Public universities will survive. Can public higher education? The Clair Maple Memorial Address August 4, 2003 Larry R. Faulkner, President The University of Texas at Austin

2 Five big forces on public higher education  Cost-compounding properties of a labor- intensive activity based on rare talent  Reduced propensity for state subsidy  Resistance to increases in tuition and fees at public institutions  Broadened expectations concerning the economic development role  Tensions among missions

3 Evolution of a public research university  Budgetary model covering the period through 2020  Representing this kind of university as it might exist for  Today’s first-graders, entering 2015  Today’s newborns, entering

4 Projections based on long-term patterns  Growth of major income streams  State appropriations  Tuition and fees  Endowment income  Research support  Growth in costs of delivery  Salaries  Operating costs  Model for a major public research university

5 A “typical” major public research university  Medical components not included  33,000 student FTE  Total budget in of $1.09 billion  $325 million from state appropriations  $240 million from tuition and fees  $250 million from external research support  $100 million from endowments and gifts  $165 million from auxiliaries  $10 million from other sources

Income distribution

Allocation among major functions

Funding for cost of education State $7,273 Tuition & fees$5,303 Endowments & gifts$455 Other income$182 Total cost of education$13,212

T&F cost to student has two components T&F part of cost of ed $5,303 T&F used for financial aid$303 Total T&F cost to student$5,606

10 Major growth rates Consumer prices 2.7% Family income3.5% State appropriations1.8% External research support7.0% Old endowment support2.7% Endowment growth2.3% Salaries4.8% Operating costs3.5%

11 Other important assumptions  Enrollment remains static at 33,000 student FTE  Any increase in tuition and fees requires a 25% set-aside for financial aid  In 2003, the cost of education was  70% salaries  30% operating costs

12 “Tuition complement model”  Revenue sources other than tuition & fees grow at stated rates  Cost of education evolves “naturally” according to patterns of the last 15 years:  Salaries (initially 70%) at 4.8%  Operating costs (initially 30%) at 3.5%  Tuition and fees grow as needed to cover the cost of education

13 Total tuition & fee cost to students Tuition complement model

14 Annual rates of change Tuition complement model

15 T&F cost to student vs. median family income Tuition complement model

Income distribution Tuition complement model

Allocation among major functions Tuition complement model

18 Summary of the tuition complement model Good news:  Model feeds the “natural” growth of the university  Preserves the public institution’s ability to compete with private peers Bad news:  Not politically sustainable  Undercuts the essential public role of a public university

19 “Political limit model”  Revenue sources other than tuition & fees grow at stated rates  Tuition and fees are limited by political reaction to 4.0% annual growth  Salary component of cost of education is limited by total of committed resources including politically limited tuition & fees

20 Total tuition & fee cost to students Political limit model

21 T&F cost to student vs. median family income Political limit model

22 Annual rates of change Political limit model

23 Uncovered part of “natural” cost of education Political limit model

Income distribution Political limit model

Allocation among major functions Political limit model

26 Summary of the political limit model Good news:  Allows the university to retain public support  Preserves affordability and access Bad news:  Tends to undercut the quality of educational delivery  University becomes progressively less competitive for top faculty talent

27 Probable responses if forces do not change  Tendency to separate educational and research functions organizationally  Impetus to create a special teaching faculty  Political leaders may try to force resources away from research toward education  Research may become increasingly dominant in institutional decision making

28 Toward a more positive future Things we can influence:  Marginal improvement in growth rate for state support  Better political tolerance for changes in tuition and fees through government financial aid Things we can control:  Stronger focus in endowment development on quality of educational programs  Alter the model for educational delivery to preserve or improve quality at lower cost

29 Keep an eye on the cost control target  Need to reduce the rate of growth in the cost of education by 1.5% to 2.0% per year  Will take imagination to succeed with preservation of quality  Must work on both components of the cost of education  Success will also be applicable to private institutions