Fighting the entitlement mentality in US universities

The financial crisis that settled on the American tertiary community in 2008 continues to be cited as a primary factor in the decline of state subsidies to public institutions and the subsequent offsetting increase in their tuition fees.

On the surface this explanation appears valid: with less tax revenue, the states have had fewer dollars to support their public universities. Besides accounting for inflation, state institutions must pay salaries, utilities and meet a host of other financial obligations and the budget hole created by a decline in state subsidies had to be filled.

A ready remedy has been tuition fee increases. For decades and no matter what phase of the business cycle the national economy has been in, recovery or recession, public universities have tended to raise their tuition fees annually.

These tuition fee increases have often exceeded the Consumer Price Index. Whatever the level of subsidy from their state capitals, public institutions tended to balance their ever larger budgets with increased tuition fees moderated by increased admissions.

Institutional quality, however vaguely defined, was and continues to be a near universal justification.

A sense of entitlement

This readily adaptable defence of greater tuition fees has been used to improve retention and graduation rates and retain or enhance institutional competitiveness. These are all commendable goals worthy of significant public funding.

Arguably, state governments have the responsibility to support their public tertiary education institutions for a variety of social, economic and political reasons. Yet, is there no limit to the pursuit of perfection? I suggest that a sense of entitlement has emerged with public institutions accepting little responsibility for curtailing their operating costs.

Also arguably, these institutions are trying to do too much with insufficient revenues to balance their operating budgets. Their plight has been noted by a number of bond rating and financial consultancies: in a July summary of a Standard and Poor’s assessment of the nation’s higher education community, The Chronicle of Higher Education reported that public financing of higher education remained below that in the period leading up to the Great Recession and appropriations were unlikely to return to historical highs in the near future.

The same month, Moody’s Investors Service reported that the majority of public institutions missed their 3% annual growth rate in operating revenue – the increase rate needed to keep pace with acceptable inflation. So the institutions were not earning enough to meet their financial obligations.

Reaching the quality goal

Given the available amount of tuition fee revenue plus state subsidies and an institution’s current array of programmes and services, there are at least two strategies that could be used in pursuing the elusive quality goal.

The first, which has been dominant for decades, is to define academic quality as at least sustaining the present array of programmes and services, if not selected enhancements or additions. In employing this strategy public institutions appear to have simply added all of their existing costs and subsequently treated them as unalterable.

The second, but widely ignored strategy, is to start with a conservative estimate of income revenue with tuition fees kept no higher than the inflation rate. The institution’s programme and services portfolio should be assessed for efficiency and effectiveness although this will require trade-offs within the portfolio of academic programmes and services.

On the surface, the trade-offs should be relatively straightforward: high versus low enrolment programmes, high cost and productivity in terms of retention, graduation and placement versus high cost and low productivity.

A visit to the Bureau of Labor Statistics’ Occupational Outlook would help identify majors leading to promising and less than promising career options in the coming years. Below the surface affected faculty and staff livelihoods and careers are jeopardised. Ethical and humane considerations will surely confound a painless route to cost containment.

The nation’s business cycle and state funding vagaries will continue to make strategic budgeting at public tertiary institutions a formidable challenge. Exacerbating the challenge is students’ and elected officials’ waning tolerance over ever higher tuitions.

Coupled with an uncertain return to annual enrolment increases, this renders the prevailing ever-increasing budget strategy untenable. Abandoning the entitlement mentality of cost-up budget planning should help contain the size of future increases – remembering that while additional academic programmes and services have not always led to better institutions, they have almost invariably led to higher expenses ultimately supported by students and taxpayers.

Cost benefit analysis

Continued advancing of an institution at the increased expense of students raises some fiduciary questions. Should tuition fees be increased unless supported by clear cost benefit justification? Should students pay higher rates to perpetuate employment security for current faculty and staff?

Faced with the peril of awaiting the early return of dependable higher state subsidies, hostility to higher tuition fees and uncertain enrolments, public institution leaders may want to consider a more conservative budget building strategy to moderate future tuition hikes. Beginning with a curtailed cost base will be a start in easing our students’ burden.

* William Patrick Leonard is executive vice-dean at the SolBridge International School of Business in Daejeon, Republic of Korea.