January 14, 2004

By Carol Wood

After many years of debilitating state budget cuts to higher education — including a combined $272.4 million reduction from three leading Virginia universities over the past two years — the presidents of those institutions have developed a proposal to establish a new relationship with the state.

In an innovative move designed to reduce pressure on the state budget and to ensure the quality of higher education in the Commonwealth, William & Mary, Virginia Tech and the University of Virginia announced last week that they will ask the 2004 General Assembly to enact the “Commonwealth Chartered Universities and Colleges Act of 2004.” The legislation would create a process for chartering state-assisted, public universities and colleges as political subdivisions of the Commonwealth.

Under the new model, the state would limit its financial appropriations to these universities to less than what would traditionally be expected. In exchange, the universities would no longer be subject to certain state personnel, procurement and capital-project regulations. These two measures would promote substantial savings for both the state and the institutions involved.

“We all recognize that the ongoing state budget crisis presents a serious challenge to each university’s ability to maintain overall institutional excellence,” said U.Va. President John T. Casteen III. “For the past decade, we chose to view the cuts pragmatically, using them to help determine what is essential to our mission, to use what we have wisely and to find alternate means to fund our core purposes.

“We have become adept at running lean, and have been rewarded in rankings for being able to deliver great educations with limited resources. But those accolades have not come without great sacrifice.”

Casteen, together with William & Mary President Timothy J. Sullivan and Virginia Tech President Charles Steger, recognizes the challenges facing higher education in Virginia. Over the current two-year budget cycle, 2002 through 2004, the Commonwealth cut $617 million in taxpayer support from higher-education appropriations, including the combined $272.4 million from U.Va. (a 29.7 percent reduction), Virginia Tech (25 percent) and William & Mary (24 percent).

Increasingly, these universities have had to rely on private support to bolster existing programs and to create new initiatives.

The state has struggled for years to provide financial resources to its colleges and universities: in 1985, funding for higher education represented approximately 17 percent of the state’s general fund budget; in 2004, only 10 percent. Given other competing demands for state appropriations, the three presidents believe it will be difficult for the state to find the resources to adequately fund higher education. They are not alone in their assessment.

In 1998, the Joint Subcommittee on Higher Education Funding Policies created minimum funding standards based on national norms to ensure the competitiveness of Virginia’s colleges and universities. Last September, SCHEV noted the state would need to give an additional $399 million to meet those funding
guidelines.

Using goals and guidelines developed by the General Assembly, U.Va., Virginia Tech and William & Mary have calculated what they need each year to operate their educational programs and have discovered they face a combined annual deficit of $145 million — exclusive of unmet student financial aid — simply to meet operating costs.

This funding gap not only threatens to erode the quality of critical programs that have taken decades to build, but further diminishes the institutions’ ability to pay competitive salaries to faculty and staff and adequately fund student financial aid.
Impact of partnership on staff and faculty The impact of this new partnership on staff members of the three universities will be limited. The proposal requires that each institution’s board of visitors adopt regulations, policies and procedures that are consistent with the Virginia Personnel Act. In addition, all current non-faculty employees will be given the option to remain in the Virginia Retirement System and their current health insurance plan.

With fewer state regulations to contend with, the partnering universities will be able to offer compensation and benefits to their employees beyond those provided by the state. This will come as good news to their staff and faculty members, who have not received a salary increase in the past three years. While a 2.25 percent raise was implemented for classified staff in November, the governor’s budget does not call for another raise until November 2005.

Last summer, in a discussion on salaries, members of U.Va.’s Board of Visitors expressed their concern over the board’s lack of authority to implement raises for all employees. The board declared its interest in seeing that all U.Va. employees — faculty and classified staff — are fairly and competitively compensated. In the fall, the board designated $250,000 for the rewards and recognition program that was created, but never funded, by the state for classified employees.

During the mid- and late-1980s, the high level of state funding for colleges and universities established the foundation for Virginia’s exceptional system of higher education. This quality has been recognized nationwide and confirmed by U.S. News & World Report, which has ranked the University of Virginia the nation’s No. 1 public university for four of the past seven years. A key to these continued high rankings is the quality of U.Va.’s faculty.

To attract and retain talented faculty, U.Va., like any college or university, must provide adequate compensation and facilities. In the late 1980s, the General Assembly established a policy of funding faculty salaries at a level equal to the 60th percentile of salaries paid at each college or university’s peer institutions nationwide. However, this goal has been met only once at U.Va. in the past 12 years.

Current state appropriations for faculty salaries at U.Va. only allow for funding at the 27th percentile of its peer institutions. It is estimated that the Commonwealth would need to spend an additional $111.5 million per year for faculty salaries within the state to reach the 60th percentile in 2004-05.

“The state simply has not been able to adequately fund our three universities in order to sustain where they are today,” Casteen said.

State ties to remain strong

The partnership will by no means sever all ties to the state, as Steger, Sullivan and Casteen adamantly point out. Each university would remain a public institution with boards appointed by the Governor, confirmed by the General Assembly and accountable to the state’s citizens — just as they are now. Furthermore, the presidents have proposed guidelines setting forth required regulations, policies and procedures that would hold each school accountable for, among other things, performance measures, audit reports and a strong commitment to financial aid.
“No one is talking about becoming private,” Casteen said. “We will always have a strong commitment to educating the citizens of Virginia. It is our founding mission and one we will never abandon.”

Rather, what each institution seeks is the flexibility to protect themselves from irrevocable, long-term damage to the quality that lies at the heart of their academic programs and reputations — especially at a time when enrollment numbers are increasing (61,000 additional students in the Commonwealth by 2010) and operating costs must rise to keep pace with enrollment.

Impact on tuition and financial aid

Without substantial financial increases from the Commonwealth, tuition can be expected to rise, although by what amount, no one can yet say. For one thing, no one knows what the upcoming state appropriation will be. For another, “we never discuss tuition without also discussing access and financial aid,” said Leonard W. Sandridge, executive vice president and chief operating officer. “The two always go hand-in-hand, and the University is committed to providing access to students regardless of financial need.”

In the past two years, University students and faculty groups have supported tuition increases. However, over the past decade, the state has implemented tuition rollbacks and consecutive years of tuition freezes. As a result, 2003-04 tuition at U.Va. is actually less than inflation-adjusted 1995-96 tuition. A look at state appropriations per in-state student at each of the three partnering universities also paints a clear picture of the state’s inability to adequately fund higher education, especially when compared with several peer universities around the country. (See chart below.)

One advantage of the partnership’s legislative proposal is that any new revenues can be invested in programs and professors directly related to students’ academic work. In addition, each institution will devote a substantial portion of these new revenues to student financial assistance, thus enhancing each institution’s ability to offer financial aid to all Virginia students who qualify.

To ensure that no Virginia student admitted to U.Va. is excluded because of financial reasons, beginning in the fall of 2004, U.Va. will meet 100 percent of the need for all undergraduate students who qualify for financial aid through grants. This program was started with the entering class of 2002 and phased in over four years.

In addition, U.Va. is studying the feasibility of an innovative program aimed to limit the amount of debt incurred by middle-class students. Such institutional aid programs are key to the public mission of the University of Virginia, Casteen said.

Building on decentralization initiatives

In the early 1990s, U.Va., Virginia Tech and William & Mary became part of a long-term pilot decentralization project that gave them more decision-making powers in purchasing, hiring and capital spending. The purpose of the project was to increase business efficiencies in their daily operations, to save money and to eliminate red tape. This project was considered a success, and during last winter’s General Assembly, the legislature passed 11 of 12 decentralization proposals advanced by the three universities.

In 1995, the University worked closely with members of the General Assembly on a proposal to grant codified autonomy status to the U.Va. Medical Center. The legislation, granted in 1996, resulted in more authority to U.Va. for capital outlay projects, leases, risk management, purchasing and personnel matters. It allowed the Medical Center to be more competitive and to respond to changing market conditions more quickly than state regulations usually permit.

“We see this new partnership legislation as a natural next step to earlier decentralization legislation,” Sandridge said. “If granted increased flexibility, we will use our strength for the good of the university and the entire state, remembering that there would be appropriate state oversight and accountability built into the proposal.”