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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