The Fall of Big State U

Even while the rest of the economy struggled over the past few years, college and university endowments did reasonably well, surging by an average of 11.7 percent in 2013 and 15.5 percent in 2014, according to the National Association of College and University Business Officers. While a few public institutions, such as the University of Texas system, possess large endowments, private institutions hold the overwhelming proportion of billion-dollar-plus endowments and have disproportionately benefited from the most recent six-year bull market in stocks.

Things have gone downhill, meanwhile, for public colleges and universities as legislatures across the country have cut back on appropriations for higher education. According to the AAUP study, state legislatures reduced appropriations for higher education by an average of 16 percent between 2008-09 and 2012-13, even as many of the same legislatures placed caps on tuition increases. The financial squeeze has taken a toll on the quality of instruction offered at some of our best public institutions. Unfortunately, the situation is likely to get worse in the years ahead given the condition of state and federal budgets and the intense competition for public funds. 

But current financial pressures have only brought out into the open a process that has been going on for several decades: Public institutions—especially the so-called flagship institutions—have been losing ground to private colleges and universities since the 1970s. This is not good news for middle- and working-class students, who have long relied on public universities as avenues for upward mobility. 

There was a time not so long ago when elite public institutions, such as the University of California, Berkeley, the University of Michigan, and the University of Wisconsin, more than held their own against competition from Harvard, Yale, Princeton, Stanford, and other elite private institutions. Berkeley’s reputation for academic excellence in the 1950s and ’60s was unsurpassed; indeed, in the mid-1960s many experts considered Berkeley the finest university in the world. Flagship universities in Michigan, Wisconsin, Illinois, Minnesota, North Carolina, and Virginia earned rankings in the top 10 or 20 universities in the country. Few private institutions could match the range of outstanding research programs offered at flagship state institutions, particularly in expensive fields like the sciences and engineering. Admission to these institutions was widely sought after by out-of-state students willing to pay premium tuition to gain access to high-quality education. With enrollments in excess of 25,000 and in some cases 35,000 students, these institutions dwarfed the privates in scale but delivered a great deal of educational “bang for the buck.” Degrees from Berkeley, Michigan, and Wisconsin were judged equivalent to those from the top private institutions.  

Today the situation is greatly changed. Only one public institution is listed among the top 20 schools in the 2014 ranking by U.S. News and World Report—Berkeley, which ranked 20th. Virginia and UCLA came in at 23, Michigan at 28, and the University of North Carolina at 30. The rankings changed little in 2015: Berkeley remained at 20, Virginia and UCLA at 23, Michigan dropped to 29, and the University of North Carolina remained at number 30. Thus, among the top 30 national universities in the U.S. News study, only 5 are public institutions. 

The Forbes ranking, which uses a different methodology that takes into account both the cost of the college and the quality of its educational program, lists only 1 public institution in the top 20, West Point, and just 7 more in the top 50—certainly an indictment of the quality of instruction offered at the less costly public institutions. In that survey, Berkeley comes in at number 37, the University of Virginia at 40, and Michigan at 45, while flagship universities in Wisconsin, Illinois, and Minnesota do not make the cut at all. For the first time, private institutions—and not just the Ivies—dominate the roster of our best colleges and universities. 

There are undoubtedly many causes of this far-reaching development in higher education. Public universities in the Midwest have had to cope with population changes and the decline of the auto and steel industries in their states. At the same time, private institutions have benefited disproportionately from the stock market boom of the last three decades, which has provided them with the resources to recruit top faculty and students while expanding their research and educational programs. Public universities, long in the habit of relying upon legislative appropriations, have only recently begun to tap this expanding source of private wealth. 

Yet there is a more fundamental cause for this reversal of fortunes in higher education. To put it simply, big government is killing the elite public university.

In the heyday of the flagship universities in the 1950s and 1960s, state governments spent the bulk of their funds on just a few functions—primarily transportation, public safety and corrections, and higher education. During this period, flagship universities had few competitors for state funds, and, indeed, with their alumni numerous in the legislatures and the baby-boom generation headed off to college, they were well positioned to lay claim to a rising share of state budgets. Across the nation, close to 20 percent of state budgets flowed into the public universities at a time when public employee pensions, health care, and K-12 education were still minor line items. For a brief time, the political environment favored generous investments in elite public education. That environment encouraged an increasing share of 18-year-olds to enroll in public universities, and it attracted some of the most able young Americans into college teaching. 

That is no longer the case. The flagship universities now face an unfriendly political environment in many places as a result of the expansion of state governmental functions since the 1960s. States now have many functions and constituent groups to attend to that command more money and attention than higher education. According to a report by the National Association of State Budget Officers, Medicaid accounted for 26 percent and K-12 education another 20 percent of total state expenditures in 2014, proportions that have been expanding steadily for years. Thus, nearly half of all state expenditures are now allocated to two programs that commanded no state resources during the heyday of public higher education in the 1950s and 1960s. The well-connected advocates and interest groups that support these programs are unlikely to permit those shares to decline. Public employee pensions, meanwhile, command about 5 percent of spending in many states, but, thanks to years of underfunding and deferred payments to the funds, some experts expect that share to grow to perhaps 10 or 12 percent in the decades ahead. 

By contrast, higher education now lays claim to just 10 percent of state expenditures, or roughly half the share allocated to this sector in the 1950s and 1960s. Total expenditures for public education have grown in nominal terms over the decades, but not as rapidly as in the immediate postwar period or as rapidly as state expenditures in general have grown in recent decades. In the scramble for public dollars, the flagship universities must now contend with public employee unions demanding funds to pay for salaries and pensions for their members, court orders and referenda directing ever more public money to K-12 education, and the lure of federal matching funds for Medicaid, welfare, and other federally subsidized programs. Given political realities, the universities are unlikely to win many of these battles. 

On top of this, the flagship universities today must share public appropriations with an expanding complex of regional campuses and community colleges that barely existed in the 1950s and 1960s. The California legislature created an elaborate and expensive three-tiered system of research universities, regional universities, and community colleges in the early 1960s just as the University of California was reaching a pinnacle of influence and prestige. Other states expanded in parallel ways. Michigan now supports 43 distinct institutions of higher learning, all in financial competition with the state’s two flagship institutions. The state of Wisconsin supports 31 such institutions, in addition to its flagship campus in Madison. These second- and third-tier institutions have representatives in the legislatures demanding their share of state higher education dollars. In addition, more and more teachers at the lower-tier four-year universities and community colleges are leveraging their power by joining unions that bargain and lobby on their behalf. Professors at elite institutions have so far resisted pressure to unionize out of professional loyalties and convictions about advancement through individual accomplishment. 

All of this has had the predictable result of forcing flagship universities to look for other sources of financing such as federal grants, private philanthropy, and increases in tuition that are paid for by rising levels of student debt. Public research universities are now more reliant on tuition and federal funds to support their far-flung activities than on state appropriations. Across the country, revenues from tuition at public research universities have increased from 24 percent of total revenues in the 1980s to more than 47 percent in 2014. At the same time, according to a recent report from the National Science Foundation, state appropriations for public research universities account for just 23 percent of total revenues, down from nearly 40 percent in 1992. At the University of Virginia, state appropriations account for just 10 percent of total revenues, and at the University of Michigan the figure is about 9 percent (down from 80 percent in the 1950s). The pattern is similar, though less extreme, at other public research institutions across the country. We may be reaching the point where it no longer makes sense to describe these flagship universities as “public” institutions. 

None of these strategies of diversification is likely to work over the long run. While federal spending on higher education has shot up in recent years (largely in the form of increasing appropriations for Pell Grants), these funds are divided many ways among the 3,000-plus colleges and universities across the nation and the expanding for-profit sector of higher education. Private philanthropy is now a source of funds for institutions like the University of California, the University of Virginia, and the University of Michigan, but this sector is not large enough to make up for declining public support for these institutions. Private donors, moreover, have always been skeptical about funding state universities that, when all is said and done, are still controlled by state legislatures. For this reason, they will allocate the largest share of their philanthropic dollars to private institutions. As for tuition increases and student loans, those two sources of revenue have now passed beyond the limits of affordability. 

The reshuffling in status and financial resources between public and private institutions is one of the more significant developments in the history of higher education in the United States, at least since the invention of the modern university in the latter decades of the 19th century. Few academics at public universities foresaw in the 1960s that the expansion of the welfare state might eventually come at the expense of their institutions. In those heady days, academic liberals assumed that public universities would always stand at the front of the line in the distribution of federal and state funds. They were wrong about that, as things turned out, and in this sense they are partly responsible for the situation in which they find themselves today. Meanwhile, as money, research talent, and top students flow to private institutions, the status and resource gap between public and private universities is likely to grow.  

Does this matter? For all their flaws, flagship public institutions in the postwar era provided hundreds of thousands of working-class and middle-class Americans with a quality education and an affordable avenue of upward mobility and prepared generations of leaders. The top 20 public universities enroll about three times as many students as the 20 most prestigious private institutions, and in-state tuition and fees at those institutions ($13,000 on average in 2014-15) remain more affordable for middle-class families than those at the leading private institutions ($47,000 on average). Public institutions also provide various other services to citizens through their medical schools, hospitals, libraries, art galleries, theaters, and research and extension services. The great state universities are not going to disappear, and many will maintain a standard of excellence, but in an age of lumbering and inefficient governments trying to do all things for all groups, they will not have the money to perform at their former level or to compete as they once did with high-performing private institutions.

James Piereson is a senior fellow at the Manhattan Institute.