Inefficiency sinks privatization of LA higher education

Over four years ago this space conjectured about the privatization of Louisiana State University. Now that it seems that some on the Louisiana Board of Regents and others have caught up to this, then the time has come to revisit the idea – and such an inquest shows why it likely would fail without major restructuring of the state’s higher education system.

The post stemmed from a move at the University of Oregon to accomplish this. Since then, not only UO, but also Oregon State University and Portland State University all headed in this direction, commencing last summer. The other then-existing four state universities were given a similar option and some have moved to take it.

These institutions no longer participate in almost any state grouped settings, such as for risk management, but handle most of their own organizational maintenance. Revenues generated by participating schools now accrue to a separate fund that schools draw upon for expenditures, including issuing revenue bonds for capital items. A minimal state general fund contribution continues and they must ask the state’s coordinating commission for higher education for any tuition increases above 5 percent. They also have independent boards to govern each, although their members appointed by the governor. In short, they have almost entirely detached themselves from state government, with its flagship UO able to do this on an endowment only about 50 percent higher on a per student basis than LSU Baton Rouge’s.

Yet in the fiscal year 2016 budget the LSU System (of which perhaps 10 percent of this total would go to the schools in the system other than LSUBR) proportionally is scheduled to receive about 44 percent of its funding through state sources; just a few years ago, that figure was close to 60 percent. Even if none of the supplemental budget revenue sources come to fruition, reducing the general fund support of higher education as a whole from $763 million to $237 million, the system still would be receiving 23 percent of its overall funding from state sources. So why is it that UO, about half again better off in endowment than LSUBR, can manage to run off a state contribution, at 5.4 percent of its total revenues, less than a quarter of the proportion that the LSU System gets under what is considered the apocalyptic budgeting scenario, and about one-eighth of what is considered the undesirable but currently-budgeted scenario?

It’s partly because of tuition/fees differentials; previously noted has been Louisiana’s higher education system has been over-reliant on taxpayer support despite more than adequate user ability to pay. This year, for state residents tuition and fees are pegged at $8,758 for LSUBR (12 hours and above) yet (for 15 hours, a full-time load) at UO it’s not much more, at $9,918. But were LSUBR to increase its tuition for all undergraduate students by $1,160 a year to match (and it has about 4,700 more undergraduate students), it would only generate another $27 million. And costs attributable to LSUBR in the tuition area rise when considering that a large number of the state’s Taylor Opportunity Program for Students recipients attend it and make up the majority of the student body.

Most remarkably, in fiscal year 2013 UO budgeted $865 million in funds of which only $47 million came from the state. By contrast, in FY 2013 the LSU System was budgeted for nearly $1 billion directly and (using its proportion of self-generated revenues from the total Board of Regents money budgeted) another $414 million indirectly (although some of this was from public hospital money then administered by the system), where taxpayers ponied up $867 million. Again, a better endowment and higher tuition does not come close to explaining this gap.

And this discrepancy between an Oregon higher education system whose eight baccalaureate-and-above institutions either have become or most of the remainder are in the process of becoming essentially privatized and Louisiana’s fourteen such institutions becomes starker when looking at total figures from the years. With similar state populations (Louisiana has almost 700,000 more residents), in FY 2014 Oregon’s senior schools budgeted a total of $2.754 billion of which taxpayers (and lottery players) were to pick only $269 million of it, while Louisiana taxpayers for theirs were expected to pay $1.160 billion of the $2.465 billion.

With numbers like these, it’s little wonder Oregon universities are opting to enjoy large autonomy from the state. But it raises the question of why Louisiana universities are so taxpayer-dependent. Even increasing tuition to the southern regional average only will add somewhere in the range of $200 million in revenues for senior institutions, once factoring in TOPS recipients and lower enrollments due to higher costs.

Again, the answer leads back to the overbuilt nature of the system, particularly concerning the senior institutions. For the fall of 2013, Oregon’s schools had about 3,300 full-time faculty members teaching around 87,000 total undergraduate students, while Louisiana’s had over 4,700 full-time faculty members teaching about 122,000 total undergraduate students. That the student/faculty ratio is about one more in Oregon than Louisiana is not as important as that its student/institution ratio is about 25 percent higher (and this including the new upperclassman-and-above institution Oregon State University-Cascades with only about 750 undergraduates) and not nearly as revealing as that about 63 percent of Louisiana student attend a senior institution while in Oregon, with (2011 data) having around 188,000 students attending community colleges for credit, its proportion (assuming 2013 figures are roughly the same) is only half of Louisiana’s.

In other words, less efficient use of instructional resources by having more instructors per student (likely a consequence of counterproductive policies such as 12-hour cap on tuition and later class dropping dates) and by having too many students shunted into senior institutions because there are too many of those play some role in the higher consumption of taxpayer resources in Louisiana’s higher education system. Which tells us that quasi-privatization like Oregon’s would be risky, for while it may work to wring out inefficiencies in the system, without major system change of merging, demoting to junior institutions, or closing of senior institutions, these would be set up for failure.

And also indicates something for the current budgetary saga: any maneuvers that do not demand more rationality and efficiency from Louisiana higher education only leave the state vulnerable to more budgetary difficulties in the future.