The need for new funding models

by Charles Steger '69

My belief in the transformative power of education is unshakable. It has been said many times: Our future and the futures of young Americans are dependent on quality educational opportunities. But I am a little worried about the system's ability to maintain viability and make room for 38,000 additional students by the end of the decade when traditional funding models are not working.

Virginia has never supported higher education lavishly. Even during good times in the 1980s, state support per student never ranked higher than 28th among the 50 states. During the 1990s, state support fell even more. Currently, Virginia ranks in the bottom 20 percent of states. The General Assembly's Joint Subcommittee on Higher Education Funding Policies reported in December 2000 that the commonwealth's colleges and universities were underfunded by about $240 million annually. After the most recent rounds of cuts, the shortfall is a staggering $350 million per year.

The long-term prognosis for rebuilding state support is mixed. While Virginia government has recognized the shortfall in state funding for higher education, the state's own revenue crisis is of such magnitude that it appears unlikely higher education will ever fully recover relying solely on state appropriations.

The Commonwealth of Virginia now faces severe underfunding for roads, K-12 schools, higher education, natural resources, and a host of other traditional state responsibilities. It is unlikely that Virginia colleges and universities will see adequate state funding based on current funding models within the next decade.

Less than one third of Virginia Tech's budget comes from the state. The University of Virginia receives less than 10 percent of its overall revenues from the state. Since the commonwealth now provides only a small percentage of the overall institutional budgets, some have suggested that Virginia's leading universities ÒprivatizeÒ in order to have greater control of costs, revenue streams, and their own management systems.

We do not wish or intend to be anything other than a public university. However, there may be other options for larger state universities, such as Virginia Tech, including expansion of pilot ÒdecentralizationÒ projects.

The degree of control on Virginia's universities may come as a surprise for some. Currently, Virginia Tech is an enterprise with an annual budget of about $700 million. Yet, until the early 1990s, the university forwarded 25,000 monthly transactions to an accounting office in Richmond for payment. Semi-monthly paychecks for 10,000+ employees were issued from Richmond. That is no longer necessary. As the strings loosened, efficiency improved, and now it is time for the strings to be loosened more.

Although boards of visitors are vested with authority by the state to set tuition levels at their respective institutions, the General Assembly mandated tuition policy for seven years in the 1990s. The assembly either froze or reduced tuition, effectively hamstringing university decision makers. The needs of each school vary throughout the state and the respective boards are in a much better position to understand funding needs, tuition market sensitivity, and student financial-aid needs.

The Virginia university of the 21st century will require more than control of its revenue stream. It also needs management tools. Currently underway among several Virginia universities are additional pilot programs of ÒdecentralizationÒ giving authority for many management functions now controlled by the commonwealth. The schools have demonstrated attendant efficiencies and have asked the current General Assembly to make permanent many aspects of these pilot projects, including more control over property leasing, facility design and construction management, building maintenance, motor vehicle purchases, setting employment levels, and personnel recruitment. Such authority--and more--is essential in order to manage efficiently, find continuing cost savings, and move quickly to respond to the marketplace.

Even with state appropriations never more than the national average, Virginia's colleges and universities have become among the best in the nation. Now, with long-range prospects of minimal state support, the state's colleges and universities must be nimble, flexible, and creative in order to raise necessary revenues, maintain quality programs, pay competitive salaries, and provide top-flight study opportunities for students. Freeing schools from unnecessary bureaucratic controls and fostering market-based management thinking is but a start.