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How tuition surpassed state money as a funding source for K-State

By Bryan Richardson

Kansas State University is experiencing a problem that many public universities are facing: relying more and more on students, rather than the state, to fund operations.

For K-State’s current fiscal year, which ends this month, tuition provides $194.7 million and state appropriations provide $166.5 million. Tuition officially surpassed state money as a funding source in FY12.

But the gap is getting larger, with a $14.3 billion state budget for FY14 that reduces state funding to K-State by $6.6 million, bringing total appropriations to the university down to $159.9 million.

There’s a push by higher education and state officials for some funding to be restored by Gov. Sam Brownback by vetoing the reduction in salary cap provision. He has until Sunday to act on the FY14 and FY15 budget bill.

Meanwhile, the university is awaiting a final decision on its tuition proposal from the Kansas Board of Regents on Wednesday. Tuition would increase by 7 percent at the main campus and Salina campus and by 3 percent at the veterinary medicine college if the measure passes.

That proposal is expected to bring $11.7 million in new tuition revenue, which would bring total tuition dollars to $206.4 million per year.

State appropriations used to reign supreme when it came to funding for public universities. Nowadays, state funding isn’t even the number-two source of funding at KSU.

The category of “Gifts, Grants, Research Contracts and Other” has been the school’s top funding source since FY99, according to .

The decline in state appropriations is felt nationwide. According to Illinois State University’s Grapevine — an annual compilation of data on state fiscal support for higher education — the average decline in state support from FY08 to FY13 is 10.8 percent. Kansas, which ranks 28 out of 50 states, declined 8.1 percent during that time.

How did things get to this point?

Early days

Sue Peterson, KSU governmental relations director, said the Legislature had a policy agreement to fund 75 percent of a student’s education when she attended Kansas State in the 1970s.

“If I went to the state capitol and asked the first 10 legislators, I bet not one of them would know we once had a policy like that,” she said. “Nobody ever did away with it. Nobody ever said we wouldn’t do that anymore. It just evolved with the appropriations process.”

Students and the state split the cost for the general operations budget, which accounts for the basic things needed to run a university such as employee salaries, limited travel, supplies and utilities.

The state provided 80 percent of that funding in FY88 and provided at least 75 percent throughout the 1990s. That provides the appearance of a good funding situation, but the problem was the way tuition was handled during this time.

The Kansas Board of Regents set a uniform rate for all higher education institutions. Tuition money was sent to the state and distributed through an enrollment growth formula, similar to how K-12 money is distributed.

Peterson, who has been at her position since 1989, said the tuition funds went into a state bank account that could be used for any expenditure.

“We did not get the full funding needed when we had a big growth spurt in the ‘80s, but it never went down,” she said. “The state was in the process of not cutting but not giving as much money. They finally adjusted the formula to get back some of those funds to pay for the growth.”

Regent Christine Downey-Schmidt of Inman was a state senator from 1992 to 2004. She said the old structure gave the state too much control of what universities could do. “Micro-managing wasn’t the most efficient business model,” she said.


Tuition ownership

The turning point in higher education funding occurred during the 2001 state legislative session. Legislators voted to approve “tuition ownership,” which took effect in the fall 2002 semester.

This concept allowed K-State and the rest of the Regents universities to set and keep their own tuition for the first time.

Downey-Schmidt said it was a logical choice since the Regents and university presidents could clearly identify the needs of their institutions. “We could get better results with institutions owning their tuition and prioritizing that way,” she said.

What followed was a swift increase in tuition rates. At the time, The Mercury reported that KSU had about half of that operating budget of comparable institutions nationwide.

Tuition for the 2002-03 school year increased for in-state undergraduate students by 25 percent. That provided an additional $10 million in revenue to the university to be used for information/technology infrastructure, academic equipment, operational expenses, for faculty enhancement and to help pay for the base budget.

Peterson said big increases didn’t happen prior to that because there was a possibility the money wouldn’t come back to universities.

“The schools had no incentive to raise tuition if those dollars were essentially going into a state banking account that could be appropriated to other state issues,” she said.

This is when the shift away from state-majority funding to tuition-majority funding began. A 75/25 split between the two funds last occurred during FY02, which was the last year of the old tuition formula.

From FY02 to FY13, tuition revenue increased by 256.59 percent, while state revenue is down by .6 percent. Whether this change could have been predicted depends on your source of information.

A November 26, 2001, editorial in The Mercury said the downside of tuition ownership is getting stuck paying bills the Legislature should pay.

“KSU may well end up paying some of those bills with tuition money that university officials had hoped to use to improve rather than simply maintain quality,” the editorial said. “Worse, tuition increases appear imminent just to keep KSU from losing ground.”

Downey-Schmidt, who joined the Regents in 2005, said she didn’t foresee the rapid change that occurred. “I think the mindset of the Legislature at that time is education is a partnership here,” she said. “It’s about educating citizens so that they can be tax paying, contributing members of this state.”

Peterson said there wasn’t a particular policy goal set but she figured it would trend towards a 50/50 funding split. “We thought that’s where the tuition model would take us,” she said.


Cause of shift

Even though tuition has increased exponentially, Peterson said lack of state finances has brought K-State to this point. Including the upcoming fiscal year, there have been six years of declining state appropriations since tuition ownership started in FY03. The biggest decline for KSU came during the recession in FY10 with a $17.1-million reduction. At the same time, KSU had a $6 million increase in tuition revenue.

Peterson said she isn’t sure a straight line can be drawn between the tuition ownership decision and financial decisions made in the Kansas Legislature now.

“You don’t have legislators saying, ‘Well just raise your tuition to cover what we take out of your budget,’” Peterson said.

In an opinion column, Kansas House Appropriations Chair Marc Rhoades, R-Newton, expressed his disappointment in the increasing tuition rate, pointing out undergraduate tuition and fees in particular. At KSU, the rate for one credit hour for an in-state undergraduate increased by 182 percent from fall 2002 to fall 2012.

“College students, many unemployed and underemployed, are buried in debt while universities appear more focused on impressing their peers and expanding their infrastructure,” he said.

While acknowledging the big hole that the recession created, Downey-Schmidt said there seems to be a change in attitude among the legislators currently in office especially considering the most recent cuts.

“At least people could understand that,” she said of the recession-related cuts. “What’s not understandable is a cut like the Legislature made this time.”

Rhoades said the Legislature didn’t set out to reduce funding this session but had questions about the unfilled positions and the rate of tuition increase.

“When defaulted on, students’ government-backed loans are paid for, ultimately, by taxpayers, so shouldn’t improved graduation and employment rates be prioritized over even higher salaries to the already highly paid?” he asked.

Downey-Schmidt said the tuition ownership initiative was supposed to provide more freedom and remove. “The difference between now and back in 2001 is that the fact that there was trust with legislators and they didn’t try to micromanage,” she said.


What’s next?

Higher education officials and legislators say they want lower tuition. The differences come in the issue of better state funding.

Local legislators are among those who want more state funding. Other legislators such as Rhoades are seeking inefficiencies to cut.

The 1.5-percent across-the-board cuts and reduction in salary expenditures by the state are scheduled to take place each of the next two fiscal years.

Rhoades has called for hearings to take place during the interim session for further analysis of possible savings in higher-education budgets.

Downey-Schmidt said the Regents have pushed university presidents to find inefficiencies for years. “They believe there are more cuts possible,” she said. “I want to tell them, ‘You obviously don’t know the history of what universities have been doing.’”

Downey-Schmidt said the sense of partnership has been lost when discussing the hearings. “This kind of unwarranted position and distrust is a new element,” she said.

Rhoades said he remains hopeful and open to a dialogue about higher education concerning retention and graduation rates, realistic employment tracks, greater efficiencies, reduced costs and lower tuition.

Whatever the case, Peterson said the Regents and Legislature will have to develop a solution together.

Peterson said a 50/50 split between state appropriations and tuition would probably be fair. The closest that has come to fruition is in FY10 when the state provided $164.9 million and tuition provided $160.4 million.

However, the funding is trending in the wrong direction for that to happen. If the proposed tuition increase is accepted, tuition would provide 56 percent of the general operating budget in FY14, an increase of 2 percent from this year.

Peterson said the days of 75/25 splits are gone because higher education is growing at a rate not matched by growth in expendable state funding. “That would still work today if higher education was the same enterprise it was then,” she said.

Peterson said days are different from the 1970s. The student population has grown from 18,000 to 24,000, technology needs exist now that didn’t exist previously, and there are general cost increases and more people to serve through Extension services in Kansas.

“Higher education is not a stagnant business,” she said. “We have to stay on the cutting edge of technology and education because that’s what students come here and expect.”

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