Financial Problems in Universities
Copyright 2009 by Ronald B. Standler
Since the 1970s, state legislatures have addressed state budget problems by failing to allocate
adequate amounts of money to state colleges and universities.
In parallel, there was a separate financial problem faced by all research-oriented universities,
both state and private. During the 1950s and 1960s, the federal government gave generous financial
support to professors who were doing research in physics, electrical engineering, and other
disciplines. As a result of the generous financial support, many universities hired large
numbers of physics and engineering faculty in the 1960s, and paid their salary from research
grants or contracts. Not only did research grants and contracts
pay for the salary of professors and stipends for graduate students, but also the overhead on these
grants and contracts paid for part of the general operating expenses of the university, such as
acquisition of books and journals for the libraries.
When the federal government began drastic reductions in financial support
for scientific research in the 1970s (continuing during the 1980s and 1990s), universities
were stuck with tenured professors who were not needed to teach classes and who were now unable
to pay their salary through grants or contracts.
In my August 2004 essay on the history of funding of
scientific research by the U.S. Government, I tersely sketched the rise of funding during the
1950s and 1960s, and the reasons for the drastic decline of funding in the 1970s, 1980s, and 1990s.
Private universities generally invested their endowments (i.e., gifts from wealthy alumni and
other charitable donations) in the U.S. stock market. Investments in stocks generally
appreciate in value faster than investments in bonds or money-market.
However, the stock market sometimes crashes (e.g., in 1929, 1987, and 2008-09) and
money invested in stocks can disappear when the company ceases business. Even if the company
continues in business, it can take years after a crash before the stock recovers its value
before the crash.
A university that relies on income from its endowments will suddenly face a shortfall in
income during, and immediately after, a stock market crash. Such a dramatic loss of income must
be met by cutting expenses or increasing tuition, or both.
In the current recession, by Feb 2009, the Standard & Poors 500 Index had lost more than
half of its value at its peak in Oct 2007. This lost value means that many universities
were unable to use income from their investment in stocks to pay for scholarships for needy students.
In response to these financial restrictions, universities tended to:
- increase tuition for students
- hire few full-time (i.e., tenure-track) professors in physics and other subjects where
local part-time faculty were available
- use part-time faculty to teach classes when full-time professors were unavailable —
as an example, one class taught by a tenured professor might cost the university $20,000 in
salary, plus additional amounts for health insurance and retirement benefits, but the university
might find a part-time faculty member to teach the same class for only $2000, with no
expenses for health insurance or retirement benefits.
In December 2008, the Associated Press distributed a news story about how tuition increases
had made a college education unaffordable to children of middle-class parents in the USA.
This is not news to the higher-education community.
These tuition increases are a direct result of less government support for scholarly research
since the 1970s.
The high tuition costs are obviously a problem for the current generation of students.
In states with large agricultural or ranching industries, the lack of college education
may mean that a generation of farmers or ranchers does not receive an education in scientific
ways to operate and manage a farm or ranch, which could increase the cost of food in the future.
There is also the more general problem of
a democratic society that lacks educated people who have learned the lessons of history,
and who know how to use scientific information to design an enlightened public policy.
During the 1950s and 1960s it was unquestioned that investing in our children's future —
including giving them the best possible education and also generously funding
scientific research as the way to a prosperous future — was the right thing to do.
But beginning in the 1970s, America lost sight of this long-term investment goal, while pursuing
short-term solutions to one crisis after another.
10 July 2009: University of California
Legislators in California cut US$ 0.8 billion —
approximately a 20% reduction from the previous year —
from the funding for the ten campuses of University of California,
amongst the best state universities in the nation.
The president of the University announced (1) essentially zero new hiring,
(2) furloughs of 140,000 employees,
(3) budget cuts by discontinuing existing programs and classes, and
(4) increased tuition for students.
A furlough is when the University will give the employee several unpaid "holidays" each month,
but with no reduction in workload, which is effectively a salary reduction between 4% and 10%.
Instructors are expected to choose furloughs on their nonteaching days.
Consequences of the budget cuts in 2009 and previous years include:
larger classes, fewer classes, higher tuition charges, fewer students admitted to study,
fewer services for students,
and famous faculty leaving the Univ. of California to take higher paying jobs at other universities.
In short, students would pay more and get less.
California is killing its future.
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created 15 Feb 2009, modified 12 July 2009
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