Making Business Sense at URI

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I am posting the attached op-ed, , from University of Rhode Island President Robert L. Carothers. As the president notes, based on the trend over recent years, the state support of URI will reach zero in about 2020. In the current fiscal year, the State of Rhode Island pays for only about 14% of the University’s total budget of some $524M, and next year the percentage will be lower yet. In short, the current system of funding Rhode Island’s state university is not sustainable.

In 1991 I accepted the offer to come from Minnesota to lead the University of Rhode Island just two days after Governor Bruce Sundlun declared a state of financial emergency in Rhode Island and closed the doors to many of the state’s financial institutions. The many implications of that crisis rippled through Rhode Island’s economy, forcing the state government to reduce spending across the board. Reading Rhode Island’s Providence Journal for the first time from my snowy home on the shore aof one of Minnesota’s ten thousand lakes, it was clear to me that my new university would have to make some dramatic adjustments to survive and succeed.

The mantra of those days was that the University had to be run more like a business, this despite the fact that the model on which universities are built is closer to a church than a corporation. Nonetheless, it was clear that the University of Rhode Island could no longer depend upon state funds to operate the state’s university. Huddling together that spring, the Board of Governors, the administration and the faculty at URI began to plan for this new reality. By 1994, we had eliminated some forty-five degree programs at the University, and since then have realigned program resources with enrollment trends, automated many of our administrative functions, put more programs on a self-supporting basis and raised much more money from our alumni and friends.

In 1992, the general fund revenue on which the University operated was made up in nearly equal parts of 1) the state appropriation and 2) the tuition and fees paid by students and their families. In 2008, that ratio has changed dramatically. Today, 1/4 of URI’s operating budget comes from the state and 3/4 comes from tuition and fees. (The University also operates a number of self-supporting enterprises—housing, dining, health services, the Alton Jones campus, federally-funded research and so forth—for which there is no state contribution and which sit each on its own bottom.)

The best way to understand the traditional state appropriation to URI is that it provides a very significant subsidy to Rhode Island students and their families and keeps their tuition and fees far below the actual cost of our services. Students from other states pay the full cost of their education, approximately three times what Rhode Islanders pay. Today, Rhode Islanders pay around $8,000 a year in tuition and fees, and non-residents pay the real cost of a URI education, just shy of $23,000. To survive, we depend on those out-of-state students.

In any business, however, price points are sensitive to market forces, and universities are no different. With annual tuition and fees at New England’s independent institutions now hovering between $35,000 and $40,000 a year, URI remains well positioned to draw students from around the Northeast, and our enrollment has grown by some 1500 students over the last three years alone. The quality of a URI degree is widely recognized beyond our borders. With stiff competition from good public universities like the University of Connecticut and the University of Massachusetts, however, we cannot push our price higher than theirs. As in every case, the market prevails.

If every student at the University were paying the real cost of instruction—even after being discounted by institutional financial aid– the University of Rhode Island would be the successful business enterprise envisioned in 1992. However, 60% of our students, the Rhode Islanders, pay $8,000 a year. The cumulative cost of this $15,000 annual subsidy to each of the 7911 Rhode Island residents attending the University today totals more than $118M.

In other words, if next year the state were to fully subsidize the tuition and fees paid by Rhode Islanders, it would have to add $53M to URI’s state appropriation, something we all know won’t happen. If Governor Carcieri’s budget proposal for the fiscal year 2008-09 is enacted, URI will receive only about $65M in operating dollars from the state, down from $77M this year. In fact, based on the trend over recent years, the state support of URI will reach zero in about 2020. In the current fiscal year, the State of Rhode Island pays for only about 14% of the University’s total budget of some $524M, and next year the percentage will be lower yet.

One of several possible answers to this dilemma is to establish a single tuition rate for all students enrolling at the University, while at the same time creating a state scholarship fund parallel to the federal Pell Grant system. This state-funded financial aid would be available only to Rhode Islanders attending a public college or university in Rhode Island. The Pell system is need-based, i.e., it channels its funds to those with greatest demonstrated financial need. Such a Rhode Island scholarship plan would ensure that Rhode Islanders of modest means would receive more aid than those with greater capacity to pay.

Ideally, these state grants would close the gap between the real cost of instruction at URI and the ability of Rhode Islanders to pay for their college education, with the University’s own scholarship programs, now budgeted at $50M a year, further reducing what Rhode Island students would actually pay. In addition, each year the University could add some $4M to scholarships from its endowment and from alumni contributions. All Rhode Island students would receive sufficient financial aid–federal, state and institutional–to ensure that a URI education was within their reach. As Rhode Island moves deeper and deeper into the new knowledge-based economy, that’s immensely important to our economy and our collective future.

This plan would significantly improve both state and university strategic and budget planning. It would eliminate any incentive the University now has to enroll out-of state students. Establishing these state grants would not represent an additional cost to the state because funding could come from the annual appropriation that the state now makes to the University and from the existing state scholarship program administered through the Rhode Island Higher Education Assistance Authority.

In short, the current system of funding Rhode Island’s state university is not sustainable. No business would last long if it operated as we do. I’ve often said that no good crisis should be avoided, because it is at those times that people are more willing to make the changes they would resist when things are good. Rhode Island is clearly in such a crisis, and we should be ready to make a change that in the long run will produce better results for the State, its university and its students.