Chart(er)ing the wrong path for Ohio: Favor the rich, disinvest in the rest

Gary Rhoades Professor of Higher Education, Center for the Study of Higher Education, University of Arizona 9/21/11 Chancellor Jim Petros proposal for Enterprise universities (originally called charter universities) charts the wrong path for building a strong Ohio. It provides the wrong incentives for universities, favors the wrong institutions, and opens the way to widespread misuse of public monies. It takes Ohios universities away from ensuring affordability and access, from enhancing quality, and from laying the foundation for a vibrant, knowledge based economy to replace its declining, rust belt economy. It favors and features the richest few Ohio universities, which serve a small share of Ohios undergraduates, while disinvesting in the rest, which serve the vast majority of Ohios college students. Moreover, the Enterprise University plan eliminates not bureaucratic red tape but clean government policies that were established to prevent government practices that abuse and waste public money. The wrong incentives Affordability. The Enterprise University plan offers the wrong incentives to Ohios universities. Consider college affordability. For decades, the burden for the cost of higher education has been shifting from the state to the student, as the state has reduced its investment in higher education. Although Petros plan decries students debt burden, it will increase that burden by further reducing state support (from 10-20% for universities in the enterprise system), thereby shifting the cost to students. Given that for

2 decades, tuition and fee increases have outpaced increases in higher education costs, the consumer price index, and perhaps most importantly salaries and average household income, one might expect Petros plan to reverse that trend. Instead, the proposal allows and virtually requires universities to further raise tuition (3.5%) above important indexes such as the Higher Education Price Index (a composite inflation index of costs in colleges and universities, which is 2.3% for fiscal year 2011) and the consumer price index (2.0 as of June 2011).1 It also enables them to differentiate tuition, which means increased tuition for all, and even higher increases for some. Notwithstanding the Boards 8/11/11 news release of the plan, which suggests that differentiated tuition would enable universities to discount tuition, in reality, differentiated tuition means increases, not discounts (and universities already engage in forms of tuition discounting). Accessibility. The Enterprise University plan will not only make university education less affordable for Ohios students (and unaffordable for many), it will make Ohios colleges less accessible to them. By reducing state support the plan encourages universities to go out of state for wealthier students who can pay higher tuition (and who require less financial aid). The incentive is to serve more out-of-state students and fewer Ohioans. The plan will be costly to the states citizens not only in the higher tuition that comes with similar charter-like proposals, as in the states the plan cites (Colorado and Virginia), where tuition has increased dramatically, but also in terms of Ohios universities serving other states students at the expense of Ohios students. An undefined Preeminent Scholars Award Foundation is briefly mentioned in the report as a way of attracting and retaining the best and brightest students. But such an idea would channel Ohio monies to out-of-state students and increase the debt burden

3 of in-state students. It would follow a high tuition/high aid model, as it is known in the field. Yet this model has been tried for decades at the federal level and in various states, and the evidence is overwhelming and clear: the aid increases do not match the tuition increases, and as a result, access for students of modest and lower means is compromised. In fact, the high tuition/high aid model is at the heart of the affordability and student debt problems Ohio and the nation now face.2 The solution is not more merit based, but more focused, need-based aid, which research suggests is the more effective public policy.3 Educational quality. If the Enterprise University plan fails the affordability and access tests, will it at least pass the test of enhancing educational quality in universities? No. The plan fails to address key components of quality and encourages unproductive spending on non-educational facilities. Indeed, it will likely reduce educational quality. The evidence on educational quality, whether that is measured by student learning outcomes or graduation rates, is consistent and clear. We know what works. Full-time faculty and professionals matter. Engaging with professors and other professionals on academic issues matters. Money, and spending per student, matter.4 Yet nothing in the Petros plan addresses any of the major contributors to educational quality. The plan calls for more Ohioans getting the college education they need to be productive members of society. (p.3) It calls for improved graduation rates in shorter periods of time. But it fails to address what is fundamental to this expanded access and enhanced qualitythe human infrastructure of Ohios universities to provide a quality college education. It ignores the professors other professionals who educate and support the students. So although the plan calls for improved performance, it neither examines nor supports components that would make achieving that mandate possible.

4 Worse, Petros mandate relief packages for enterprise universities largely work to undermine the ability of those universities to improve quality. One of the key elements of the Enterprise University plan, in the lead-up to its development and in its final form, is so-called construction reform that reduces regulations regarding building projects. Relaxed rules requiring multiple bids and contractors on projects, and reduced public oversight of business deals surrounding university land essentially encourage universities to spend more on constructing (often non-educational) facilities that have nothing to do with quality, and to spend less in relative terms on the educational programs, activities, and personnel that are the keys to enhancing student learning and success. Here again the plan continues a decades long problematic trend of colleges and universities nationally and in Ohio, shifting the shares of monies from educational to noneducational, administrative expenditures.5 That is a formula for Ohios universities having nicer grounds, facilities, and leisure opportunities, but worse student learning, educational opportunities, and success. What is needed to improve students education in, graduation from, and success after college is to get back to educational, academic basics of focusing monies on students educational more than on their leisure experiences such as on expensive student recreation centers with lazy rivers that are like upscale country clubs, on residence halls that are like upscale hotels, and on costly athletic facilities that rival those of professional teams. From the standpoint of educational quality and student success, the Enterprise University plan is bad public policy. There seems to be a fixation on making it easier for universities to construct more buildings, as if that is the answer to Ohios challenges. Does anyone really believe that constructing mostly non-educational facilities will serve

5 Ohio students educational needs? In the midst of claims regarding fiscal austerity, salary freezes and furloughs, and academic program elimination, does anyone really think that the solution to Ohio universities educational challenges to construct more buildings? Particularly in a time when there is such a push to expand on-line modalities of delivering education? And particularly given that many universities have already expended a great deal on facilities and utilities, such that some are house poor? Some universities debt burdens (e.g., the Universitys of Cincinnati and of Akron) are so high (stemming in part from overinvestment in physical infrastructure) that their viability ratios (expendable net assets divided by debt), used in Moodys ratio analysis to rate institutions in terms of whether there too much debt, are too low. That compromises their ability to sufficiently invest in their human capacity to meet student demand and provide a quality education, which would entail investing in more tenure track faculty than in facilities, and in enhancing the professional conditions of work of the contingent faculty who make up the majority of the academic workforce so that students could be better served. Yet still it seems that some presidents are bent on building more facilities, as if they have an edifice complex. That tendency, and the Enterprise University plan that encourages it, shortchange Ohios students educationally. What students need for their learning and success is not so much more facilities, but more faculties and professionals in existing facilities and on-line to provide them with personalized attention and support. The wrong institutions Given the challenges that Ohio faces educationally and economically the Enterprise University plan focuses on the wrong institutions. The goal of Petros plan is to favor and foster the development of international international enterprise

6 universities (IEUs). To qualify for this status and the relaxed regulations as well as reduced state monies that would accompany it, a university needs to meet seven of nine benchmarks. It is significant that Chancellor Petro unveiled his plan in August at Ohio State University, because its president has been most strong in his support for the charter concept, and because Ohio State is the benchmark for the rest of the system to emulate (though Miami University qualifies and the University of Cincinnati comes close). The message is of Petros plan is clear: public universities in Ohio should try to be like OSU. Ohio State University is an extremely important public resource. It has long been a world class university. It contributes in many ways to the educational, economic, social, cultural, and democratic vitality of the state, region, and nation. Of course, it does not need an Enterprise Plan to achieve that status. Nor does this enormously wealthy institution require any more special benefits from deregulation. Moreover, ironically, the benefits of IEU status are far from clear even to officials of two of the universities that are closest to the benchmarks. In recent weeks, officials of both Miami University and the University of Cincinnati have expressed some skepticism about the plan. Particular concern attaches to the extent to which the proposed regulation relief will yield substantial cost savings for universities, and skepticism as to whether it will counterbalance the reduction in state support. More to the point, though, what is good for Ohio State University is not necessarily good for the state of Ohio. The future of Ohio lies primarily in the hands not of a few, elite public universities, but of the access universities and community colleges that educate most of Ohios college students. And it lies in these institutions staying true to their mission to focus on educating students of modest and lower incomes, students

7 who are the first in their families to go to college, and older students who form a high proportion of college students, and whose educational success is key to Ohios future. The genius of American higher education is its diversity. The variety that exists among public universities and colleges, among privates, and between them, is good for students and for the state. States need universities focusing on different missions and different student populations. They do not need universities that are all the same, or worse, that are all trying, mostly in vain, to be the same. Consider the benchmark of research expenditures ($250 million). It is important for Ohio to have some universities like OSU that generate the sort of research activity and have the massive supporting infrastructure necessary (including a large proportion of graduate students) to reach that benchmark. But it is also good to have most universities focusing primarily on educating undergraduates, and not moving monies and professors away from educating undergraduates in the hopes of attaining the research benchmark. Consider as well the benchmark of freshman retention rates (85%) and graduation rates (75%). It is important to have highly selective universities like Miami University that meet these significant benchmarks, or that are within reach and work to meet them. But it is even more important, especially in a low income state like Ohio, to have most universities working to serve working class, first generation, and at risk students who are highly unlikely to meet those benchmarks. To focus only on the rates and not take into account the students being served is to encourage Ohios universities to move away from focusing on most of Ohios students, and on the growth segments of traditional age college students. The benchmark rates punish universities for working with students who are less likely to succeed. It would be like encouraging hospitals to focus only on

8 mortality rate, irrespective of the sort of patients being treated: that would lead hospitals to stop admitting patients who might die. The benchmarks about students also overlook the fact that large and growing numbers of students are community college transfers (making the freshman retention rate meaningless) and non-traditional and part-time students (who are less likely to graduate at the rate of 75%). The plan ignores the community colleges, which educate most college undergraduates. One of the benchmarks for IEU status is having articulation (e.g., in an agreement) with community colleges. A more powerful incentive would be to reward universities that had large numbers of community college transfer students. Or to include community college transfer students retention rates as a benchmark. Ohio needs to educate far more college students to strengthen its economy. It needs to invest in educating returning students, whether that is Ohioans thrown out of work or returning from military service. And strengthening the Ohio economy and society requires colleges and universities working together to contribute to the upward mobility of lower income students into the middle class. Yet the Enterprise University plan provides a disincentive to serve the growth populations in Ohioreturning, mature students, veterans leaving the service, lower income, and students of colorand ignores transfer students from community colleges, which educate such a large proportion of students. Sadly, by treating each university as an independent enterprise, Petros plan encourages universities to act in isolation in only their own, narrow, financial interests, with little regard for the needs of Ohio, its students, or its economy. There is no sense in the plan of the value of universities working with other colleges and universities, to bring about common sense coordination that serves students well. More than ever before,

9 students are moving and transferring among various colleges and universities. That creates a need for greater coordination and cooperation among colleges and universities. In the recent past, such a system perspective led the Ohio Board of Regents to (successfully) urge all Ohios higher education institutions to go to the same academic calendar, to accommodate students movement and transfer among institutions. The Enterprise University plan lacks a system-level sense of how such cooperation is essential to better serving increasingly mobile students in the 21st century. It takes universities in the wrong direction, away from where most of Ohios students and needs are. Opening public monies to misuse The Enterprise University plan claims to free our great universities from burdensome governmental red tape (p.12). But it does not so much free up universities as it opens up the states coffers and the universitys property to donors and friends of public officials who could be awarded lucrative state contracts without competitive bids or oversight by the states controlling board, and who could sell, buy, or lease public land without state oversight or restriction. This would invite precisely the corrupt practices that led to such good government policies as establishing requirements for competitive bids, and ensuring oversight in the buying, selling, and leasing of public university land. Ohio is no stranger to controversies surrounding no-bid contracts and the misuse of public monies. When Jim Petro was Attorney General of the state, major concerns erupted in a pay to play controversy about large, no-bid contracts (to serve as special counsel to the state) being disproportionately awarded to law firms that had been major donors to a candidate fund the Ohio Republican Party had created in the late 1990s (Petro was a major recipient of those funds). A similar set of issues had emerged in the

10 early 1990s with regard to the then Democratic Attorney General. No-bid contracts are bad government, no matter which party is in power. Petros plan features them as a reform, when in fact they are a regression to past, corrupt, bad government practices. In short the Enterprise University plan is indeed an opportunity for enterprise, a great scheme, particularly if you are a donor to or friend of a public official seeking favored treatment in receiving inflated government contracts or in getting outside-themarket deals on university land. It is quite a deal for transferring a substantial proportion of public land into private hands. And it is quite a deal for transferring Ohio citizens tax monies into the pockets of contractors who will not have to bid for contracts and will gain larger profits by paying employees below prevailing, market wages. The latter practice, which is posed as reducing cost, actually reduces the states tax base. As noted earlier, it is far from clear the extent to which there will be substantial savings to universities from these practices, which is giving pause to some presidents. It would be unwise to agree to substantially reduced state allocations in the absence of any clear evidence that reduced regulations will realize comparable efficiency savings to the universities. Indeed, in this as in many other regards, the plan is extremely fuzzy. The Enterprise Plan it is remarkably long on claims and equally short on details: of its 62 pages, over two thirds glossy, full-page pictures are an unsystematic, unanalyzed review of purchasing, real estate, contracting, and governance practices in other states, glossy, full-page pictures, and blank, filler pages. It is a blank check, of sorts, for private parties who stand to gain at the expense of the state and its citizens. And it should not be signed.

11 Conclusion The Enterprise University plan charts a counterproductive path for Ohio and its system of public universities. It serves a few narrow, privileged interests at the expense of the best interests of Ohio and the vast majority of its citizens and businesses. It provides the wrong incentives. It serves the richest, most advantaged institutions and students, and disinvests in the rest. And it invites the misuse of public monies. Not only does Chancellor Petros proposal not adequately address problems of affordability, accessibility, and quality, it will make them worse. It will increase cost and student debt, and reduce accessibility and quality. It will make it harder for Ohios citizens to realize the American dream through a quality, affordable higher education. And it will weaken the broad middle class that is so key to our democracy and economy. Ohios General Assembly should send Chancellor Petro and the Ohio Board of Regents back to the drawing board. The General Assembly should ensure broad consultation with a wide range of stakeholders, including students, small business, community groups, presidents, and faculty. It should call for careful consideration and specification of particular policy levers that will reverse the problematic patterns that are making college less affordable and less accessible, and that are compromising quality and performance, essentially leaving Ohios students having to pay more for less. Finally, the General Assembly should play its constitutional role of ensuring appropriate checks and balances in protecting against potential corruption and dangerous centralization of power in the hands of people who are not accountable to the public. Several possible policy levers should be on the table. To improve affordability, index tuition and fees increases to rates slightly below that of inflation. To improve

12 accessibility, expand the states need-based aid, targeted to institutions and student populations that studies indicate it will do the most good. And provide incentives for universities to serve Ohios students, including incentives that focus on better serving community college transfer students, returning students (who have lost their jobs) and veterans returning from service. To improve educational quality, charge universities to shift the balance of their expenditures toward educational activities and personnel versus to administrative and non-educational ones, and provide incentive based, marginal increases in state allocations based on such shifts. Establish caps on debt load for buildings, particularly for non-educational buildings, and provide incentives for shifting the share of institutional expenditures invested in faculties and professionals who serve students versus on facilities and utilities. And factor in the types of students served to any performance metrics about student progress and graduation, in ways that reward universities for serving students of modest and less privileged means. Ohio does not need an ill-defined Enterprise Universities plan that encourages universities to accelerate past practices contributing to problems of affordability, access, and quality, practices that favor the richest and disinvest in the rest. It does not need a plan that looks to bring back problematic governmental contracting practices that give favors to a few at the expense of the many. What Ohio needs is a carefully developed, well-defined plan that helps universities shift course in incremental, feasible ways, to increase affordability, access, and quality. It needs a plan that has evidence-based policy levers and incentives that ensure prudent investment of public monies to serve the interests of Ohios citizens. There lies the path to a building a better future for Ohio.

13 Notes 1. Commonfund. 2011. 2011 Higher Education Price Index. Wilton, CT: The Commonfund Institute. This Institute is responsible for reporting the HEPI data which has provided higher education inflation data for 50 years. 2. See Michael S. McPherson and Morton Owen Shapiro, The student aid game: Meeting need and rewarding talent in American higher education (Princeton, New Jersey: Princeton University Press, 1998); and see this blog on what leading scholars say about high tuition/high aid: http://eduoptimists.blogspot.com/2009/04/what-is-evidence-onhigh-tuition-high.html. 3. See Sara Goldrick-Rabs research on the effectiveness of need based aid, in a major new research project: http://eduoptimists.blogspot.com/2011/07/new-experimental-studysuggests.html. 4. See Adrianna Kezar, Embracing non-tenure track faculty: Changing campuses for the New Faculty Majority. (New York: Routledge, Taylor and Francis Group, forthcoming); Richard Arum and Josipa Roksa, Academically adrift: Limited learning on college campuses (Chicago: University of Chicago Press, 2011); and see comparative graduation rates at expensive liberal arts colleges versus public (and private) access universities. 5. See: reports of the Delta project on postsecondary education costs, productivity, and accountability (http://www.deltacostproject.org/); the 2010 Goldwater Institute report, Administrative bloat at American universities: The real reason for high costs in higher education (http://www.goldwaterinstitute.org/article/4941); Larry Leslie and Sheila Slaughter, Academic capitalism: Politics, policies, and the entrepreneurial university (Baltimore: Johns Hopkins University Press, 1997); and Sheila Slaughter and Gary

14 Rhoades, Academic capitalism and the new economy (Baltimore: Johns Hopkins University Press, 2004).