As the first public university established on the West Coast (we beat Cal by seven years), the University of Washington has always been a creature of the state of Washington. Without the political and financial support of the 1861 territorial legislature, the UW would not exist—at least not in its Seattle birthplace.
But it also took the skills of Seattle entrepreneurs to make the University of Washington happen. Businessmen like Daniel Bagley lobbied hard to locate a university in their tiny village on Elliott Bay. The Denny, Terry and Lander families donated the land for the first campus (a tradition of giving that lives on today). And the citizens of Seattle put their own “sweat equity” into the nascent university. “All who had not regular employment elsewhere went to work,” Bagley wrote years later. “Nothing was too laborious or too humble for them.” In only seven months, three buildings rose out of cleared land.
The character of that university has changed since 1861. In the beginning it was more of a regional high school than a university. But since then it has grown into one of the leading public research universities in the nation.
Today, the character of the UW may be changing again. There is a national trend among state governments to invest less in higher education, and Washington is not immune to this new malady. Currently only 16 percent of the UW’s operating budget comes from state coffers, a number that has been shrinking since the 1970s.
UW officials talk of an “entrepreneurial public university,” a place where the UW competes with others for research grants, private gifts, tuition revenue, royalties and license fees, and other sources of income.
While not giving up on more state funding, President Richard L. McCormick, regents, administrators and faculty leaders are finding themselves in a place similar to the citizens of Seattle in 1861. If they want a thriving university, they are going to have to use some of their own sweat equity to make it happen.
Borrowing ideas from private universities and “hybrid” public institutions, UW officials talk of an “entrepreneurial public university,” a place where the UW competes with others for research grants, private gifts, tuition revenue, royalties and license fees, and other sources of income.
It is a hybrid system that already exists at other public universities, such as the University of Michigan and the University of Virginia. Like the UW, these top schools have thriving research programs and private endowments; but unlike the UW, they have high undergraduate tuition and more out-of-state students. Michigan, for example, charges $6,935 for in-state undergraduates and $21,645 for out-of-state students. Comparable numbers at the UW are $4,167 and $14,868.
“Michigan decided in the 1970s that the state wouldn’t support a first-tier university, so it set out to build one by itself,” says James J. Duderstadt, the former president of the University of Michigan.
But some warn that a shift to an entrepreneurial university is a move toward “privatization.” Chemical Engineering Professor Bradley Holt, the chair of the Faculty Senate, warns, “If students are paying $9,000 a year in tuition and faculty are having to raise their own salaries with research grants, it’s not going to be the same institution that it was.”
Urban Planning Professor Richard Ludwig, this year’s faculty spokesperson in Olympia, warned the Faculty Senate in April that as students pay more of the cost of their education, we will become more of “a private university than a public university.”
“We have a deep commitment to the health and welfare of this state. It is part of our charter and part of our culture.”
Richard McCormick, UW president
President McCormick disagrees. “I am a firm believer in public higher education,” he says. “We have an obligation to afford the opportunities and benefits of a higher education to as many citizens as possible.
“We have a deep commitment to the health and welfare of this state. It is part of our charter and part of our culture,” he adds.
Provost Lee Huntsman, the UW’s chief budget and academic officer, also rejects the privatization label. “We are a public institution owned by the citizens and dedicated to public values. However, our finances have been shifting to some of the characteristics of private universities. We have to find a suitable path through that maze.”
That maze grows out of a troubling drop in support for higher education, both in the state of Washington and across the nation. The UW is still digesting the bitter pill of a $24 million budget cut imposed last spring. But that is just part of a nationwide decline in state support.
In 1979, for every $1,000 of personal income, states set aside $11.22 to fund higher education. In 2000 states only set aside $7.94 for every $1,000 in personal income—a 30 percent drop, says the Chronicle of Higher Education.
While some blame tax cuts and spending limits for shrinking state revenues, others say a general distrust of government has hurt education funding. University of Texas President Mark Yudof thinks America’s aging demographics are also part of the trend. Older citizens favor health care and public safety, he wrote in a Chronicle article, noting that higher education’s share of state spending fell 14 percent between 1986 and 1996, “while Medicaid’s share nearly doubled and corrections’ share increase by more than 25 percent.”
Whatever the causes, taxpayer support as a percentage of personal income continues to drop. One cynical analyst has charted trend lines out into the future. If state higher education funding continues to decline at the current rate, the average would hit zero by 2040. The state of Washington’s graph is even sharper—following the current trends, Olympia would cease funding higher education in 25 years.
While that scenario is highly unlikely, some UW administrators think the state is coming close to default. In 1991, the UW’s state funding was only $188 per student below the average of its 24 peer universities. By 2001, the UW was more than $2,600 per student behind its peers.
The immediate future looks just as gloomy. Current revenue forecasts project a billion-dollar deficit when the Legislature meets in 2003. If state funding drops, the UW may have to cut degree programs or consider layoffs.
“We’re headed into a tough season. We are looking at all the financial numbers. We have no choice. We are really on the ropes regarding the educational side of our mission,” Provost Huntsman warns. “Things have reached the breaking point.”
The UW will push hard for more state support during the 2003 session and is looking for alumni to help. But it also needs to consider other sources of revenue to stay competitive.
“Our faculty is used to competition—persuading someone to support their work and then delivering on it,” Huntsman explains, citing the fierce competition for research funding. One sign of success: the UW is the top public university in terms of federal research awards. The UW also competes with many worthy non-profits for private gifts and grants, and there, too, it is remarkably successful. In 1999-2000 it ranked among the top five public universities in private support.
To keep the UW healthy, that energy must infuse the entire university. “A chronic shortage of resources threatens our health and our quality. We have no choice but to look for new resources—to rebalance our books. But we must not allow that rebalancing to threaten our essence as a public research university. Indeed, it is precisely our public obligations that drive our search for more resources, including more private resources,” McCormick explains.
Tuition
Of the many paths out of the funding maze, the one that has gotten the most attention is tuition. The administration and the regents want the authority to set tuition, as trustees do at private and many public universities such as Michigan. They also want to abandon the “one-price-fits-all” model. If the rate for a high demand degree—an M.B.A. or a law degree—is way below the market, it should rise to market levels.
Students oppose ceding control to the regents, feeling that lawmakers will be more reluctant to raise tuition. The ASUW and other student groups fought against regental control during the last session in Olympia. Lawmakers decided on a one-year experiment giving regents and trustees tuition authority for all students except resident undergraduates. For this group, lawmakers set limits on any increase—16 percent for UW and WSU, 14 percent for regional universities and 12 percent for community colleges.
In May the UW launched a plan to bring business, law, dentistry and pharmacy graduate tuition up to market rates over the next three to five years. It also boosted resident and non-resident undergraduate tuition by the full 16 percent. Other state universities also raised their tuition to the limit. Anticipating these increases, the state put extra money into its financial aid program, and the UW set aside part of the increase to make sure there would be no more financial burden on those who qualify.
But no one is happy about the outcome. ASUW President Danica You complains that the state is balancing its budget on the backs of the students. While encouraged by the experiment, Huntsman and McCormick point out that lawmakers made the UW raise enrollments even as the state cut its budget. “Students will be paying more and getting less,” the President warns.
But even with a 16 percent tuition increase, UW resident rates are below the average of its peers, currently estimated at $4,763. “There is still some opportunity for tuition to rise,” says Harlan Patterson, ‘81, the associate vice provost for planning and budgeting.
Huntsman adds that the price of a college education is still “pretty cheap” in the eyes of the public. In one recent state survey, the average citizen put UW tuition at $10,000 a year for resident undergraduates—more than double the actual rate.
But faculty leader Holt says a high-tuition model will also mean higher student debt, funneling students away from some disciplines and career choices, such as public service or teaching. “If you are going to graduate with $30,000 in debt, that’s going to have an influence on your choices,” he says.
Another factor is non-resident tuition. At many universities, out-of-state students pay more than the actual cost of their education; currently UW non-resident undergrads pay about 140 percent. The extra money, in effect, subsidizes the resident students, Patterson explains. At Michigan, Wisconsin and Colorado, for example, one-third of the undergraduates are non-residents. At Oregon about 26 percent come from out of state. At the UW only 13 percent are non-residents.
Patterson says the UW will never go as high as some peers, but there is some room for admitting more non-residents—and for tightening loopholes that allow many non-residents to qualify as residents after one year.
Research grants
One of the brightest paths out of the maze is research income. For 2001-02, the UW is projecting a 17 percent increase over last year—totaling about $770 million. The money not only pays for direct research expenses such as lab equipment and salaries. Research grants also include funds to cover general overhead—what the federal government calls indirect costs, such as electricity, janitorial services, libraries and building maintenance.
The UW currently adds 51.6 percent to the direct cost of on-campus research projects to cover its indirect costs. While the money covers only research activity, it has helped cushion the blow of budget cuts.
Patterson is optimistic that even more may come our way. “Science in the 21st century is headed toward integrated problem-solving that requires interdisciplinary research. We do that well here. We have pretty low barriers and are able to put together teams across disciplines,” he says.
But Huntsman adds that indirect cost revenue is not “fungible,” that is, it can’t be transferred to activity that falls outside the field of research. It can’t be used to hire more TAs for a philosophy course, for example.
With a heavy influence on research grants, there is the potential that undergraduate education will suffer, warns Holt. “Look at the incentive system you are setting up. If you’re a professor, do you spend extra time writing up a research grant or extra time on your lesson plans? When you create an incentive system, people are going to respond accordingly.”
Private gifts
Borrowing another page from private universities, the UW hopes to expand private gifts and grants which total $239 million for 2001-02. For example, if it must raise tuition, officials are counting on more private scholarships to cushion the blow and attract students who otherwise could not afford to come here.
Private funds have also helped support new construction on campus, such as the new William Gates Hall for the law school. As the state funding of the capital budget declines, UW leaders are banking on more private support.
At times, a private gift may recruit or retain a top faculty member through a professorship or an endowed chair. With a faculty pay gap of 14 percent compared to its peers—and salaries frozen by the Legislature—private giving is one way the UW can stay competitive.
“Right now is an awful time for investments. Philanthropy is down across the nation. Yet our private gifts and grants are coming in at the same pace as last year—which set a record,” notes Patterson. “It is a testament to the strength of the commitment this community has to the University.”
“We would like private philanthropy to play an even larger role. But at what point does reliance on private donors compromise our freedom to choose our own intellectual and educational directions?” the President asks.
Private gifts are not a panacea. About 99 percent of all gifts are restricted. The UW is obligated to spend the money where the donor has asked for it to be spent. That rule applies to the $1 billion endowment the UW currently holds. “It helps, but it is not going to replace core funding,” says Holt.
Self-sustaining programs
A quiet corner of the University is its self-sustaining educational offerings—everything from Summer Quarter to distance learning to the Executive M.B.A. program. Academic units realize that in this climate there will be little or no state funding for new education programs. Many are now considering offerings that will pay for themselves.
Some recent examples include the distance learning master’s degree offered by the School of Information, computing certificate programs from Educational Outreach, or management and financial risk programs from the business school.
“It is a chance to get programs out to people that we wouldn’t otherwise be able to reach,” explains Patterson. But it can only marginally aid a unit that is strapped for cash. “This is a way to enable good ideas to come forward,” explains Huntsman, “It is not a way to float your budget.”
Too many self-sustaining programs could fracture the UW’s overall mission, adds the President. “At what point, going down that road, do we risk losing a sense of common goals and purposes?” he asks.
Expect some controversy if state-funded offerings are shifted to self-supporting status, adds Holt. “All of a sudden you are a for-profit segment of the University,” he explains. “You are trying to make as much money as you can for your program. Your job then depends on student interest and charging tuition.” Tougher courses—and tough grading—could suffer in the push to make a profit, he warns.
Royalties and patent licenses
Some universities benefit from royalties and license fees for patents held by the institution. The Wisconsin Alumni Research Foundation’s patents on Vitamin D technology and warfarin has been a cash cow for the dairy state—since 1925 more than $620 million in royalties has gone to University of Wisconsin research. At the University of Washington, Professor Ben Hall’s work on yeast genetics led to a manufacturing process for the hepatitis B vaccine. Since FDA approval in 1986, the UW has received $35 million in royalties from the Washington Research Foundation for this technology.
Could this be a place where the UW can fill in the holes left by declining state support? “While we continue to do well in this field, it is highly unpredictable and highly unreliable,” warns Patterson. “Depending on royalties would be a lousy way to finance an institution,” adds Huntsman.
Auxiliary enterprises
A final category includes auxiliary enterprises such as athletics or the UW Medical Center. Alumni sometimes ask why income from TV broadcasts, trademarks licenses or patients fees can’t go back to the central budget.
The University does expect self-supporting units to pay for heat, lights, insurance, maintenance and other overhead charges. But beyond that cost, UW policy lets these units retain the rest of the income. Adding some kind of fee could cripple programs that now stand on their own. For example, the University has one of the few NCAA Division I athletic programs in the nation that is not subsidized by the state or through student fees.
Looking over the list, Patterson says there is not one “magic silver bullet” that will slay the budget monster. But he says he is still optimistic. “We still have good, creative faculty here, entrepreneurial people who can solve this problem.”
At the same time, could the entrepreneurial model distort the mission of the university? At a regent’s planning session last year, Regent Connie Proctor worried out loud about getting lost in the maze: “We could come to the point where private funds are directing the University. We may be pulled to certain areas because that is where the money is—not necessarily where the need is,” she said.
The UW will resist overemphasis on the marketplace, the President says. “There are no world-class universities without strength in classics as well as chemistry, in comparative literature as well as computer science, in musical theory as well as molecular biology. Whatever the marketplace may say, we must ensure the excellence of the humanities and the arts,” he responds.
“All these directions may be necessary directions, but they may not be as desirable as state funding,” says Holt. “If you could get the state to go along with increased funding as well, what a great place this would be.”
These alternatives in no way let the Legislature off the hook, say UW leaders. “We will continue to make our case to the state that the UW is an indispensable public asset, which needs, and can abundantly justify, significant public support. We will point to our role as an engine of the knowledge-based economy, as a gate of opportunity, as a source of medical benefits for the whole state,” says President McCormick.
“We cannot slacken our efforts to educate the public and the Legislature,” Huntsman adds. “At the same time, we can’t count on success. The quality and impact of this institution are too much at risk.”
DOWN: State General Fund. The 2003-05 state budget is already a billion dollars in the red, according to projections.
UP: Tuition. Even with a 16 percent increase in undergraduate tuition, the UW is still behind its peer average among 24 public institutions.
UP: Research. UW officials expected a 5- to 10-percent increase in research income for 2001-02. Instead they got a whopping 17-percent increase. With the federal government continuing to fund research at record levels, the UW should continue to do well.
UP: Private Giving. While dependent on the economy and the stock market, private support for the UW has broken records almost every year. The UW expects the rate of giving to increase over the next five years.
UP: Self-Sustaining Programs. You probably didn’t know that Summer Quarter is totally financed through tuition. Certificate programs and even some degrees are also self-sustaining, and in this sector there is room to grow.
FLAT: Royalties and Licenses. While the UW has a strong technology transfer program, it is impossible to predict if a research finding will hit the jackpot.
FLAT: Auxiliary Enterprises. No huge deficits—or huge profits—are expected in UW auxiliary units such as UW Medical Center or Intercollegiate Athletics.