How the University of Alaska – and other public U.S. universities – now struggle for funding

Pictured: University of Alaska Fairbanks.(Photo: Enrico Blasutto, CC BY-SA 4.0 [creativecommons.org/licenses/by-sa/4.0])

The university must quickly decrease spending before it drains its operating reserves and runs out of cash says Dean O. Smith

Dean O. Smith

The higher education world has been rocked by the news that the University of Alaska’s state appropriations were slashed by nearly $136 million, 41 percent of its general fund appropriation to the university.

To make matters worse, the cuts are in this year’s general fund budget, which started on July 1. As a result, the university must quickly decrease spending before it drains its operating reserves and runs out of cash.

For the university, all of this is bad news. But the University of Alaska is not alone. Many other public universities have also reckoned with reduced state support.

Over 20 years ago, I confronted a similar crisis at the University of Hawaii, following a precipitous budget cut of 15 percent by the state. Although the cut was less than that of Alaska, its impact on university operations was painful. We survived intact by making unpopular reallocations and raising tuition by about 70 percent in a two-year period.

Not surprisingly, enrollment dropped for several years as students shied away from paying higher tuition to attend a financially troubled university. But, after several years, the state economy improved, cuts were restored and the students returned.

Likewise, I believe that the University of Alaska will survive, but probably in a changed form. For starters, the governing board has already voted to consolidate the system’s three separate universities into a single comprehensive university.

Other less dramatic changes will probably follow. Difficult decisions will be made, and their scars will take time to heal.

State support for higher education declines nationwide

Nationwide, money from state governments has become a smaller and smaller fraction of public higher education budgets during the past decade.

State appropriations still exceed tuition and fees as a revenue source for two-year institutions. But, since 2011, for four-year institutions the percentage of total revenue from state appropriations has dropped below the percentage of total revenue from tuition and fees.

In some public universities, state appropriations now constitute less than 5% of their total budget.

With the announced cuts, the amount of state money going to the University of Alaska will decrease from 37 percent to 25 percent of its total revenue — still more than many other state universities. With the proposed cut, total revenue will be about $753 million.

If the University of Alaska stands out in this trend, it is because of the suddenness of the huge budget cut. As the situation now stands, the university must accommodate the loss of $136 million within less than a year.

To soften the blow, the Alaska governor has proposed spreading the cuts over a two-year period. But, there’s a catch. The governor’s proposal identifies the specific programs to be cut, usurping the university’s authority over these academic matters. The university may not agree to this proposal.

Reduce expenditures

Decisions must be made.

The first decision is the easiest: how to stanch expenditures in the short run. The university might impose a hiring freeze, defer repairs and maintenance, or cancel library subscriptions. For example, several years ago, the University of Illinois implemented these standard measures in response to a large reduction in state support.

The University of Alaska has already made the decision to do these things. But, these short-run methods are unsustainable. Sooner or later, departments will have to fill vacant teaching positions, the physical plant has to be maintained, and the library must provide access to current publications.

Thus, the next decision must be made, and it is the hardest: how to reduce operational costs in the long run.

Again, an obvious method comes to mind. Consolidate or close programs, which would include firing staff in those programs.

But which ones? This decision usually involves an analysis of the university’s departments, degree programs, athletic teams or even entire campuses. Particular attention focuses on programs with declining enrollment, accreditation problems, or low academic productivity.

These are not easy analyses, especially for faculty members. They are time-consuming and contentious, because they set faculty members against each other. Faculty unions are particularly sensitive to this issue.

To save $5 million, the University of Montana, for example, wound down 16 degree programs and reduced faculty numbers school-wide by 12 percent.

The University of Alaska has taken an important first step in this painful process by declaring a financial exigency. Theoretically, this declaration makes it easier for the governing board to close programs and terminate personnel, including tenured faculty members.

Realistically, after the decisions have been made, I have found that consolidating or closing the targeted programs can be devilishly difficult, if not impossible. Every academic program seems to have its protective constituents, and, one way or another, they can exert strong pressure to maintain status quo, regardless of budgetary implications.

Overcoming this pressure requires tremendous resolve on the part of the governing board, as the University of Alaska will soon discover.

Find new revenue

Like other universities faced with reduced state support, the University of Alaska will begin the search for new sources of money.

For starters, it will most probably raise tuition. That’s what most other universities have done in this situation. Notably, tuition and enrollment obey the law of demand: as tuition goes up, enrollment goes down.

The university will have to search elsewhere as well. Many public universities look to private donations for additional money to offset reduced state support. Many of them have launched fundraising campaigns, sometimes with massive goals of a billion dollars or more.

How much money does the University of Alaska, or any other university for that matter, really need?

Paraphrasing a common aphorism, the answer is simple: way too much isn’t nearly enough. A university’s hunger for money is insatiable. After all, with more money, it can reduce class sizes, offer more financial aid, increase faculty salaries, open new campuses, and on and on.

Ultimately, the accrediting associations have the only meaningful answer to that question. If they judge that budget cuts cause educational quality to fall below their standards for comparable institutions, the associations will withhold accreditation.

Initially, the university is placed on probation, with a time line for correcting its deficiencies. Loss of accreditation is a rare occurrence for public universities, but the threat is unnerving. Without accreditation, the institution can no longer participate in federal lending programs for students. And, that is when the downward spiral begins, as a handful of small private institutions have learned.

The accreditors have their watchful eyes on the University of Alaska as it begins its painful adjustment to financial reality.

During his 38 years as a professor, Dean O. Smith has served in the higher administration of four major universities: the University of Wisconsin-Madison, Texas Tech University, the University of Alabama in Huntsville, and the University of Hawaii, where he is now professor emeritus. He has authored 135 scientific publications and four books on university administration, Managing the Research University, Understanding Authority in Higher Education, University Finances: Accounting and Budgeting Principles for Higher Education, and How University Budgets Work. Dr. Smith received his B.A. from Harvard University and his M.A. and Ph.D. from Stanford University. He is a member of the Registry of College and University Presidents.

Disclosure statement: Dean O. Smith does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.

Note: originally published at theconversation.com; re-published with permission.

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