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Analysis: Dangers of Status Quo Budgeting in Higher Education

In the past decade, Lansing policymakers spent more than $15 billion of state tax money on state universities. Legislators are currently discussing whether to put as much as $1.63 billion more into the pot. That spending, by the way, is more than what the Michigan Business Tax has brought in to the Treasury so far this year. But few ask what taxpayers get in return for this annual appropriation, and fewer still ask whether the state can get more for less.

One of the biggest changes in higher education lately has been the growth of overhead employment. The number of administrators and service staff in Michigan's 15 state universities increased from 19,576 in 2005 to 22,472 in 2009. And in addition to all the new employees, average compensation increased by 13 percent as well.

Total noninstructional, nonresearch expenses in Michigan's public universities increased $683.7 million since 2005, though appropriations remained fairly constant.

Larger support and administration may be necessary for growing universities. But increases in support staff have yet to be justified by a proportional increase in enrollment. Total full-year equivalent students increased from 250,030 in 2005 to 257,230 in 2009.

Michigan is not alone in the rise of university overhead. A report from the Center for College Affordability and Productivity shows a 20-year rise in administration and support staff.  When asked about what students get out of increased administration and support staff, CCAP analyst Daniel Bennett responded: "higher costs and more bureaucratic red tape."

Those higher costs are largely paid by students, because state higher education appropriations have been largely stable over the past decade. However, overall revenue from all sources grew rapidly at Michigan's public universities, from $4.2 billion in 2005 to $5.0 billion in 2009. The gain is largely from higher tuition and fees.

It's difficult to imagine many university officials getting excited about increasing costs to students. But it has happened just the same. Politicians should be thankful that there are a number of ways to lower taxpayer funds without cutting educational quality.

However Lansing policymakers feel about the ability of universities to provide more bang for the buck has not resulted in much difference in proposed taxpayer spending. A range of $1.56 billion to $1.63 billion is a pretty small range of fiscal austerity. Perhaps one reason why legislators are discussing a minimum budget of $1.56 billion is because anything less may run afoul of the federal "maintenance of effort" restrictions placed on the state for accepting federal stimulus money last year that supported higher education appropriations. But these can be unpopular - if the state's working to make higher education less expensive, shouldn't taxpayers also benefit?

When legislators are convening over how much taxpayer money to drop on state universities this year, they might want to start asking what they get for their large chunk of change. There are plenty of questions to ask.


Michigan Capitol Confidential is the news source produced by the Mackinac Center for Public Policy. Michigan Capitol Confidential reports with a free-market news perspective.