Almost all people have to worry about money. The income of workers depends on satisfying bosses, clients, patients, or voters. The freedom they have to change their minds or just say “no” for any reason makes life unpredictable.
The same is true for institutions. Businesses have to worry constantly about earning enough to cover their costs—i.e., whether they pass “the test of the market.” If consumers find better ways of spending their money, they will. That’s also true for non-profit institutions like churches, theater troupes, and opera companies.
And most educational institutions have to worry about money. College and university presidents often lose sleep over the possibility that enrollments might fall, donations decline, or that (for government schools) politicians might decide to spend less on them and more on other things.
Wouldn’t life be a lot nicer if you didn’t have to worry about money?
Those thoughts are occasioned by a prominent op-ed piece in the November 23 edition of The Wall Street Journal, “Saving Public Universities, Starting With Mine” by University of Oregon president Richard Lariviere. (Here is the link, but it’s restricted to WSJ subscribers.) From his title, you might wonder what’s going on in the Beaver State to put its flagship university in danger.
Actually, the University of Oregon is not in jeopardy. All that Lariviere wants to be saved from is the need to keep persuading Oregon politicians to fund it at the level he wants.
Government appropriations for the University of Oregon have been declining for years and now amount to only 8 percent of the budget, while tuition and fees have risen to 40 percent, Lariviere informs us. Tuition has been increased by an average of 7.5 percent annually for the past 38 years.
Those facts may sound troubling, but in most states, the percentage of the budget for state universities that comes from appropriations has been falling. And if those figures about tuition seem bad, tuition and fees for a 15-credit load at the university this year amount to only $2,730 per semester for residents. That is not very high. In-state students at the University of Washington pay $2,900 per semester; at the University of Michigan, $5,700; at Penn State, $7,600.
But with Oregon “looking at a decade of deficits” (according to Governor Ted Kulongoski), Lariviere is worried that appropriations for the university could be reduced further. He contends that “bold action” is needed to “stabilize” the university’s financial situation.
That action has several components, the crucial one being that the state government issue $800 million in general obligation bonds to create half of a $1.6 billion endowment for the university. (The other half will come from a campaign the university will mount to raise $800 million in donations.) With that endowment, the university will earn at least as much revenue as the state has been supplying to it. Funding for the University of Oregon will be stabilized.
Putting it that way sounds appealing, but let’s look at it another way. Here’s the deal Lariviere is suggesting to the taxpayers: the government will put you further in debt so that officials at the University of Oregon won’t have to compete for limited tax dollars in the legislature. The “stability” that Lariviere seeks for his university comes at a cost, namely less flexibility to deal with all the other things in the state budget that you might regard as more important, such as K-12 schools, roads, parks, and so on.
Once you grasp that guaranteed resources for one university means more infighting over the remaining state tax dollars for everything ele, this proposal seems rather like Tom Sawyer persuading his friends that it would be fun to whitewash his aunt’s fence. It’s a one-sided deal.
Let’s hear Lariviere’s proposal in full before we condemn it, though. There are other components to it.
One of them is that university spending of this revenue stream will be overseen by a publicly appointed board that will guard against waste. The trouble is that such boards almost never have the will to do battle against wasteful university spending. They are toothless tigers. In contrast, Lariviere and his current administration would have a strong reason to cut out needless spending if they were worried that appropriations might be reduced if politicians found that some of the money allocated to the university was being put to poor use.
If I were an Oregon taxpayer, I would rather have political competition for tax dollars than a guarantee of funding for one use of those dollars, the University of Oregon, combined with a promise that an appointed board will prevent waste.
To sweeten his deal further, Lariviere adds a requirement that some portion of this new university endowment will be invested in local companies “so we can help jump-start the state’s economy.”
Again, that sounds nice. The phrase “jump-start the economy” is one that has become almost irresistible to anyone who wants something from government, but I don’t think we should anticipate any such result from Lariviere’s proposal.
If business owners and entrepreneurs have profitable ideas, they will find the capital necessary to go ahead with them without this endowment. On the other hand, a requirement that some of the endowment must be invested within the state injects a political element into the management of the portfolio. Managers may be put in the position of saying, “We’ve got to put so much into Oregon, but the best prospects here are riskier than prospects elsewhere.”
Thus, the “invest in the state’s economy” angle doesn’t really sweeten the deal. Whitewashing the fence is still going to be work, not fun.
Remember that this plan only calls for the state to borrow half of the endowment that is supposedly needed. Why not raise all of it through voluntary donations?
Well, that would take longer. Persuading people to part with their own money is harder than persuading politicians to fork over taxpayer money. Furthermore, donors might prefer to target their giving to particular programs that they have confidence in, as opposed to just ladling money into the endowment—even with its oversight board.
Those are reasons why it’s preferable to raise university funds voluntarily. Just as competition for customer loyalty keeps a business on its toes, so does the need to compete for donors in a world where there are a huge number of beneficial uses for capital. The university will better serve the citizenry if its leaders have to keep making their case to politicians and potential donors.
Here is one more argument against Lariviere’s proposal. I recently reviewed Anya Kamenetz’s book DIY U, which is about the great ferment now occurring in higher education. What if, as she and quite a few people have been saying, we are near a sea change in higher education? For a state to borrow heavily to support an existing university (even a “flagship”) might be like borrowing heavily to create Pony Express stations just before the invention of the telegraph.
University presidents would like to have guaranteed funding to reduce or eliminate money woes, but so would everyone else. The people of Oregon should do themselves a favor and close their ears to this Siren song.