U.S. state budget officers seek overhaul of university funding

Wed Mar 27, 2013 4:23pm EDT

* Group says states should increase funds or help find savings

* Budget officers worried about limited resources, rising costs, high tuition, debt

* State spending per student reached 25-year low in 2010

By Lisa Lambert

WASHINGTON, March 27 (Reuters) - U.S. public colleges and universities face a funding crunch, state budget officers from across the country said on Wednesday, as the fiscal watchdogs called for reforms and even broached the possibility of boosting state spending to limit tuition increases.

The National Association of State Budget Officers joined a chorus of voices calling to make college affordable and also suggested increased state spending could keep tuition in check. State budget officers rarely advocate for appropriations or policy.

"Resources for the states are getting tighter. We have rising costs, the high tuition, and the debt load that a lot of students have," said NASBO Executive Director Scott Pattison on a call with reporters. "Whether or not one could argue about the system working in the past, the bottom line is we don't think it's sustainable going forward."

In a special report, the officers found enrollment at public schools will likely keep growing, while state funds for higher education have steadily declined. They concluded universities cannot make ends meet solely through tuition increases.

"There needs to be a greater emphasis on state funding in higher education ... or commensurate investigations in terms of trying to streamline processes or looking into additional cost-saving measures," said NASBO President Jason Dilges, who is also Chief Financial Officer for South Dakota, on the call.

He said state budget officers are "probably more so than not saying 'no' to funding requests by the higher education system," which makes their advocacy for more support notable.

Along with suggesting states use general funds to prevent tuition hikes, they said states could use a "pot of money" to reward schools that contain increases. They also proposed guaranteeing students will pay the same tuition rate for four years of school and set tuition and levels through a central board. Meanwhile, they suggested creating performance measures and tying some funds to meeting those measures.

The confluence of state budget cuts, federal spending fights and damage to families' finances during the 2007-09 recession have created unprecedented pressure on public universities. States cut higher education as they balanced their budgets in the face of collapsing revenues and even now many universities expect state funding to decline or stagnate in the near-term.

States' higher education appropriations per full-time student fell to a 25-year low in 2010 of $6,278, when adjusted for inflation, NASBO found. In total, the appropriations declined by 20 percent between 1987 and 2011, according to NASBO. A study from the Center on Budget and Policy Priorities found that state governments now spend 28 percent less per student than they did in 2008.

Students have grown averse to taking out loans and financial aid has been shrinking. Research funding from the U.S. government is also threatened with the automatic spending cuts known as sequestration beginning this month.

In January, Moody's Investors Service said it had a negative outlook for the entire higher education sector, citing "mounting fiscal pressure on all key university revenue sources."

TUITION ROSE DURING RECESSION

Universities typically cover rising costs with tuition increases. The average tuition at a public four-year institution increased 27 percent from the 2007-08 school year - the start of the recession - to the current school year, NASBO found.

In 2010, the "sticker price," or published tuition and fees for an in-state undergraduate working toward a bachelor's degree, averaged $5,752 for public schools. That compares to $3,859 in 2000, when adjusted for inflation. For those attending public research universities the average sticker price was $7,400 compared to $4,526 in 2000.

In putting the report together, the budget officers asked "can this level of increases in tuition and fees be sustained?" said Dilges. "And I think we all felt that it could not."

They suggested universities also re-assess the value of facilities upgrades, put aside dollars for infrastructure, and make it easier for students to graduate on time.

"What I think is significant about this is it's the state budget officers," said M. Peter McPherson, president of the Association of Public and Land-Grant Universities.

"When you're a state university, the two most important people in the executive branch are, one, the governor and, two, the state budget officer," said McPherson, who was president of Michigan State University from 1993 through 2004.

While creating performance measures and other ways to keep universities accountable could be "appropriate" in many instances, those measures should be broad and "thoughtful," said Barry Toiv, vice president for public affairs at the Association of American Universities.

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