The year 2010 could be the start of a new worldwide economic period—one that emphasizes caution over deficit spending and overly generous benefits programs. Sadly, here in North Carolina, the legislature has not gotten the news, at least not when it comes to higher education.
The year began with a stagnant international economy, with European-style socialism in vogue. But the Greek economic collapse in February sounded like a clarion call far beyond the shores of the small Balkan nation. After decades of excessive government spending, high debt levels, and a benefits system that permitted many workers to retire with full pay in their early fifties, Greece narrowly avoided a catastrophe only because other countries bailed it out. Many nations took note and began pulling back on government spending, trimming social benefits, and reducing debt to stave off similar breakdowns.
The new cautionary attitude was on display at the June G-20 summit in Toronto, where President Obama’s call for increased worldwide stimulus spending was rejected by the assembled dignitaries.
Here in North Carolina, legislators working on the 2010-11 budget again faced declining revenues. The University of North Carolina system was an obvious target; it is still rife with dubious expenditures, even after last year’s round of cuts. There is still a “Center for Creative Retirement” at UNC-Asheville, and still a course in “Time Travel” at N.C State, and many more wastes of taxpayers’ money. One hope was that the budget crunch would impose the need to eliminate the most questionable programs, but that did not happen.
Instead, during the two-months-long legislative session, UNC officials mounted an impassioned campaign of rhetoric against any proposed reductions, suggesting that they would cripple the state’s future. And it worked. The UNC system’s operating budget actually increased by $10 million over the $2.656 billion appropriated for 2010-11 last summer.
The continued high level of spending on public higher education highlights the difference between the way the state’s political establishment and the rest of the world perceive the current economy. To the legislature and the UNC system, the economic downturn is merely a speed bump temporarily slowing the expansion of government, in which the university system plays a central role, rather than a wake-up call announcing that it is time to enact major structural changes.
Large reductions to UNC’s “management flexibility,” which affects the general fund used to pay for, among other things, the core academic operations, gave the appearance that the entire UNC budget was getting cut to the bone. In the previous legislative session, the flexibility account was reduced by $72.9 million for the 2009-10 school year, and by an additional $100 million for the upcoming year.
An outcry was raised when the House of Representatives wanted to cut the management flexibility for 2010-11 by an extra $147 million after the Senate proposed a reduction of only $50 million. UNC officials flooded the media with claims that this would cause a loss of 1,700 jobs, many of them faculty positions, and worse. Eventually, the legislature compromised on a $70 million reduction. This means that the flexibility account will be $242.9 million less than two years ago—a considerable sum to be removed from the total appropriation for 2008-9 of $2.683 billion.
Yet there is a lot more to the budget than the management flexibility money. The universities had a proposed $34.8 million cut for the upcoming year restored. Last summer, the legislature reduced its appropriation for 2010-11 by that amount; it was going to permit the UNC system to make it up with a tuition increase equal to the lesser of $200 or 8 percent, figures that vary from campus to campus.
Instead, the universities are getting the best of both worlds. Along with the restored $34.8 million, each school will be able to raise its tuition by as much as $750 and keep the money on campus.
When the budget bill was totaled up, the university system’s state appropriations actually grew to $2.666 billion despite the cuts to the flexibility account. The UNC system leadership and its allies in the legislature merely chose to use the taxpayers’ money for programs other than the core academics. Some of the more questionable alternative uses are:
- Two million dollars were appropriated for the “research, design, and construction of devices to capture the energy of ocean waves.” This is a highly speculative venture with almost no potential for gain in the foreseeable future—not the sort of project to undertake when belt-tightening is in order.
- Another $1 million was added to the annual $22 million in operating costs for UNC’s North Carolina Research Campus at Kannapolis. Last summer, system president Erskine Bowles called UNC’s efforts there “highly risky” even though he is an ardent backer of increasing state-funded UNC research. The odds of getting a return equal to the investment have not likely increased since then. Common sense would suggest a reduction rather than an increase to $23 million.
- Perennial legislative favorite the Institute for Emerging Issues got a $309,000 bump up in appropriations. The Institute is the brainchild of former Democratic governor James Hunt (he continues as its board chairman), and is often asked to weigh in on state policy issues, despite an obvious inclination toward partisanship.
One of Bowles’ major priorities was to increase the amount of money for need scholarships to low-income students. As stated above, UNC schools were permitted to keep tuition raises (now up to $750) on campus, but only if they devoted 51 percent of the revenues raised to need scholarships, and another 25 percent to “retention and graduation” programs that seek to prepare low-income students with below-college level skills for university-level work. The actual amount made available for scholarships will not be known until the individual campuses determine their tuition increases, but it will be in the tens of millions.
One quantity that is known is an additional $34.9 million that will be directly appropriated for need scholarships. Large increases in such need scholarships over the past few years are threatening to empty the state’s escheats fund, the primary source of money for need scholarships in recent years. This year, $26.7 million of the $34.9 million for scholarships will come from the state’s lottery fund instead. The remaining $8.2 million will come from the state’s General Fund.
University officials claim that more money for need scholarships is necessary because more students are applying for and qualifying for financial aid during the downturn. Yet, the same officials intensely fought off an attempt by the state House of Representatives to put a one percent cap on enrollment growth that would have alleviated much of the pressure for financial aid (and overall appropriations as well.)
Additionally, the state’s private colleges are getting a $4.6 million increase in state money available for need scholarships as well.
In other parts of the operating budget, the legislature made some smart decisions, but they were largely “no-brainers:”
- A long-standing controversy about whether to charge out-of-state students on athletic scholarships in-state tuition was finally resolved. The decision went against continuing to charge campus booster clubs and others who fund the athletic scholarships at the in-state rate, resulting in $9.4 million in savings in appropriations.
- The $527,212 annual appropriation to the historically Minority Colleges and Universities Consortium—a center located at N.C. Central University—was eliminated. It had suffered an embezzlement scandal and other problems.
- The system’s advertising budget was cut by $2.5 million—24 percent of its $10.6 million annual appropriation from the state. Obviously, given the system’s rapid expansion, including a 3.1 percent enrollment growth for 2009-10, the last thing it needs to do is advertise for more students. In fact, the reduction could have been considerably more.
Not only did the university system’s operating budget increase while some other state departments suffered dramatic cuts, but the legislature added $451 million worth of UNC debt for capital projects. Some of these capital projects are:
- $120 million for renovation of N.C. State’s Talley Student Center.
- $3.2 million for renovation and expansion of the press box at N.C. A&T’s football stadium.
- $45.4 million for UNC-Charlotte’s football complex.
- $32.9 million for Appalachian State’s “Center for Student Leadership and Development Honors residence hall.”
- $55 million for improvements to UNC-Chapel Hill’s Kenan Stadium.
It appears that the UNC system, with its powerful allies in the legislature and governor’s mansion, will continue its expansive state of mind even as the rest of the world rushes to pull back from its spending orgy. Such adamant insistence on having it all ways by the university system and its backers in the legislature will inevitably come into conflict with a reality that indicates revenues remaining low for some time to come.
For expectations that the economic slowdown will soon be over are likely to be unrealized. There are no such indications as we enter the third year of the downturn. Indeed many indicators, such as employment figures and housing sales, indicate the opposite. With half of 2010 already over, business activity has not picked up enough to significantly increase revenues before the next legislative session.
The Greek model of giving everything to everyone is not one to emulate. A spiral of government expansion, debt, and higher expenses is unsustainable. Let us hope that authorities adopt a more sensible perspective before the people of North Carolina suffer from this lack of discretion.
This story was amended from a previous version in which there were several errors.