Public Research Universities: Understanding the Financial Model

Source: American Academy of Arts & Sciences, 2016

From the introduction:
In the last twenty years, and especially since the onset of the Great Recession, states have dramatically reduced their contributions to public higher education. While the cuts have affected every public higher education institution, the cuts at public research universities have been the most severe, averaging a 26 percent drop in investment since 2008. The federal government has not covered this deficit, but has rather scaled back its support for the public research enterprise. No one has yet devised a workable plan to reverse these trends.

Faculty and administrators across the country have responded to this challenge with urgency and creativity. Nearly all public research universities have reduced administrative costs, improved financial management, and found new efficiencies in purchasing, information technology (IT), and human resources (HR) infrastructure. In addition, public research universities have embedded themselves more deeply and productively in local communities by offering services and partnerships to governments and businesses, and by extending educational offerings to previously underserved populations of students. But even these efforts have not been enough to make up for the funding shortfall.

For the first time in the history of American public higher education, tuition has become the principal revenue source for many public research universities.

The American Academy of Arts & Sciences has created the Lincoln Project: Excellence and Access in Public Higher Education to study the importance of public research universities, analyze economic trends affecting their operations, and recommend new strategies to sustain these critical institutions. In its first publication, Public Research Universities: Why They Matter, the Lincoln Project demonstrated the many ways in which public research universities are a vital public good. The second publication, Public Research Universities: Changes in State Funding, examined the financial challenges that state governments face, described the effects of those challenges on university budgets, and assessed the prospects for greater state support in the future.

This publication details the most common financial models that sustain public research universities, describes institutional responses to the changing financial climate, and identifies state funding cuts as the primary cause of rising tuition. It also examines new ideas for diversifying and enhancing funding sources in the future.

Related:
Public Research Universities: Changes in State Funding
Source: American Academy of Arts and Sciences, 2015

From the introduction:
Public research universities serve a distinct and indispensable role in America’s educational landscape, producing research and scholarship that drive innovation and graduating thousands of educated citizens, leaders, and professionals in each state annually. While other institutions may also address this mission, public research universities hold a unique social contract to meet these challenges together as effectively, efficiently, and affordably as possible. But today, public research universities are confronted with unprecedented reductions in state investment.

Higher education is the third-largest priority in state general fund budgets (the portion financed primarily by taxes), after elementary and secondary education and Medicaid. In 2014, higher education accounted for approximately 9.4 percent of state general funding: about half as much as general fund spending on Medicaid, and one-fourth of state K–12 education spending.

Measured in inflation-adjusted dollars per full-time equivalent (FTE) student, states have been cutting this support for well over a decade, and spending cuts accelerated in response to the Great Recession. Between 2008 and 2013, states cut appropriation support per FTE student in the median public research university by more than 26 percent (overall, support per FTE student at the median public institution was cut by more than 20 percent).

The decline in support in part reflects difficult choices states have made in response to mandatory spending programs like Medicaid, rising pension contributions, and a desire to preserve K–12 education.

Today, public research universities still rely on state appropriations for approximately 51 percent of their educational revenue, although the percentage fluctuates widely by institution—UCLA, for example, receives only 7 percent of its funding from the state. For most public institutions, further cuts could be devastating.

In this climate, the American Academy of Arts & Sciences created the Lincoln Project: Excellence and Access in Public Higher Education to study the importance of public research universities, analyze economic trends affecting their operations, and recommend new strategies to sustain these critical institutions. In its first publication, Public Research Universities: Why They Matter, the Lincoln Project demonstrated the many ways in which public research universities are a vital public good. This publication examines state financing of higher education, describes the challenges that state governments face, and assesses the prospects for greater state support in the future.