Cutting the Strings

The 2005 covenant between the state and higher-ed has given public institutions more autonomy, flexibility, and, above all, control over tuition.

This is the second of four articles exploring higher-education accountability in Virginia since enactment of the 2005 “Restructuring Higher Education Financial and Administrative Services Act.”

In 2005, when leaders of Virginia’s most prestigious universities were angling for more autonomy from state control, they complained about the bureaucratic hoops they had to jump through. State regulators made the College of William & Mary install an exit sign in a picnic shelter. Whenever outdoor events were rained out, the University of Virginia had to apply for permission to erect a tent. The $300 fees were bad enough. But approval often didn’t come until the events were over.

Such nit-picking dictates were mere irritants, though, compared to other grievances. Procurement rules led to lengthy delays in capital outlay projects. Human Resources policies designed for government bureaucracies were ill suited for an academic setting. In theory, boards of visitors were free to set their institutions’ tuition and fees, but in practice lawmakers meddled frequently: capping, freezing or even rolling back tuition increases.

University presidents felt whipsawed by state cuts to higher ed. Governor Mark Warner had balanced a recession-battered budget by cutting FY 2003 higher-ed expenditures 22%, and then in 2004 had pushed through a tax increase that allowed him to restore $278 million. While the replenishment of funds was welcome, universities wearied of the “feast or famine” pattern that made a mockery of strategic planning.

While the three elite institutions — UVa, W&M and Virginia Tech — abandoned their quest for “charter” university status, which would have treated them like independent political subdivisions of the Commonwealth, they did get much of what they wanted. In the 2005 Restructuring Act, a compromise hammered out with Warner and the General Assembly, higher-ed institutions were assigned one of three levels of autonomy, depending upon their financial and administrative competence. In exchange, the state would hold them accountable to performance metrics for 12 policy goals.

“The name of the game on this thing all along was tuition, as well as regulatory relief,” David Breneman, an expert on restructuring activities and dean of the Curry School of Education at UVa, told Lara K. Couturier, whose 2006 essay, “Checks and Balances at Work: The Restructuring of Virginia’s Public Higher Education System,” remains the definitive study of the restructuring act.

Colette Sheehy vice president for management and budget at UVa., and a key player in negotiating the legislation, seconded the view. “We felt we had to get control over one of our key revenue sources: tuition.”

Virginia law already gave boards of visitors the power to set tuition and fees — but governors and legislators ignored it, arguing that they had never given up the power of oversight. The restructuring act reaffirmed the law in the hope that lawmakers would stop trying to set tuition policy… at least for a while.

“In law, in code, it’s probably no stronger than it was before,” then-Secretary of Education Peter Blake told Couturier. “[It] will last as long as the Legislature doesn’t want to override it. … In the minds of the decision makers, the balance probably shifted a little bit to give institutions a little more autonomy over their tuition.”

Twelve years later, how well has the restructuring act worked out for Virginia’s public colleges and universities?

The answer: pretty well from an operational perspective. Higher-ed institutions say they appreciate the increased flexibility and reduced red tape that comes with autonomy. The law also has worked out very well from a revenue perspective. The 2005 deal provided cover for years of relentless increases in tuition and fees.

But memories fade with time, and Warner’s grand bargain is threatening to unravel. Legislators are rebelling against a cost of college attendance that has outstripped the increase in Virginians’ household incomes and put an increasing strain on middle-class families. A bipartisan coalition of delegates and senators submitted a bevy of bills in the 2017 session that would restrict the freedom of universities and their boards to set tuition. Senior legislators fended off the bills this year, but not the resentment.

Three levels of autonomy. The 2005 Restructuring Act created three tiers of autonomy. Only institutions with advanced managerial capabilities and a minimum of AA- bond ratings qualified for Level III. UVa, Tech and W&M qualified immediately, and Virginia Commonwealth University has since made the cut. Each institution negotiated a management agreement that defined its prerogatives relating to capital outlays, leases, information technology, procurement, human resources and financing/accounting.

The law bestowed Level I autonomy, which granted colleges more flexibility in administrative matters, upon all other institutions. By 2008, George Mason University, Old Dominion University, James Madison University, Radford University, Virginia Military Institute and the Virginia Community College System graduated to Level II, which provided heightened control over IT, procurement and capital outlays.

As an incentive to meet the statewide goals enumerated in the 2005 Restructuring Act, the state dangled incentives in FY 2007 worth $53 million. These benefits included:

  • Automatic re-appropriation of unexpended year-end balances (accounting for four-fifths of the total).
  • Interest on tuition, fees and other nongeneral fund revenues deposited in the state treasury.
  • A pro-rated share of the rebate on small credit card purchases.
  • A rebate on transaction fees paid for sole-source procurement.

For institutions to get their share of the money, the State Council of Higher Education for Virginia (SCHEV) would have to certify that they met the state goals. SCHEV would devise metrics for each goal, publish periodic reports and rate each institution’s performance.

How has increased autonomy worked out?

Bacon’s Rebellion asked to interview officials at the four covered institutions — UVa, Tech, W&M, and VCU — to see how they evaluated their experience with the 2005 Restructuring Act. Virginia Tech did not respond to the request. The other three institutions submitted email answers to my questions. I summarize the highlights here.

University of Virginia. The Act provides a framework for better long-term planning, says UVa spokesman Anthony de Bruyn. Speaking generally, higher-ed institutions have more flexibility to streamline processes, implement best practices and policies, and improve recruitment, retention, and compensation of faculty and staff.

UVa is now implementing a new Human Resources initiative. UFirst, designed to eliminate “systemic inefficiencies and redundancies,” including “70+ disjointed systems that collect HR data and five different learning management systems across three entities.” So far, the university has downsized its HR staff from 270 to 240 employees, and anticipates slimming down by 40 more as it merges the HR departments of its academic and medical divisions.

“Overall the Restructuring Act has lived up to our expectations,” de Bruyn said. “We now enjoy a greater degree of autonomy, flexibility, and accountability for our business processes which has improved the way we work.”

But de Bruyn offered two caveats:

  • “We continually have to guard against retrenchment of the authority granted in our management agreement from both the executive and legislative branches of government. Often these attempts are unintentional because individuals are not aware of how we operate under the provisions of the management agreement.
  • “Despite successful outcomes on the performance standards set for us, the Commonwealth often holds back the financial incentives provided for in the Restructuring Act (i.e. interest on tuition balances, credit card rebates, and procurement fees for sole source purchases).”

College of William & Mary. “For W&M, the Act has provided us with the ability to manage our financial operations, capital outlay, personnel, procurement and information technology more efficiently while still adhering to state policies and expectations,” says W&M spokesperson Suzanne Seurattan. “The university continues to work with state leaders to look for opportunities to expand its authority under the Restructuring Act and continue to ensure that the principles and operational flexibility provided under the Act remain in place.”

Virginia Commonwealth University. “VCU has used [Level III] status to enhance opportunities in procurement, capital projects, leasing and information technology areas,” says university spokesman Michael R. Porter.

Like UVa, VCU has used its autonomy to redesign its human resources system. The Great Place H Redesign includes:

  • Visible career paths;
  • Professional development and networking opportunities;
  • Merit-based pay for outstanding service to students and faculty, and for achievements that advance university priorities;
  • Performance evaluations, with goals linked to strategic priorities; and
  • Transparency and accountability.

How much is autonomy worth? Two years after enactment of the 2005 Restructuring Act, the Joint Legislative Audit and Review Commission (JLARC) conducted a review of the law’s implementation. State agencies’ satisfaction with the Level III agreements was “mixed,” concluded the 2008  report, but none of the issues were deemed deal breakers. For their part, Level III universities were beginning to identify tangible benefits.

In addition to the nearly $53 million worth of financial incentives enumerated in the act, JLARC counted $6.9 million in capital savings and $2.5 million in administrative savings for the Level III institutions.

But the financial incentives have dwindled over the years. Since FY 2014, the state clawed back the earnings on interest and credit-card rebates. In FY 2015, according to SCHEV spokesman Greg Weatherford, the grab-bag of incentives amounted to only $12 million, 98% of which was comprised of carry-forward funds.

It is harder to estimate the benefits universities have gained from greater freedom from state regulation. A consolidation of UVa’s HR programs, for instance, will cut 70 administrative employees. The university has not put a dollar figure on the initiative, but if we assume an average savings per employee of $70,000 (salary plus benefits), the cuts could save nearly $5 million a year.

There is no basis for calculating savings, if any, from IT, procurement, capital spending, or finance.

Tuition increases. Most visibly, the restructuring act has given public higher-ed institutions a freer hand with tuition. Even the institution showing the greatest restraint, the University of Virginia-Wise campus, raised tuition & fee increases three times faster than the 18.4% rise in the Consumer Price Index between 2006-07 and 2016-27. At William & Mary, the most aggressive institution, tuition increases outpaced the CPI by a factor of more than 10.

Increase in in-state, undergraduate tuition & fees. Source: State Council of Higher Education for Virginia.

 

 

 

 

 

 

 

 

 

 

Experts disagree whether rising tuition should be blamed upon eroding state support for higher education or the institutions’ own runaway costs. The matter is not easily settled. 

In a 2014 study, “Addressing the Cost of Public Higher Education in Virginia, “the Joint Legislative Audit and Review Commission (JLARC) found that for every dollar the state had cut in support between 1998 and 2012, Virginia’s public colleges and universities had increased tuition by about $1.50. But those numbers are somewhat dated now.

In a November 2016, House Appropriations Committee fiscal analyst Tony Maggio estimated that state support per in-state student shrank by $1,634 inflation-adjusted dollars between 1996 and 2015. Over the same period, average inflation-adjusted tuition & fees increased by $3,186, almost twice as much. In effect, for every dollar the state cut, colleges and universities boosted tuition by $2. Defenders of the higher-ed system countered that Maggio had cherry-picked the starting date for his comparison, and that starting the analysis in 2001 would have shown tuition increases matching state budget support almost dollar for dollar.

Whomever’s explanation is correct, there is no escaping the fact that universities have enjoyed a long run of freedom to increase tuition and fees with little political interference. And there is no denying that, other than the 2014 JLARC report, no state entity has conducted a through, ongoing analysis of university costs.

The state has generated a lot of data but nothing that would allow citizens get get a definitive answer to a seemingly basic question.

In the third post of this series, we will examine the goals set by the state and the performance standards universities have been held to.

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5 responses to “Cutting the Strings

  1. The quality of these institutions should be addressed. There are myriad ratings providers which would let us see how these colleges with skyrocketing tuition performed (at least in the eyes of the raters). My recollection is that UVA has been falling like a stone through water while jacking up tuitions through the ceiling.

  2. There is a certain irony to the threat of more “regulation” if prices aren’t “controlled”, eh?

    I wonder if that same technique works for other areas of the economy?

  3. Governors come and go. Individual legislators come and go, and even those who abide often have short horizons, 2 and 4 years, and get off on other priorities. The universities and their boards and leaders have longer time horizons and if you look at the world the way some do – politics – the schools have large blocks of well-placed alums, as well. Long before this bill in question passed I viewed the school presidents as equivalent to feudal barons able to marshal their own forces to challenge the king. The schools are still firmly focused with laser intensity on the autonomy they want. They cooperate closely. Those who worry about where we are heading, we don’t have out act together.

  4. I think Steve has it right… These guy roll with whoever is in office and whatd ever they do.. never losing sight of what their longer term plans and goals are.

    I just am agog that apparently some folks think they can/should control the price of tuition by threatening MORE govt regulation… geeze ..what a concept.

    Let’s try that with WalMart or …hey .. insurance companies !!!

    and second – since when do we “subsidize” folks with incomes in excess of 100K to make things “more affordable” to them? Not even ObamaCare does that!

    I thought when you got your big boy financial pants – that you took responsibility for your own finances and choices made…etc… you got your piece of the pie.. as the Jeffersons would say…

    Are we really this way? … anyone who is below the level of “rich” has a household income of 100K or better … “deserves” some kinds of subsidies .to make things more “affordable”?

    geeze

  5. Well heck, Larry, let’s charge the upper income people more for every service! Why should the fire department show up for the same price as it charges to poor people? How dare they not pay a higher fee for a library card? Do their kids deserve a free K-12 education? Soak the rich!

    Wait a minute, that is what the tax code does. The state tax on a $250,000 AGI is lot more money than the state tax on a $20,000 AGI. Likewise the local taxes on more valuable houses and cars – far more cash is collected. I have no complaints over what I’ve paid in VA and local taxes because my children were the direct beneficiaries, and having paid more taxes I lose no sleep they got the same sticker price at their schools as everybody else.

    This is one of the more obnoxious lines of reasoning I’ve heard in this debate. It is used to justify the practice of adding a surcharge to tuition as a transfer payment to other students. It is intended to distract people from the real debate – in education as it is in health care – over what things do and should cost. The meaningless argument in DC right now is over who will pay the healthcare bill for somebody else, with far too little attention on why the healthcare bill is so high. That simple list in Jim’s post poses the question – given those are all state universities in the same state, why those whopping disparities? Why does a BS cost so much more at some schools than others? Should it?

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