A Rule Made to Be Broken

Four years ago, the UNC system established a 6.5 percent cap on tuition increases. At the Board of Governors meeting on August 12, that cap was hailed as an outstanding success, and a proposal to update it was introduced. But there is a problem with that self-congratulatory analysis: This year’s tuition increases for resident undergraduates averaged 23.1 percent throughout the UNC system. And most of the increase—at N.C. State it was $750 out of a total of $900—occurred only six weeks before the start of school, forcing many students to scramble for extra money.

With such big increases fresh on people’s minds, they should have been an important feature of the tuition policy discussion at the meeting. Yet UNC officials glossed over them. Jeff Davies, the UNC system’s chief of staff, said that “since 2006, we set tuition in accordance with the plan…. Students had predictability and affordability.”

The average increases in the first three years since the tuition plan was established were 5.1 percent in 2007, 1.2 in 2008, and 2.8 in 2009. Davies described the increase this year as 5.2 percent—“prior to the supplemental increase” that caused the 23.1 percent percent rise—and he concluded that “we’ve achieved everything we wanted to under the four-year plan.”

But this year’s sudden increase cannot simply be left out of the discussion. If the intent was to make things predictable and affordable for students so that students and their families can plan and prepare, jerking up tuition 20 percent or more at the last minute does not sound like a resounding success. While the UNC system’s tuition is indeed among the most affordable in the country, students and their parents still need to be able to plan ahead. Drastic increases at the last minute hurt the students least able to deal with such changes—the ones who are neither wealthy nor eligible for large amounts of financial aid.

In fact, when it comes to predictability, no tuition cap is preferable to an administration that arbitrarily ignores the cap in place. At least when there is no cap, students and their families can expect a surprise. Now that the system is exploring a second version of the policy, the first step should be to ask what the point is if they are going to cast it aside whenever the economy makes it expedient to do so.

The new policy proposal, created by a committee of campus administrators, adds a new wrinkle, one that serves the purpose of administrators. While the previous cap was intended to avoid large swings in tuition increases to make planning easier for students, the new proposal is more directed at smoothing out revenue expectations for—you guessed it—campus administrators.

The proposal ties tuition increases to changes in state appropriations. To explain its intent in simple terms, the less money the legislature appropriates to the universities, the more money the universities are allowed to raise by increasing tuition. The committee established a threshold by adding the historical averages of tuition increases and appropriations. Between 1971—the first year that all the public colleges in North Carolina were consolidated into one system—and 2005, the system averaged a 6.0 annual increase in appropriation and an annual tuition increase of 6.5 percent. Therefore, the threshold is 12.5 percent.

In this new scheme, the annual tuition cap increase will be calculated by subtracting the increase in appropriations from the 12.5 percent threshold. In other words, in a historically average year, the 6 percent increase in appropriations will be subtracted from 12.5 percent, resulting in a tuition cap of 6.5 percent. However, tuition increases will be limited to 10 percent or less, even if the state’s appropriations are less than 2.5 percent.

This proposal almost guarantees the system substantial annual increases in revenues. Which certainly would be amenable to the administrators who proposed it—a steady stream of generally large, predictable increases.

Even when the economy is at its worst, there need not be any cutbacks under the proposed plan. The legislature has never reduced the UNC system’s budget by more than 3 percent—this means that, in the worst-case scenario, the cuts can be at least offset by the permissible 10 percent tuition increase. (Note—a one percent increase in appropriations yields roughly three times as many dollars as a one percent increase in tuition.) Yet occasional budget reductions serve an important purpose by forcing the system to discover and reduce waste.

 This type of cap gives the illusion of fiscal austerity. A chancellor will be able to raise tuition less than the cap demands, pat himself on the back for his frugality, and still have lots more money to spend. There is no reason to practice real fiscal responsibility.

Another problem is the use of the historical average of a 6.0 percent (actually 5.9 percent) increase in state appropriations as a threshold, using the UNC system’s own numbers for the years 1971 to 2005. This is misleading: for the first 16 years of this period, when the full UNC system was just getting underway, the annual rate of increase was 9.1 percent, but in the last 22 years, including the 2009 budget session, it was only 3.5 percent. Certainly, the latter number reflects current normal conditions better than the entire 38-year time span.

Not to mention—again—that the system can completely ignore the cap whenever it is expedient, as it did this year.

So what does this portend for the near future? For one thing, the economy does not appear to be poised to recover before the next legislative session. And the November election is likely to bring a new spirit of frugality to Jones Street. Both of these trends suggest that state appropriations will continue to be low in the next few years, and students should be ready to fork over significant tuition increases in the 8-10 percent range in the foreseeable future. (Unless, of course, the legislature steps in and overrides the wishes of the university system, for the assembly has final say.)

But more troubling than the potential tuition cap issues is the way that not a single governor protested the administration’s blatant misrepresentation of the previous tuition cap as a success, and that no media accounts directly questioned it either. If the governors and administration are to make wise decisions, they must first demand an accurate accounting of previous actions. The blank submission given to the administration by the governors and the media, in the face of such glaring contradictions between the facts and the accounting, bodes ill for future governance.