State universities turn to private-sector funding

Posted on November 25, 2005 | Type: In the News | Author: Chris Casacchia
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Arizona universities are turning to the private sector to replace public funding, following a growing trend across the country.

Although state funding for Arizona's three public universities has increased 49 percent since 1997 -- from $800 million to $1.2 billion in actual dollars -- the percentage of state funds allocated to higher education has steadily decreased over the last 25 years.

According to the Center for the Study of Education Policy at Illinois State University, state investments peaked in fiscal 1974, when $15.08 per $1,000 of total personal income was spent on higher education.

Since then, funding has dropped about 60 percent to $6.08 per $1,000 of personal income. Only South Carolina and Colorado marked a higher decline than Arizona during the same period.

"Taxpayer funds are being distributed in ways that place public universities in a position of diminishing state support as a percentage of the total state budget," said University of Arizona President Peter Likins. "That's typical of public universities all over America."

Arizona universities still can become world-class research institutions and be less financially dependent on the state by adopting some of the same principles that guide business, according to a report released Nov. 1 by the Goldwater Institute, a conservative think tank.

The report, "The Privately Financed Public University: A Case Study of the University of Michigan-Ann Arbor," examines how UM-Ann Arbor became the first public university to top both academic and Wall Street rankings as Michigan curtailed the percentage of state funds for the university.

In 1965, UM-Ann Arbor received 70 percent of its funding from the state, but by 2003, had reduced its reliance on state funds to 10 percent of total revenue.

In Arizona, state appropriations constitute 31 percent of Arizona State University's budget and 28 percent of UA's budget, according to university officials.

"The University of Michigan shows that it is absolutely possible to reduce your reliance on public funding," said Vicki Murray, director of the Goldwater Institute's Center for Educational Opportunity and author of the 44-page report. "Their success is due to strategic planning, aggressive fundraising and vigorous resource management."

Murray said universities should strive to be as efficient as private business. Citing ASU's and UA's poor graduation rates, Murray said public funding is not being adequately used.

According to the Chronicle of Higher Education, the state's universities had some of the lowest graduation rates in the country from 1990 to 2000 -- ASU at 49 percent and UA at 51. By comparison, UM's graduation rate was 81 percent.

"They are going to continue to get state and local appropriations regardless of what the graduation rates are because it's input driven, not output driven," Murray said. "That's a fundamental shortcoming of the way we fund education."

As a privately financed public university, UM more than doubled its general revenue from $1.8 billion in 1990 to more than $4 billion today by aligning tuition more closely with costs and identifying core academic programs, according to the report's findings.

Resident and nonresident tuition increased 33 and 35 respectively at UM from 1995 to 2005. Resident tuition is $9,700 and nonresident tuition is $28,000, making UM the most expensive public university in the country for nonresidents and the third most expensive for residents.

ASU and UA have taken similar steps to boost revenue through tuition increases. According to USA Today's 50-state survey of 67 public flagship universities, which was released in October, UA ranked first and ASU ranked fourth in the country in tuition increases since 2002. UA's tuition has increased 74 percent and ASU's tuition has increased 70 percent.

Virgil Renzulli, vice president of public affairs at ASU, said public funding oppnents don't view universities as part of a state's infrastructure, but they should.

"These days, as you go to a knowledge economy, a high-tech economy, a university is as important as having a highway structure," Renzulli said

The report also recommends that alumni support for both Arizona universities can be improved. Both universities have twice the alumni as UM but half the giving rates. Approximately 8 percent of ASU's more than 250,000 alumni donate, while 10 percent of UA's 224,000 alumni are donors.

"Increasing alumni giving was essential to the University of Michigan's success," Murray said.

Murray said ASU and UA have taken positive steps in the right direction.

During fiscal 2004, ASU and UA each raised about $100 million in private donations. In addition, UA finished its first $1 billion fundraising campaign in the state's history, raising $1.2 billion between July 1997 and June 2005.

"What we're all trying to do at research universities is diversify our revenue streams," Likins said. "There is an unspoken consensus in America that public universities are going to have to be more and more on their own financially."

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