Tough Love & Higher Education

By P.D. Lesko My kids wanted a $1,200 LEGO set. They wanted it badly. They waaaaaaanted it now. They tried to justify the cost. It was important. It was educational. Needless to say, I told them no. Kids who live off the largesse of parents have to be taught the value of money. Some of the lessons are easier than others. The LEGO lesson was a snap, so to speak.   As I've mentioned before, I live in Ann Arbor, Michigan. I hold both my undergraduate and graduate degrees from the University of Michigan at Ann Arbor. When I applied to graduate school, I filled out one application because I only wanted to go to one graduate school. Michigan is one of the best public universities in the entire United States, and routinely appears on lists of the best colleges world-wide. It currently sits at number 15 on the U.S. News & World Report list of the World's Best Universities. I'm proud to have gone there. I want my kids to study there (if it suits their academic plans). As someone who lives in a college town, I must admit the University breathes life into a city that is, in essence, a small berg in the Middle West. There are 38,000 students and 70,000 townies living side-by-side in Ann Arbor.  It also provides a close up look at the immense and complicated problems that face higher education. A small example? If Michigan fires its losing football coach next year, the college will have to pay him $4 million dollars just to get rid of him thanks to an insanely lop-sided contract negotiated by an athletic director who is no longer at the school. If he were, I'd be the first person to suggest a portion of that $4 million dollar pay-off come directly from the AD's salary. This is the same man who, in 2006, in the middle of the worst recession in the history of the state, asked U of M Regents to approve a $266 million dollar renovation of the university's football stadium. Can you smell the money burning? If you work for the University of Michigan and don't take advantage of the health care benefits, the University of Michigan will pay you for not using the perk. As a small business owner and a taxpayer, I find the practice absurdly wasteful. As someone who has written about higher education for 20 years, I know the practice is wide-spread within higher education. While the U, with its 25,000 employees, scrapes by on a $1.2 billion dollar annual General Fund budget, and a $4 billion dollar overall budget, Ann Arbor's taxpayers have weathered cuts in both police and fire protection, sharply hiked fees for a variety of services, including sewer and water, watched as elected officials have attempted to sell parkland to pay the bills, and seen service cuts. Meanwhile, our state-supported neighbor received a 2010 state allocation of $316 million—just slightly less than Ann Arbor's 2009-2010 total annual budget of $360 million dollars. On the U of M Provost's web page, visitors can read a self-congratulatory message that touts the U's "belt-tightening." In the Budget Presentation to the Board of Regents, the Provost writes:

Similar to last year, the FY2011 budget includes aggressive cost-cutting measures, amounting to nearly $39 million in reductions, with almost $22 million of that being reallocated to higher priority activities. The result is approximately $17 million in net reductions.... The cost reductions in FY2011 are on top of our on-going cost containment efforts. For information on our efforts, please see www.vpcomm.umich.edu/pa/key/budget/. Over the past seven years, we have succeeded in removing nearly $159 million in recurring general fund expenditures through a combination of efforts. 

Over the past seven years, officials at the University of Michigan have only been able to trim a paltry 3.9 percent from a $4 billion dollar budget. Over the past 20 years, the cost of tuition at the university has increased exponentially. The final year I attended graduate school, tuition per semester at the Horace H. Rackham School of Graduate Studies was $900. In 2010, in state tuition was $8,892 per semester. In 1990, a gallon of milk cost $2.28 and a dozen eggs cost $1.00. The median price of a home was $149,000. Today, the average cost of a new home is $232,000, a gallon of milk costs $3.45 and a dozen eggs cost $1.37. Tuition, then, had it risen at the same rate of inflation between 1990 and 2010, should be $1,800 per semester at most.  Why on earth has the University of Michigan raised the cost of tuition so much? For starters, in an institution with a collective bazillion years of higher education among its administrators, faculty and students, the braniacs there who teach economics, finance and management to MBA students in exchange $22,000 in tuition per semester for in state students, can't for the life of them figure out how to reign in their own gargantuan spending more than 3.9 percent over a seven year period. There's another reason, and that's because in the higher education market, unlike in the world financial markets, there are bulls, bears and pigs. As of late, I've read essays in which the authors argue that state and federal funding for higher education in the United States should be decreased. One of those essays was posted to the E-Zine recently. Try to read it with a completely open mind. The idea sounds crazy, until you look at budgets from institutions such as the University of Michigan, and read reports to regents that pass off 3.9 percent budget cuts as something to write home to mother about. This year, administrators at the institution enjoyed double-digit salary increases because last year, in a public relations gambit, salaries of top paid administrators were "frozen." In a piece published in The Chronicle of Higher Education, one discovers that higher education ranks among the top ten lobbies that spend on federal elections. American higher education is a billion dollar industry populated by egghead administrators lighting their corner offices with $1,000 bills, then spending hundreds of millions on lobbyists in state capitols and in Washington, DC to beg, borrow and wheedle more and more out of American taxpayers. The result? Fewer and fewer students are graduating within the traditional four-year cycle of undergraduate study. According to information from the American Enterprise Institute for Public Policy, in 2008 alone Americans frittered away almost $500 million dollars in tuition and fees at colleges and universities that graduated between zero and 33 percent of enrolled students. "While American high schools graduate about three-fourths of their students in four years, American colleges graduate only about half of their students in six," writes Mark Schneider in "The Costs of Failure Factories in American Higher Education." These are all at once frightening, sobering and maddening statistics. Is the answer to shut off the hydrant of public money and force colleges and universities to live within more reasonable means? How would such a move impact students? College officials have shown little self-restraint in raising the cost of tuition and fees. In various states, including Michigan, state legislators have, at times, held up allocations until college officials have agreed to only modest hikes in tuition costs (i.e. less than double-digit hikes). Perhaps the answer is to change the U.S. tax code so that the entire higher education industry is subject to income taxes, along with the for profit education sector. Why shouldn't the University of Michigan pay income taxes on the tens of millions it earns yearly from, say, patents and royalties?  This is either a diabolically difficult problem to solve, or else it's as simple as telling college and university lobbyists and school administrators that, for the foreseeable future, 80 percent of state and federal funding that once went to higher education will be spent elsewhere (say on crumbling infrastructures, and transportation projects). Under such parameters, officials at the University of Michigan might have to think long and hard before suggesting the next $266 million renovation of the football stadium, or negotiating a contract with a coach that calls for a $4 million dollar pay-out just to get rid of a single employee. The Provost, to be sure, wouldn't be scoring double-digit raises for cutting a paltry 3.9 percent from the institution's budget over a seven year period.  It's abundantly clear that the people who head our country's multi-billion dollar non-profit universities have grown accustomed to getting all the LEGO sets they want. They can justify any expenditure. It's for education. The same women and men who land multi-million dollar grants to study how regular people in our country pinch pennies, have no idea how to squeeze the eagle until he grins, as Bessie Smith sang in the 1929 hit "Nobody Knows You When You're Down And Out." The same faculty and administrators who rake in six- and seven-figure salaries to teach our country's best and brightest how to manage complex budgets, haven't reigned in spending and contained costs within their own institutions.  More and more higher education policy experts suggest it's time for some tough love, to teach the non-profit higher education sector the real value of money—to hold higher education accountable for the falling graduation rates of the country's undergraduate students. I think so, as well.