Program: Public university operations

Appropriation:

Special Revenue Funds

$9,500,000

GF/GP:

$1,453,935,500

Total:

$1,463,435,500

Program Description:

This appropriation funds a portion of the operations of Michigan’s 15 four-year universities located throughout the state. Currently 232,648 [1] full-time students attend Michigan’s public universities.

Three of these institutions — the University of Michigan in Ann Arbor, Michigan State University, and Wayne State University — have large undergraduate, graduate and professional programs. Five institutions — Western Michigan University, Eastern Michigan University, Central Michigan University, Oakland University, and Northern Michigan University — offer primarily undergraduate programs, but also offer some graduate programs. Programs in specialized areas are emphasized at two institutions: Michigan Technological University, which offers primarily engineering courses, and Ferris State University, which offers primarily vocational and technical programs. Three institutions, as well as the University of Michigan’s two sub-universities in Flint and Dearborn, offer primarily undergraduate liberal arts programs; they are: Grand Valley State University, Saginaw Valley State University, and Lake Superior State University.

For the fiscal year 2004, the state legislature appropriated operations funds for state universities as follows:

Central Michigan University

$81,541,700

Eastern Michigan University

$78,873,300

Ferris State University

$49,968,200

Grand Valley State University

$59,085,800

Lake Superior State University

$12,841,800

Michigan State University

$293,383,700

Michigan Technological University

$49,717,400

Northern Michigan University

$46,811,500

Oakland University

$49,087,900

Saginaw Valley State University

$26,673,700

University of Michigan — Ann Arbor

$327,206,100

University of Michigan — Dearborn

$25,193,900

University of Michigan — Flint

$21,661,300

Wayne State University

$228,279,900

Western Michigan University

$113,109,300

To Governor Granholm’s great credit, she did not hold funding to higher education sacrosanct. Indeed, during her first full-year in office, state cuts to general operations for higher education totaled $193 million, more than the Mackinac Center recommended for Fiscal Year 2004.

Recommended Action:

Although the direction of higher education funding should be toward using tuition vouchers or tax credits to replace direct state grants to public universities, such changes may be politically difficult at the moment. Such a move would provide universities with stronger incentives to control growing costs, a problem the Legislature should take more immediate steps to address.

Spending at Michigan’s 15 public universities has increased to levels that few could have anticipated and some believe are unjustified. Total spending by universities from fiscal year 1985 through fiscal year 2002 increased by more than $5 billion in nominal terms.

According to the President’s Council, State Universities of Michigan, the "nearest approximation to total expenditures" for Michigan’s 15 public universities shows an increase from about $2.4 billion to $7.6 billion during this period. (The year 1985 is used as a base year because this is when state spending began increasing most dramatically.)

Both state appropriations to public universities and the revenue they derive from tuition and fees have helped fund the extraordinary increases in higher education spending.

Total state appropriations for university operations increased from approximately $760 million to $1.615 billion since 1985. The increase is 24 percent more than inflation, but full-time enrollment increased 28 percent over this time.

During the same period, however, students’ tuition and fees skyrocketed. In fiscal year 1985 the tuition and fees charged to all full-time public university students (not weighted by population, program of study, or school) averaged approximately $1,786. If tuition and fees had increased at merely the rate of inflation, students today would pay only $3,093 annually instead of the fiscal year 2002 average of approximately $5,365. This means today’s students, on average, pay about 73 percent more than they would have to pay if tuition and fee increases had just kept pace with inflation.

Since higher education spending is one of the largest drains on the state budget, it deserves special scrutiny at a time of projected deficits. Increases in tuition and fees in excess of inflation suggest one way to determine a reduced state appropriation.

If state appropriations for higher education were reduced by an amount equal to the excess revenue generated by tuition and fee increases that exceeded inflation since 1985, the total savings would come to approximately $547 million, based on a current population of 241,134 students. (The savings calculation is imprecise, since no attempt is made to account for changes in the mix of undergraduate and graduate enrollment, or changes in the proportion of students paying higher amounts at some universities and lower amounts at others.)

Universities are charging students $547 million more per year than can be explained by inflation alone. Author’s Note: This figure, used in the Center’s 2003 budget study, has decreased due to recent cuts in higher education but remains above where it would be if tuition and fees had just kept pace with inflation. With more than a half-billion dollars in new annual revenue from students, the universities should be less dependent on the state. Additional cuts from the higher education portion of the state budget are justifiable and technically possible, but a starting-point reduction for the coming year could include an end to the new "tuition restraint program."

Author’s Note: In Fiscal Year 2005, state funds are set to be appropriated to Michigan community colleges and universities as part of a tuition restraint policy. The funds will only be paid if the institutions "that did not adopt an increase in tuition and fee rates after December 1, 2003 for the 2003-2004 academic year, and that it will not adopt tuition and fee rate increases for the 2004-2005 academic year," [2] adjusted for inflation based upon the Detroit Consumer Price Index. Governor Granholm has set aside more than $87 million for universities that restrain tuition increases. This is a poor use of state funds. Those who benefit the most from education should be required to bear the greatest burden of paying for it. The state should eliminate this program and its appropriation. Savings: $87,806,000.