Tuition is the principal revenue source for many of these institutions; Teaching and research remain the two top expenditures
CAMBRIDGE, MA | FEBRUARY 4, 2016 — At a time when public discussion of higher education has focused on a perceived growth in non-academic expenditures, public research universities continue to devote most of their resources to their core activities: teaching and research. Despite this prioritization, as states have continued to reduce their contributions to public research universities, tuition is now the principal revenue source for many of these institutions.
These are some of the findings from Public Research Universities: Understanding the Financial Model, a new publication released today from the American Academy of Arts and Sciences. An initiative of the American Academy, The Lincoln Project: Excellence and Access in Public Higher Education is studying the importance of public research universities, analyzing economic trends affecting their operations, and recommending new strategies to sustain these critical institutions.
According to Understanding the Financial Model, some facts about the current financial models of public research universities include:
- Between 2000 and 2012, state appropriations to public research universities declined by 34 percent per FTE student—while the number of students they educate increased approximately 23 percent.
- While cuts to state funding over the past 20 years have been significant across all public institutions, the cuts at public research universities—averaging 26 percent—have been the most severe.
- Budgets at public research universities have been kept under tight control, especially in light of the additional students now educated at these institutions. From 2000 to 2012, education and related expenses increased less than one percent annually, on average. Faculty salaries at public research universities grew approximately 1.12 percent annually between 2007-08 and 2011-12—well below the average inflation rate.
- In 2012, compared with 2002, public research universities employed 30 fewer staff per thousand FTE students. However, the costs of benefits for existing employees and retirees are rising and have a large impact on the operations budgets of these universities.
Many public research universities have responded to decreased state funding by increasing tuition. At the same time, some institutions are pursuing creative ways to reduce expenses and increase revenues in other areas. Examples include:
- Cost-savings plans with features like shared service centers, systems-wide collaborations, purchasing consortia, and reductions in administrative layers
- The creation of financial models for multiyear planning, and performance metrics for increased institutional accountability
- Increased investment in the infrastructure required for fundraising
- Business accelerator units and new research parks, and improved intellectual-property and technology-transfer policies to facilitate the establishment of new businesses
“The work of the Lincoln Project is shedding new light on creative strategies with the potential to strengthen the financial model for public research universities,” said American Academy President Jonathan F. Fanton. “A greater understanding of the full financial context—both the opportunities and the challenges—will inform the Lincoln Project’s recommendations for how these universities can continue to provide access to higher education for Americans from all backgrounds.”
“Public research universities have responded in creative ways to budget reductions, and they must continue to enhance all available revenue streams,” said Lincoln Project co-chair Mary Sue Coleman, President-Elect, Association of American Universities, and President Emerita, the University of Michigan. “State and federal governments, along with corporations, have a role to play in revitalizing the financial model of these institutions. All stakeholders must recognize that investment in American public research universities is an investment in the future prosperity of the nation.”
Understanding the Financial Model is the third in a series of publications from The Lincoln Project. The first publication, Public Research Universities: Why They Matter demonstrated the vital public good that public research universities represent in the nation. The second publication, Public Research Universities: Changes in State Funding, examined state financing of higher education, the challenges that state governments face, and the prospects for greater state support in the future. The co-chairs of the Lincoln Project are Mary Sue Coleman and Robert Birgeneau, Chancellor Emeritus, University of California, Berkeley.
Funding for the Lincoln Project is provided by generous support from The William and Flora Hewlett Foundation, The Spencer Foundation, Carnegie Corporation of New York, Robert and Colleen Haas, and the Thomas and Stacey Siebel Foundation.
Founded in 1780, the American Academy of Arts and Sciences is one of the country’s oldest learned societies and independent policy research centers, convening leaders from the academic, business, and government sectors to respond to the challenges facing the nation and the world. Current Academy research focuses on higher education, the humanities, and the arts; science and technology policy; global security and energy; and American institutions and the public good. The Academy’s work is advanced by its more than 5,000 elected members, who are leaders in the academic disciplines, the arts, business, and public affairs from around the world.