Higher Education in a Global Context: Chancellor Emeritus Richard L. Wallace (Panelist)

March 29, 2005

Financing of Higher Education: Facts and Questions

I want to quickly provide a few facts and a few questions and then leave time for my fellow panelists and the audience to address the questions.

First, some facts: as I arrived at MU in the summer of 1996, approximately 50 cents of every dollar that we spent was a state tax dollar. Over the past 40 years, both for MU and for other major public universities across the U.S., this dependence on state tax support as a percentage of all expenditures has changed dramatically.

For MU in 2003, this percentage was about 19%. For the current year, I believe that it has fallen under 15%.

And, we are not unlike other major state universities. For 31 of the 34 public AAU institutions for which we have 1993 comparative data, the range for this percentage was from a high of 43 percent for SUNY—Buffalo to a low of 10 percent for the University of Michigan. The average for the 31 public AAU's, including us, was 25 percent in 1993.

As an aside, I will mention that this percentage for the other public universities in Missouri is, on average, much higher. The range is 50 percent for Truman State at the high end to 30 percent for UMKC (again 2003 data) with an average of 41 percent. This percentage difference in dependence on state tax dollars should not be interpreted to mean that the other public institutions in the State are necessarily getting more than they should have or need for their programs, but, rather, these differences reflect fundamental differences in MU's mission compared to the missions of the other public universities in Missouri. For example, this is particularly important in regard to MU's role and relative strength in the competition for federal funding of research and creativity. Among the publics in the state, including the other three UM campuses, we do the lion's share of federally funded research and creativity—about 75 percent of it.

What explains the dramatic decrease in the percentage importance of state funding for MU and similar AAU institutions? To answer this question we need to look at the major sources of funding for these institutions—state tax dollars, grants and contracts, private fund raising, and student fees—and a few other sources including hospital and clinic revenues for those institutions with such facilities. Let's take a quick look at each of the major sources.

An important part of the percentage decline in state tax support is explained by the post WWII rapid growth of our research and creative programs, with much of the financial support for these programs coming from the federal government. Thus, even if state tax support had increased over the past 40 years to keep pace with both inflation and enrollment growth, the percentage importance of state tax dollars would have declined.

However, particularly for MU over the past 5 years, growth in state tax support has not only failed to keep pace with inflation and enrollment growth, there is has been an absolute decline. Indeed, Chancellor Deaton tells me that it would require $130 million more in state tax support today compared to only four years ago (2001) for MU's state appropriation to keep pace with inflation. It would require much more to have maintained purchasing power per FTE student. So, MU and its AAU peers have had to seek support elsewhere in order to maintain (and hopefully) improve quality, choice, and responsiveness to needs.

And where have we turned? To a heavy degree, we have been forced to increase student fees—for MU students, fees have increased by 42% since 2001. Student fee revenues, after being for many years only a small part of our total budget, are now more important than state tax revenues. We turned this corner about a year ago.

But we have also turned heavily to another source—private support through our development operations. About four years ago, MU mounted a truly major private fund raising campaign ($600 million in five years), and we will sure complete this campaign on time later this year. This initiative provides both one time support for buildings and other projects and also increases our endowment through which we generate on-going annual support for our programs.

While both private support and grants and contracts can and do help us enormously in meeting our responsibilities, it should be emphasized that neither one is a substitute for the more general support provided by state tax dollars and student fee revenues. The first two sources are generally “earmarked” for special purposes, and institutions must accept only that support which is, indeed, consistent with their missions and responsibilities. We are not free to “allocate” and “reallocate” this support to differing needs across the institution.

A final fact and then the questions: even though state tax support has become less important percentage-wise and, for us, in total amount over the past four years, it is still a very important part of the core budget for us and for our AAU peers. On a per full-time FTE basis, our state support was $8623 in 2003. The range among the AAU publics was $17,877 for UCLA to a low of $2527 for Colorado. The mean was $10,369. For MU to achieve the mean in 2003 would have required almost $42 million. To have achieved the mean of the top 15 public AAU's would have required about $108 million. This is very substantial support and is even more important than the dollar amounts suggest in that this is flexible support for our core needs.

Given what I have said so far, I conclude that there are at least two very important policy questions facing all of public higher education:

First, given the earmarking that comes with both private and grant and contract support, are there implications for our mission? As our funding sources change, should we, will we, can we hold true to our long time mission as a public land grant research institution? Or, does the pursuit of the revenue become too much of an end in itself with slow but sure changes in what we are all about?

Second, as we become more dependent on student fee revenues and higher student fees, are we closing out of the university a segment of the population that would have had access with lower student fees? And, if so, what are the implications for the type of society in which we live? Do we begin to contribute to an increasingly less equal distribution of income rather than open opportunities for those in all income classes?

Finally, let me add two more policy questions that I believe are unique to Missouri and MU. Missouri is a low tax state and, by any measure, ranks low among the states in support of higher education—while, at the same time, it struggles to maintain a relatively large number of public higher education institutions. If we believe, as I think we do, that Missouri would realize very real, long-term returns from increasing its investment in higher education, how do we convey this message to the people of the state? I have watched higher education fail to do so despite two fairly major attempts over the past 15 years.

Then, as a quite distinct and, from my perspective, vitally important question, how do we manage to explain to the good people of this state the unique importance of MU within the structure of higher education in the state? It isn't that we are simply the oldest, the largest, the best, the flagship; rather the issue, at least to me, is focused on what MU can do for the state that no other public institution in the state can do or could do short of massive new investments over a very long time period. There is a long and rich history here of people, of investments, of a character, and together, this has given us great strength on the national scene. It enables us to do for Missouri that which no other institution can do. I have already provided a simple example in terms of federal grants and contracts. Among public institutions in this state, we do the lion's share and for good reason.

It seems to me that the unique nature and importance of MU is difficult to sell in this state—not only as the result of fiscal conservatism but, more importantly, as the result of very strong regional loyalties. The good folks of this state resonate to very few symbols, issues, and opportunities that are truly state-wide in nature. Rather, the view is from the Bootheel, St. Louis , Kansas City , Southwest and so on. True statewide collaboration and decision making are seldom on the table; rather, issues turn on what is in it for us—whatever the region may be.

This, it seems to me, is a unique and very important challenge to be faced by MU in the years ahead. The failure to make progress may well mean further progress toward “homogenizing” all of Missouri public higher education making it increasingly difficult for this state to maintain even one flagship institution competitive at the national level.