Public universities are not for-profit businesses with an easy-to-understand bottom line: their financial reports are not designed to convey information to the public fully or to reflect all the costs of teaching and research. Financial reports do track every dollar in accordance with the accounting rules required by auditors, but they do not adequately inform the public about revenues and expenses or productivity and efficiency. They obscure different revenue sources, the actual costs of different functions such as teaching and research, and the subsidization of expensive programs by less expensive ones. In a time of budget cutting, this complexity becomes a problem as confusion about the productivity, efficiency, and cost of higher education leads to decisions that can seriously cripple public universities.
Universities have many sources of funds, but most are restricted, meaning that they may be spent on only one purpose. Gifts for a named professorship, scholarship, center, or building, for example, must be spent in accordance with the terms of the gift. Legislators and others assume that since universities have sources of income other than state appropriations, state funding can be cut without harming universities; what they often fail to realize is that the state and the students themselves are the primary funders of the educational functions of public universities. When state funding is cut, the core enterprise, education, is cut. The recent state budget cuts have thus had a disproportionate effect on the education of students.
Quality and Reputation
Because administrators do not like to talk publicly about the negative effects of budget cuts, many people outside the university do not realize how much damage these cuts are causing. While it is important for legislators and governors—and the public at large—to understand these negative effects, advertising the effects hurts our ability to recruit faculty members and students and depresses morale. We know, however, that when we increase class size, rely more heavily on contingent faculty, and cut staff, we are indeed interfering with the quality of education we provide to students.
Faculty members at Arizona State University, where I serve as provost, care deeply about quality and reputation and have worked hard to ensure that students suffer as little as possible from the budget cuts in our state. Between 2008 and 2010, ASU decreased the number of faculty members supported by state funds and tuition from 2,838 to 2,609 and the number of state- and tuition-funded staff members from 4,178 to 3,621. Our enrollment during this period grew from 67,082 students to 70,440, which increased the number of full-time equivalent (FTE) students per faculty member from 24.7 to 27.9. State appropriations are down from fiscal year 2008 to fiscal year 2012 by 38.9 percent. While tuition increases have made up some of the lost funding, total university spending is down $1,581 per student FTE, a decrease of 12.1 percent. We have reduced the number of class sections offered per one hundred FTE students by 16.5 percent, giving students less choice; increased average class size by 12 percent (from thirty-three to thirty-seven students); and increased the percentage of classes with more than fifty students from 12 to 17 percent.
We cannot increase class size any further because our classrooms are full, and we have no way to build more large classrooms. We have, however, used new approaches to teach mathematics with technology and individual pacing, improving learning and decreasing costs. We have adopted a new calendar that allows students to finish in fewer semesters. We have decreased administrative costs by reducing academic units and cutting staff. We have accomplished energy savings, improvements in procurement processes, and improved use of technology to save costs. We have enhanced revenue by increasing enrollment in ASU online, recruiting more out-of-state students, and increasing retention of all students.
In terms of tuition and state appropriations per FTE and degrees awarded, we are one of the most efficient public research universities in the country. Our faculty, at the same time, has increased its research productivity, going from $142 per tenured or tenure-track faculty member in sponsored research expenditures to $185. These facts are invisible to the public. And because we do not speak openly about these matters, many state legislators believe we have sustained no injuries from the cuts we have suffered.
Tuition and Costs
When parents and legislators complain about the rising cost of higher education, typically they mean the cost to the student: tuition. However, as with automobiles, where the sticker price is not normally the price paid, the posted tuition price is not the true cost of education for the student. The federal government, of course, has many financial aid programs, including the Pell Grant program for the neediest, which currently pays $5,550 a year for an eligible full-time student. The federal government also has a tuition tax credit (the American Opportunity credit), which reduces the cost of attendance even more. Many states have merit-based financial aid programs—the Hope Scholarship in Georgia and Bright Futures in Florida, for example.
The state of Arizona funds no financial aid, but Arizona State University does. In 2009–10, ASU spent more than $143 million on financial aid, and the average tuition actually paid by students was $2,231—substantially less than the sticker price of $5,997. By raising tuition and filling in with financial aid, we essentially reduced the amount that the state pays for wealthier students and gave it to the poorer students.
Some disciplines bring in more money to the university than their base costs. Cutting a discipline that is generating revenue is not sensible in a time of declining resources. Humanities and social sciences are net revenue generators in universities, in part because of lower salaries in these disciplines. These disciplines also generate a larger number of credit hours as a result of general education requirements filled by courses in the humanities and social sciences. Nursing, engineering, and the sciences are usually net revenue losers: even when students pay a differential fee, the fee amount is insufficient to make up for the expense of the faculty, the labs, and the small class sizes.
Research and doctoral education are also money losers. The federal government reimburses only part of the true indirect costs, so universities subsidize every grant for that portion of the indirect cost using tuition funds from revenue-generating programs in fields such as the humanities and social sciences. Research is a core mission for universities, and undergraduates arguably benefit greatly from being taught by faculty members who carry out research. These faculty members are at the cutting edge—students can learn the process of discovery and be a part of the actual development of knowledge, not just consumers of pat answers. States are increasingly looking to university research for economic development, but they are generally unwilling to pay much for that research. When the base budget of universities is cut, so is the revenue that supports research.
Boards often focus on the academic program as a meaningful unit of analysis and believe that cutting such programs saves money and adding them costs money. But universities are not managed by programs; they are managed by academic administrative units—colleges and departments and schools. And the main costs in a university are not programs but faculty members. If the same faculty member teaches in fewer programs, the university is being less efficient, not more so. And if more programs are added without increasing the size of the faculty, the university is more productive, not less.
There is no necessary correlation between the size of academic administration and the number of academic programs. Here at ASU, we have reduced the size of the administration without eliminating academic programs. Not every academic discipline requires a department, which involves staff and other expenses, and consolidating academic departments has facilitated interdisciplinary work without interfering with the progress of disciplinary work. Collaboration across disciplines has increased as a result of our administrative mergers. ASU reduced the number of schools from twenty-three to sixteen and the number of departments from eighty-seven to fifty-five through consolidation.
Boards also often measure productivity in terms of programs—numbers of degrees awarded or majors in each program. Only in professional schools are the faculty and students tied directly to academic programs. Many legislators and board members are lawyers, and in law, the faculty teach law, the students are admitted to law, and the credit hours and degrees are in law. This model does not fit undergraduate education at all. Undergraduate students in the professional schools (such as engineering, business, education, and social work) all take courses in the arts and sciences, so arts and sciences faculty teach many students who are not majoring in those areas. Even in the professional schools, many students taking courses are from outside disciplines. For example, at ASU, 14 percent of the FTE in the College of Engineering come from students not enrolled in the college, as do 22 percent of those in business and 14 percent of those in education.
Public universities produce about 65 percent of the baccalaureate degrees in the United States and do so at a much lower cost to the student than the prestigious private universities. The recent budget cuts have had a drastic impact on the ability of public universities to continue to deliver a high-quality undergraduate education. The biggest threat to our country’s economic future is that state legislators and the public will fail to understand the great value they now are getting from their public universities
Elizabeth D. Capaldi is executive vice president and provost at Arizona State University. She previously served as provost at the State University of New York at Buffalo and then as vice chancellor and chief of staff of the SUNY system. Prior to that, she was provost at the University of Florida.