Going to Market Part II

On December 8, 2011 the provost and the business school dean presented to the six Regents who serve on the Educational Planning & Policy Committee the proposal of the administration to impose a tuition surcharge on the undergraduate students in the business school.  By the end of a three year phase-in period the business students would be paying a "differential tuition" that would be $2,000 more per year than the other undergraduate students on the Twin Cities campus.  The tuition surcharge would generate $4.9 million for the business school.  See p. 16 of the December 8, 2011 report of the Committee.

The senior administrators told the Regents that the increases in tuition over the past five years have not offset the decline in state funding and increases in operating costs.  They informed the Regents that allocations of state appropriations have fallen from approximately $14 million in fiscal year 2007 to $4 million in fiscal year 2012 and are now less than 4% of the business school budget.

1.  Allocation of state appropriations.

The state legislature does not determine the amount of state appropriations that the business school receives each year.  The legislature provides a lump sum grant of hundreds of millions of dollars in state appropriations for the general fund of the University (the Operations & Maintenance fund).  The senior administrators and the Regents are the persons responsible for determining the amount of state appropriations to allocate to the business school (and to all the other units of the University).

In fiscal year 2007 the University received $556 million in state appropriations for its general fund.  The administration allocated $13 million (2.3%) to the business school.  See p. 69 and p. 71 of the June 27, 2007 report of the Board of Regents.

For fiscal year 2012 the University received $484 million in state appropriations for its general fund.  The administration allocated $3.3 million (0.7%) to the business school.  (By comparison, in fiscal year 2012 the administration allocated $6.9 million in state appropriations to the athletic department.)  See p. 103 of the September 9, 2011 report of the Board of Regents and pp. 80-81 of the June 10, 2011 report of the Board of Regents.

The administration made the decision to reduce the allocation of state appropriations to the business school.  Now it seeks to impose a greater financial burden on undergraduate business students (and their parents) in the form of "differential tuition."

2.  Tuition

Is it accurate for the administration to assert that the increases in tuition over the past five years have not been sufficient to offset its $10 million reduction in the allocation of state appropriations to the business school and the increases in operating costs?  Let us examine the actual numbers (that the senior administrators failed to provide to the Regents).

In fiscal year 2007 the business school collected $54.9 million in tuition, fees, and executive education tuition.  See p. 29 of the 2007 annual report of the business school.

In fiscal year 2011 the business school collected $68.7 million in tuition and fees and an additional $3.3 million in executive education tuition (now reported separately).  See the Financial Report section of the 2011 annual report.

Then there are the additional sources of revenue--endowment earnings and gifts--that the senior administrators also failed to disclose to the Regents.  (The business school has its own endowment fund that increased in value from $117 million at the end of fiscal year 2008 to $137.5 million at the end of fiscal year 2010.  See the final line of Facts & Figures of the business school.)   In fiscal year 2007 the business school received $8.3 million in endowments earnings and gifts.  See p. 29 of the 2007 annual report.  In fiscal year 2011 the business school received $10.5 million in endowment earnings and gifts.  See the Financial Report section of the 2011 annual report.

On the issue of accuracy consider that the senior administrators told the Regents that the number of faculty had remained "static" over the past eight years from 104 in fiscal year 2004 to 104 in fiscal year 2011.  (The administration advances the need to hire additional faculty as the primary justification for a tuition surcharge.)  Yet the number of faculty increased from 104 in fiscal year 2010 to 111 in fiscal year 2011 without any tuition surcharge (as reported by the business school itself).  See the Statistics section of the 2011 annual report.

The senior administrators present to the Regents the facts that support the proposals of the administration.  The Regents are part-time volunteers.  They do not conduct their own research on the facts and then make independent assessments.  So the outcome is preordained.  Virtually every major proposal of the administration is approved by the Regents, usually by unanimous vote.

3.  A Financial Barrier

Shortly after taking office President Kaler made a pledge:

I will push back on anything that begins to put a financial barrier in front of qualified students.

See p. 8 of the Fall 2011 issue of Reach, the magazine of the College of Liberal Arts, (emphasis added).

A reporter asked the president about his pledge in light of his support for the tuition surcharge on undergraduate business students.  He responded:

The combination of financial aid and the marketplace is consistent with the idea of not putting a barrier in front of qualified students.

See the January 16, 2012 report of the Star Tribune on Chasing U Funding.

An unspecified amount of the tuition surcharge would be used to provide scholarships to students in need according to the written materials that the senior administrators presented to the Regents on December 8, 2011.  Yet when a Regent asked the business school dean about this unspecified amount the dean responded that none of the $4.9 million surcharge would be used for scholarships.  The business school would instead rely on "private funds and other means" for scholarships.  See the December 9, 2011 report in the Star Tribune on U Regents hear pitch for Carlson tuition hike.

The undergraduate students in the business school should not hold their breaths waiting for a significant increase in scholarships.  The dollar amount of scholarships awarded by the business school has barely budged from $3 million in fiscal year 2007 to $3.3 million in fiscal year 2011 despite an increase in enrollment of more than 300 undergraduate students.  See p. 27 of the 2007 annual report and the Statistics section of the 2011 annual report.

The "marketplace" factor mentioned by the president is a reference to the fact that the average starting salary for a graduate with a B.S is over $48,000 according to the business school.  See the Facts & Figures of the business school.

If the business school provides a quality education, then the administration should have confidence that the students will support the school after graduation (and will be able to do so because the students will not have large student loans).  The administration should not have to resort to strong-arming the students (and their parents) with a tuition surcharge while the students are still in school.

There is a final point to make here regarding a tuition surcharge.  The senior administrators place an emphasis on the "significant private benefits" that the business students receive.  See p. 18 of the December 8, 2011 report of the Educational Planning & Policy Committee.  This emphasis serves to reinforce the perspective of some state legislators of a college education as merely vocational training.  Those legislators then have no hesitation in voting to slash state appropriations to the University in order to shift more and more of the cost of education to the students who receive "significant private benefits."

4.  A "Minor" Amendment

The current policy of the Board of Regents requires that on each campus of the University the same resident undergraduate tuition rate must be charged to all resident undergraduate students.  The administration is proposing what it describes as a "minor" amendment to the policy by adding this sentence:

A college specific tuition surcharge may be established as a supplement to the relevant undergraduate tuition rate.

See the final paragraph on p. 19 of the December 8, 2011 report of the Educational Planning & Policy Committee.

The scope of this "minor" amendment is without limit.  It could be used to impose a tuition surcharge on the undergraduate students in any of the colleges at the University.

Perhaps the "marketplace" factor would be used next to justify a tuition surcharge on the undergraduate students in the College of Science & Engineering or in the College of Biological Sciences.  (Some universities have already imposed "differential tuition" on undergraduate students in engineering.)  The graduates of these colleges probably have an average starting salary that is greater than that of the graduates of the College of Liberal Arts.

The administration asserts that it does not have any plans at the present to impose a tuition surcharge on any other undergraduate students.  But, as American philosopher George Santayana reminded us, "Those who cannot remember the past are condemned to repeat it."

During the past 10 years the administration has increased spending on operations by 50% to $3 billion per year.  The senior administrators have financed their billion dollar increase primarily through skyrocketing tuition that has more than offset the reduction in state appropriations.  See section 1 of $tate of the University--A Parent's Perspective.

The administration has declared that "tuition is the revenue stream with the highest potential for significant, long term growth."  See New Fiscal Reality No. 2 on p. 8 of the 2009 Report of the Future Financial Resources Task Force; see also, Recommendation No. 2 (Grow Tuition Revenue) at pp. 7, 51-52 of the 2011 report on Financing the Future.  The "minor" amendment that would allow the administration to impose a tuition surcharge on undergraduate students in any college at the University opens the floodgate to this "revenue stream."

The billion dollar increase in spending by the administration over the past 10 years compels it to now do everything it can to increase the "revenue stream" of tuition in order to maintain a $3 billion (and growing) annual budget.  As Professor Chris Cramer, chair of the Faculty Consultative Committee, recently observed:

The broader problem is that the vision should be that this is a university where the best courses are taught, but it is moving to teaching courses that instead make the most money.

See p. 6 of the December 22, 2011 report of the FCC (emphasis added.)

                              

Conclusion

In fiscal year 2012 the University received $484 million in state appropriations for its general fund.  The administration allocated $3.3 million (0.7%) to the business school.  The amount that the business school collects for tuition, fees, and executive education tuition increased from $54.9 million in fiscal year 2007 to $72 million in fiscal year 2011.  The amount that the business school receives from endowment earnings and gifts increased from $8.3 million in fiscal year 2007 to $10.5 million in fiscal year 2011.  If the business school truly needs additional funds to hire faculty, the administration should increase the minuscule percentage of state appropriations that it now allocates to the school--not impose an even greater financial burden on the undergraduate students and their parents.

                                                                                                                                        

 Related Posts

Going To Market

Deck The Halls

Off Course in Higher Education

Course Correction in Higher Education

University Inc. Part II

Michael W. McNabb 

University of Minnesota B.A. 1971; J.D. 1974

University of Minnesota Alumni Association life member

-