To: Board of Regents

From: Richard A. Crofts

Subject: Tuition Increases

 Date: May 16, 2001

 

Before moving to specific tuition recommendations, I would like to set the context by making a few observations about university system expenditures, State funding levels, and public policy on higher education in Montana.

The amount of tuition we need to charge in the Montana University System is a direct function of several factors:

  • The amount of state funding we receive.
  • The policy, upon which this budget was based by the Executive and implemented by the Legislature, that 50% of all budgetary increases should come from tuition.
  • Our spending.

Because we do have our critics who say that we can resolve our budget problems by reducing costs, let's begin with that point.

At the request of the 1999 Legislature, the Legislative Fiscal Division compared expenditures in the Montana University System to seven comparable state university systems identified by the Legislature. What they found is that we actually spend less to educate a student than any other state included in the study. In fact, we would need to increase our per student expenditures by more than 30% just to reach the average expenditure level of our peers. Wyoming was not included in the study, but is often citied as a model of efficiency with its single university. In Montana, we spend under $7000 to educate a full-time equivalent student. Wyoming, by contrast, spends approximately $10,900 per full-time equivalent student.

Furthermore, we have already achieved very significant cost savings by a variety of efficiency measures and personnel and programmatic reductions. The documents prepared by the two universities summarizing the steps already taken are impressive records. In addition, the tuition increases I am recommending will themselves require additional budget reductions by the campuses.

When attention is turned to the amount of state funding we receive, a similar picture emerges. The LFD also examined our state funding levels compared to the same seven peer states. What it found is that our level of state funding per student is less than any comparable state and 44% below the average of the seven states. Other national studies confirm this finding. For instance, if we look at state higher education appropriations per capita, we find that Montana is tied for 47th in the nation. Our per capita appropriations for higher education in FY 2000 were $157. Comparable numbers for our neighboring states were Idaho at $223, Utah at $257, Wyoming at $291, and North Dakota at $296. We are sometimes told that we cannot expect a higher level of funding because there is not enough money since Montana salaries are so low. However, you have earlier seen the figures comparing Montana to other states in the dollar amount appropriated to higher education per $1000 of per capita income. In that data as well, Montana funds higher education at levels well below either our neighboring states or states with similarly low income levels.

In summary, we approach this decision about tuition increases facing the unfortunate reality of a starting point of low comparative expenditure levels and low state funding levels. I believe we have no realistic choice, unless we wish to compromise quality or access, than to adopt significant increases in tuition.

With regard to the third factor mentioned above (the policy that half of all budget increases appropriated by the Legislature must come from tuition), for fiscal 2002, such a policy virtually demands double-digit tuition increases.

I am recommending that we depart from our practice of recent years and establish tuition rates at this time only for FY 2002. I make this recommendation for two reasons. First, we have very little ability to lower necessary tuition increases at this time through significant additional budget reductions because we are so close to the start of the fiscal year. Personnel commitments (other than for classified staff) are already in place. We would end up reducing expenditures only by holding open positions that have not been filled and such a hiring freeze approach is not consistent with good planning. Second, we have a great deal of uncertainty about the second year of the biennium, especially with regard to increases in the cost of utilities. I believe that we will be able to make a better decision about tuition increases for 2003 during the next academic year.

I am recommending that we continue with a tuition differential for the Colleges of Technology and lower division students at The University of Montana-Western and Montana State University-Northern. However, I do not think we can afford to continue the freeze of tuition for the COTs and those students at Western and Northern. I am recommending a 4% tuition increase for the COTs and lower division students at Western and Northern. In addition, we will provide to these campuses the equivalent of additional 4% tuition increase through allocation of general fund.

I am recommending a 10% tuition increase for UM-Missoula, MSU-Bozeman, and MSU-Billings and upper level students at Western and Northern. Montana Tech is a special case. When the current cost of education approach was implemented, it was assumed that both general fund and tuition would vary proportionately to the cost of programs. Thus, all academic programs would receive the same proportionate share of general fund, but more expensive programs would receive more dollars. And that is the way we have distributed general fund. For the model to work properly, it was also assumed that tuition revenue would vary as well in proportion to the cost of the program - - i.e., students enrolled in more expensive programs would pay higher tuition. With the exception of the small number of "super tuition" programs we have approved, we have not significantly varied tuition based upon the cost of academic programs. Montana Tech has prepared a convincing case that the failure to vary tuition has been one of the causes of their serious budget difficulties - - enrollment problems have also contributed. I have agreed to recommend a higher percentage tuition increase for Montana Tech - - 12% for the next year - - and you can expect to see higher tuition increases for Montana Tech for the next several years.

Our considerations that led to these numbers have occurred in two phases. First, I asked Rod Sundsted to calculate on a system-wide basis the needs requiring tuition increases that applied to all campuses similarly. These included the following:

  • Annualization of the last pay plan and defunding from 63% general fund to 50% general fund.
  • FY 2002/2003 pay plan
  • Legislative transfers out of the "lump" to MTAP, the community colleges, and the agencies.
  • Unfunded library inflation at 8% per year.
  • Inflation in Banner Operations.
  • Inflationary increases in fixed costs.
  • Legislative across the board 1% personal services reduction that is above the normal 3% vacancy savings.

These items add up to a 8.1% tuition increase for FY 2002.

In the second phase I asked the campuses to report on the additional tuition increases required to meet needs above and beyond the above list. Rod reviewed those for consistency and we decided on the following list of additional elements that were appropriate for inclusion:

  • FY 2000-2001 utility shortfall, not covered by HB 3 (one-time only).
  • 50% of FY 2002 utility shortfall, not funded in HB 2.
  • Tuition share of operations and maintenance of new space.
  • Tuition share of water/sewer/trash increases.
  • Course fee replacement agreed upon last year (one-time only).
  • COT tuition differential
  • Termination pay excluded from the base and not funded by the State.

It is important to remember that all of the elements in both of these lists are expenditures that will have to be made next year. If increases in revenue (state support plus tuition) are not sufficient to cover these costs, there will have to be reductions made in other areas.

When these elements were added on a campus-by-campus basis to the 8.1% calculated system-wide, the proposed tuition increases range from 11.8 to 16.2%.

As you may recall, we discussed with the Legislature a document entitled Budgetary Obligations. Based upon the information we had available at that time and before further reductions were made in the lump, we had estimated a FY 2002 tuition increase of 9.3%. That figure was also widely quoted in the press. While the 9.3% figure was not a commitment, I do believe we must stay as close as possible to that level of increase in order to retain public and political credibility.

The resident tuition increases I have recommended above are intended to achieve that goal. I believe this is a balanced approach that combines programmatic reductions with necessarily higher tuition increases than we have been accustomed to in recent years. However, our research in recent issues of The Chronicle of Higher Education shows that many states are adopting high tuition increases for the coming year - - increase from 8-10 percent are fairly common; and, of course, in virtually every case these are in university systems much better funded by the State. The campuses have also gathered data making specific comparisons to the tuition levels of their peers.

In general, non-resident tuition will increase at the same percentage as resident students, but we are allowing the campuses to adjust that up or down depending upon their assessment of the market, as long as non-resident students continue to pay at least the full cost of their education.

We all have concerns about the impact of large tuition increases on our resident students and their families. Tuition is already a large percentage of the Montana per capita income when compared to many other states and you will recall that last Fall's national study gave Montana a grade of D- in the category of affordability. The resident tuition increases I am recommending will, of course, exacerbate that situation. However, as my initial observations indicate, we are faced with no other realistic choice. We are facing a $25 million shortfall in the coming biennium between our minimal needs to keep the same level of programming functioning and our increased allocation of state support. Programmatic reductions of even half that amount would decimate our current offering of programs, would themselves deny access to students, and would create such negative publicity about the future stability of the Montana University System as to increase the disturbing trend of Montanas high school graduates going out of state for the postsecondary education.

Some Regents have wondered about the impact on enrollment and access of a significant tuition increase. It is impossible to predict how students and their families will react. However, keep in mind that a 10% increase in tuition for Montana resident students would result in a maximum increase of less than $250 for the academic year, an amount that does not seem to be so large as to seriously impact access.

Finally, these tuition recommendations are based upon one modest budgetary adjustment. When we looked at the tuition increases needed and proposed by the campuses, we saw that the smaller campuses needed higher tuition increases on the whole than did the two large campuses. This was due to several factors: the impact on tuition of unfunded termination payouts; the impact on tuition of large utility increases (MSU-Billings as the most striking example); and the advantage that Missoula and Bozeman have through the enrollment of large numbers of non-resident students. We believe in the Commissioner's Office that a small general fund reallocation will be necessary from Missoula and Bozeman to be distributed to the smaller campuses. As a part of this tuition proposal I am recommending that you approve a reallocation of $146,000 from UM-Missoula and MSU-Bozeman to be distributed in the following manner:

  • The equivalent of an additional 1% tuition increase to Montana Tech and MSU-Billings.
  • The equivalent of an additional 2% tuition increase to UM-Western and MSU-Northern.
  • The equivalent of an additional 2% tuition increase to the Helena and Great Falls Colleges of Technology.

As you can imagine, this proposal will not be popular on the two larger campuses. However, they are the only two campuses that will be experiencing any significantly increased revenue from non-resident students in the next fiscal year. Based upon projected enrollments, Rod has estimated that Missoula and Bozeman will have between $2-2.5 million increases in revenue from non-resident students in the next fiscal year. That is an advantage they have that remains one of our items of concern about the current allocation model. Their expenditure per student will be increased more than the other campuses next year because of that recruiting advantage.

I would like to conclude by stressing that the tuition increases I have recommended are the absolute minimum that I think we can approve. Even at these levels, all of our campuses will be experiencing real difficulties in budgeting for the next fiscal year. I believe a strong case could be made for an additional 1% increase added to all of the campuses and would be happy to discuss that with you at our upcoming meeting.

I regret the length of this memorandum, but because we are departing from past practices and recommending high tuition increases I thought some detailed explanation was necessary.

I would be happy to respond to any questions.