Patrick McSweeney



A Better Way to Finance

Higher Education

It's time to wean colleges from state subsidies and make them more responsive to the marketplace.


With the pronouncement by House Speaker William Howell, R-Fredericksburg, that he won’t support a tax increase at the next session of the Virginia General Assembly, the major issue in this year’s legislative campaigns is now in sharp focus. Democrats, heartened by the vote at the April 2 reconvened session to sustain Gov. Mark Warner’s veto of legislation repealing Virginia’s estate tax, seem willing to engage on the tax issue.

 

Warner issued a statement immediately after his veto was sustained saying that fiscal sanity had returned to the Commonwealth. He justified his veto in part because parents and students are paying higher college tuitions. Ironically, he was asking the General Assembly on that same day to lift the statutory limitations on tuition increases.

 

Simply increasing spending on higher education — whether through appropriating more general tax revenues to colleges or allowing colleges to bring in more money through higher tuitions — isn’t the answer. Even if it were the answer, increasing state subsidies to public institutions may actually make the problem worse.

 

The problem with tax subsidies is that they distort decision-making and blur accountability. Those who are in the best position to make decisions about the proper tradeoff between the level of program offerings and the cost of providing them are the trustees and administrators of the colleges (and, in turn, the parents and students themselves). State legislatures have come to realize that they are poorly situated to make those calls.

 

College tuitions are rising at a far higher rate than inflation. One of the principal reasons is the growing demand for enhanced offerings from these institutions. Colleges are responding to the pressure from parents and students for costly additions ranging from internet connections to exercise machines. Competition for new students has prompted college trustees and administrators to bid ever more aggressively for these enrollees. There must be an end to this spiral.

 

The General Assembly is well-advised to encourage competition among these institutions. As long as the colleges are forced to make the tough decisions themselves by balancing tuition increases against program enhancements, this competition is self-regulating. Not so if colleges can count on the taxpayers to continue subsidizing the enhancements.

 

This problem is not confined to Virginia. Tuitions are rising all across the United States. Most states are actively considering greater reliance on market-oriented solutions rather than increasing appropriations of general fund revenues.

 

There is growing public support for making all institutions of higher education self-supporting. Many in higher education as well have become advocates of requiring each college to become more efficient as it competes in a marketplace for new students. As the Wall Street Journal recently reported, this trend is gaining momentum.

 

The objective is to force each institution to depend on tuitions, fees for services such as room and board, and privately raised contributions to sustain itself.  The tradeoff is in the heightened flexibility each college will enjoy as bureaucratic controls are lifted.

 

Students without the means to attend college on their own will not be abandoned. Every college relies on cross-subsidization to provide financial support for these students. There is also a continuing role for state and federal programs that provide direct financial assistance to deserving students.

 

The answer of the Democrats is too often a simplistic tax increase to fund more of what’s been done for decades. As this year’s campaigns will surely demonstrate, the voters aren’t interested in more of the same.

 

-- April 28, 2003


 

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McSweeney & Crump

11 South Twelfth Street
Richmond, Virginia 23219
(804) 783-6802

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