by James A. Bacon
Bad news for Virginia’s public colleges and universities, and for the students and parents who pay tuition: Faced with a $1.5 billion shortfall in the biennial budget, Governor Terry McAuliffe has told public institutions to take a 7.5% reduction in state appropriations in the next fiscal year.
A memorandum by Chief of Staff Paul Reagan warned higher ed officials that McAuliffe expects them “to make a concerted effort to identify real, ongoing efficiencies and related savings” while avoiding tuition increases. “Tuition and fee increases beyond what was already being proposed in an institution’s six-year plan should not be considered as a mechanism to offset those reductions,” Reagan wrote.
In its account, the Richmond Times-Dispatch did not say how much the cuts would amount to in total, although it noted that the College of William & Mary anticipates a $3.275 million reduction. The Virginia Institute of Marine Science will have to eat a $1.56 million cut.
Bacon’s bottom line: Sadly, these cuts were almost inevitable. And, despite the governor’s directive to hold the line on tuition increases, it is just as inevitable that Virginia institutions of higher learning will find some way to shift the pain to its students. While some genuine belt-tightening might occur, history has demonstrated that Virginia universities have placed a higher priority on their plans for institutional advancement over affordability. One way or the other, the cost of higher education will increase.
Here’s another sad reality: Unless the General Assembly is willing to raise taxes, which it isn’t, the state will be in no position to restore the higher-ed cuts in the foreseeable future. The state economy remains in slow-growth mode, and there are too many other pressing demands for state dollars.
The Medicaid program is crowding out spending in all other categories. As the Joint Legislative Audit and Review Commission (JLARC) reported last month, Medicaid spending has almost doubled over the past 10 years, adding $2 billion a year to Virginia’s budget. (Virginia and the federal government split Medicaid funding roughly 50/50.) There is no indication that Medicaid spending is slowing.
Public pensions are another huge problem. State payments to the Virginia Retirement System (VRS) are predicated on the assumption that the VRS’s $68 billion portfolio can generate an average return on investment of 7.0% annually, even as investment returns remain depressed while the Federal Reserve Bank and central banks globally flood markets with credit, pursue zero-interest-rate policies, and depress risk-adjusted returns on capitalk. At some point reality will set in, the magnitude of the under-funding will be recognized, and the General Assembly will be forced to increase its payouts by tens, if not hundreds, of millions of dollars yearly.
Meanwhile, the state is facing a long-incubating personnel crisis. Every year the General Assembly aspires to give state employees a raise, and every year promised pay hikes are the easiest budget cuts to make. As Baby Boomers in the state workforce retire in large numbers, state agencies will be hard pressed to fill critical positions. Either the General Assembly will have to pony up more funds to keep pay competitive or the gears of state administration will grind to a halt.
Finally, the current economic expansion is getting long in the tooth. Nearly eight years in length, it is one of the most enduring (albeit weak) business cycles in U.S. history. Any number of events in the increasingly interconnected global economy could spark another recession, which would cripple state and local revenue and trigger another round of painful budget cuts. The ability of colleges and universities to hike tuition, and the ability of students to borrow ever more debt to pay for it, is one of the few areas of slack in the state budget.
Unless we fundamentally rethink how we deliver higher education in Virginia and how we finance access to that education, we are looking at relentless tuition increases for at least another decade.
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