerting in this last episode is bonuses are not guaranteed. You have to earn them based on specific goals. Literally, what the legislature said to us was we prefer you build the funding into base. We don’t like bonuses. In base, it’s guaranteed. The bonus gives you more control. In Massachusetts, all of my presidents, 20 percent to 30 percent of their salaries were based on bonuses because you could use it to hold them accountable.

Because it had never been done here it took everybody by surprise. There were people who wanted to give me a 100 percent bonus, but because of the politics I didn’t get a 100 percent bonus for the first time in seven years. I took it a little personally, but I’m a big boy, I understand. If you took my salary and cut it in half, you could save every student 20 cents or something. If you took all of the administrators’ salaries and cut them, it wouldn’t save the students much money. The real crux of the cost increase for students is the state cuts.