Forward. Thinking: The University and Wisconsin's Economic Recovery
John D. Wiley, Chancellor
University of Wisconsin–Madison
November, 2003
Chancellor John D. Wiley was asked by Madison Magazine to share his thoughts on the current state of higher education in relation to Wisconsin's economy. Read the subsequent article published by Madison Magazine or Wiley's full written response, below.
I want to send a wake-up call to the citizens of Wisconsin regarding our economy and our educational system. The ailing economy poses a serious threat our schools and colleges and unless we act now to protect funding for education, the state's future will be bleak.
More than a decade of state budget cuts and partially offsetting tuition increases have left the base operating budgets of Wisconsin's public higher education systems in the worst condition since the Great Depression. Access to, and affordability of, the university system are already endangered at precisely the time when the Wisconsin economy needs more high-paying jobs and a more highly educated work force.
I obviously know the University of Wisconsin-Madison best, but my general arguments apply equally to the entire UW System and the Wisconsin Technical College System, as well. All Wisconsin citizens and all our elected officials need to understand that the path we've chosen for our post-secondary education system will not revive our economy – rather it will take us in the direction of a third-world economy and permanent budget problems for the state of Wisconsin. Unless that is the outcome we desire, we must make it a top priority to restore the health of public higher education.
By almost every measure, the University of Wisconsin-Madison is entering the 21st century in admirable condition: Our retention and graduation rates are dramatically above the national averages, rivaling many elite private universities; the median time-to-degree is four years in our four-year programs and five years in our five-year programs; student and alumni satisfaction surveys give us consistently excellent marks; we remain routinely among the top few universities in the nation for research volume and PhD production; we have been named one of the top dozen universities in the effectiveness of our technology transfer and economic development activities. And the list goes on.
The state puts roughly $400 million annually into UW-Madison, which leverages a $1.8 billion budget which, in turn, has a $4.7 billion impact on the state's economy. That's more than a 10:1 annual return on investment and it doesn't even account for the impacts of our Research Park, Wisconsin Alumni Research Foundation licenses, the new jobs in our spin-off tech companies, aid to existing companies, and our annual production of about 9,000 new graduates at all levels.
That's the good news.
Here's the bad: A continued decline in state support could bring it all crashing down. To understand why, it is helpful to see our situation in the larger context of American higher education.
As the accompanying graph shows, the U.S. system of higher education consists of a large number of small private institutions and a smaller number of much larger public institutions. Public schools constitute only 41 percent of the total, but they enroll 77 percent of the students, and educate them at about half the cost per student. Economies of scale are even more striking if you isolate the four-year institutions: Here, only 25 percent of the institutions enroll 65 percent of the students. Of the 100 largest post-secondary institutions in the country, 85 are public. There are good and simple reasons why there are so few large private institutions. The sources of base budget revenue – basically the budget for hiring faculty and staff – for public and private institutions are exactly the same: tuition, state support; and endowment income. Perhaps surprisingly, both public and private institutions get about the same amount of revenue from tuition – about 18 percent for publics, and 24 percent for privates.
Table 1. Statistical overview of the U.S. system of higher education.
| Public | Private | % Public | |
|---|---|---|---|
| # of 4-year Institutions | 628 | 1,859 | 25.3% |
| Enrollments | 6,055,398 | 2,208,460 | 64.7% |
| Average Enrollment | 9,642 | 1,780 | - |
| # of 4-year Institutions | 1,085 | 625 | 63.5% |
| Enrollments | 5,697,388 | 251,043 | 95.8% |
| Average Enrollment | 5,251 | 402 | - |
| Total Institutions | 1,713 | 2,484 | 40.8% |
| Total Enrollments | 11,752,786 | 3,559,503 | 76.8% |
| Total Expenditures | $152,325,000,000 | 79,700,00,000 | 65.7% |
| Expenditures/Student | $12,961 | 22,391 |
Data are from the Chronicle Almanac 2003-4, Chronicle of Higher Education, August 29, 2003 |
The big differences are in state government support and endowment income.
State funds average 31 percent of support at public universities and only .3 percent at private schools. Conversely, private endowments supplement private schools at about 31 percent and public schools at only .9 percent. In effect, state support at public institutions plays the same role as private donations at the private institutions. In short, taxpayers "buy a stake" in public higher education for the overall benefit of society. Nationwide, that stake is about $221 per capita. At private schools, a small number of wealthy donors and those families able to pay the full "sticker price" tuition foot this portion of the bill.
With this in mind, let's look at trends in public higher education in recent years.
Throughout the 1980s and 1990s, the State of Wisconsin, and virtually every other state in the nation, felt squeezed between competing public demands for more services and low taxes. Of all state agencies, post-secondary schools are the only institutions with easy-to-spot alternative revenue sources. Bluntly, these institutions can be – and have been – asked to offset state cuts by raising tuition. Frankly, it is easy for politicians to reason that everyone wins if we just reallocate some money from higher education to other badly needed public uses such as K-12 education, prisons, health care, and aid to local governments, and thus avoid tax increases. Public school tuition remains "cheap compared to the privates," so everyone apparently wins.
That is exactly the path that has been followed, year after year, in Wisconsin and elsewhere.
In 2002, the national average advertised or "sticker price" tuition at private 4-year colleges was $16,287. How much revenue did that generate? The 3,308,460 students enrolled at private 4-year colleges generated $29,257,523,000 in tuition and fees, for an average of $8,844 per student. This reflects, among other things, rather substantial tuition discounting. In contrast, the 6,055,398 students enrolled at public 4-year colleges generated $23,376,317,000, for an average of $3,861 per student – pretty close to the $3,746 national average sticker price tuition at publics.
Over the past 30 years, UW-Madison has experienced a steady decline in the percentage of its overall budget supported by Wisconsin taxpayers. The taxpayer-funded portion of the budget has decreased from 43 percent in 1973 to just under 21 percent in 2003. Since the early 1990s, a series of mandated expenditure reductions to balance the state budget has accelerated the loss of public funding. As a result, the taxpayer-funded portion of the Madison budget had a net reduction of $33.4 million from 1991 to 2003, when adjusted for fixed costs (e.g., wage adjustments approved by the Legislature, increased utilities costs).
This pattern cannot continue, here or anywhere else, without catastrophic consequences for the economy.
Without explicitly thinking of it in these terms, state officials have been pushing all public higher education in the direction of the private school model, which means a reliance on high tuition and high financial aid for all students. In effect, the message is this: Instead of supporting higher education by taxing all 280 million citizens about $220 annually each, let's ask 10 percent of them to provide $2,200 a year, or 1 percent of them to pony up $22,000 a year.
This has become an accepted philosophy in Wisconsin and elsewhere without any debate. It is become ad hoc public policy. I know of no legislature or public forum that has concluded and recommended that this massive shift in the finances of higher education is good public policy for the state or the nation. Rather, the shift is occurring incrementally in small, expedient budget decisions that manage to get us through one more year.
It cannot continue, mainly because the private school model simply cannot be scaled up to the extent required. The numbers don't work.
Let me use a concrete local example. UW-Madison could "privatize," giving up all state support, if and only if it had an unrestricted endowment of about $8 billion and raised tuition to more than $20,000 per year. In our entire 150-year existence, we have accumulated endowments of just $2 billion, and virtually all of these funds are restricted by donors as to how they are used. Funds donated for scholarships, for example, may not be used to hire additional instructors or build buildings. Less than .1 percent – about $10 million – is "unrestricted," and this provides only about $500,000 annually in a total budget of $1.8 billion. Madison is the only public school in Wisconsin that has any significant endowment at all. The situation is even worse for other public schools.
On a national level, replacing taxpayer support would require about $1.3 trillion in increased endowments. Compare that to a current total of about $200 billion, including all the private schools. That will simply not happen within the lifetimes of any persons living today, and probably ever. There is simply not enough concentrated (and willing) wealth to make it feasible.
This stark reality is already diminishing the health of the U.S. system of higher education, and it is something in which every citizen has a huge stake. Access and affordability are not just issues for a few potential students and their families: These are issues on which the entire economy will either thrive or decline. Simple arithmetic confirms it. Now, the public invests a little more than $392 billion annually – $1,393 per capita, or about $8,000 per pupil – to provide universal, tuition-free education through grade 12. Multiplying $8,000 times 13 years of K-12 education shows that we invest about $100,000 to produce a high school graduate. A glance at Table 2 shows that the average person who enters the workforce with only a high school education is unlikely ever to repay in state and local taxes the cost of his or her diploma. It is only at the bachelor's degree level and above that the public can expect to regain their investment from tax revenues. Let me quickly add that Wisconsin workers are renowned for their work ethic, and many high-school graduates obtain apprenticeship training or other skills that enable them to beat these odds. Similarly, some college graduates will fall far short of the earnings detailed in the chart. Still, the overall economy consists of the accumulation of those averages, so the above conclusions are important for the economy as a whole.
In the middle of the last century, taxpayers and lawmakers alike seemed to understand this simple math. They wisely invested in a massive expansion of public higher education, and provided affordable access to millions of citizens through the GI bill, low tuition, and abundant scholarship support to those who needed it. Those decisions created the engine that powered the state and national economies for the entire second half of the 20th century. The vast majority of you who are reading this article benefited personally from that affordable access, as did society at large. Why, then, would we even consider withdrawing it from our children and their children? But that's just what we're doing.
Federal scholarships have all but disappeared, replaced by loans. More than three quarters of students now work for pay during the school year when they should be studying – and they are working more hours every year. More than half of all college graduates now graduate with student loan debts ranging, on average, from $15,000 at the bachelor's level to more than $100,000 for veterinary, law, and medical school graduates. The prospect of starting a career with large debt is now driving students away from careers that have only "average" lifetime earning potential, including teaching, nursing, family practice medicine, rural medical or law practice, and large animal veterinary practice.
And this is only the beginning.
The median family income in Wisconsin is a little over $45,000/year. The median family income of this year's new freshmen at UW-Madison is nearly $90,000/year. Yet, the distribution of brains, talents, ambition, and creativity is independent of family income. We will ignore that fact and freeze out the children of average and low-income families at our great peril. No society is rich enough to waste any of these assets.
Table 2. Mean earnings by highest degree (US)1
| Highest Degree | Mean Earnings | Approx. years in school | Approx. years working2 | Expected lifetime earnings3 |
|---|---|---|---|---|
| No HS diploma | $16,121 | 11 | 50 | $806,050 |
| HS diploma | $24,572 | 13 | 48 | $1,179,456 |
| Some college | $26,958 | 14 | 47 | $1,267,026 |
| Associate degree | $32,152 | 15 | 46 | $1,478,992 |
| Bachelor's degree | $45,678 | 17 | 44 | $2,009,832 |
| Master's degree | $55,641 | 19 | 42 | $2,336,922 |
| Doctoral degree | $86,843 | 22 | 39 | $3,386,877 |
| Professional degree | $100,987 | 22 | 39 | $3,938,493 |
1 Statistical Abstract of the United States, 122nd Edition, 2002
2 Assuming retirement at age 65
3 Constant 2001 dollars. Totals and differentials will be larger to the extent there is real growth
Now, let me put this in the context of the ailing Wisconsin economy and the role of universities in our recovery. It is further instructive to compare the recent trajectories of Wisconsin and Minnesota, two states more alike than different. Indeed, in 1980 Wisconsin and Minnesota were similar in population and both states had per capita incomes very close to the national average. By 2001, the U.S. had grown 26 percent in population, while Wisconsin grew only 15 percent and slipped from 16th to 18th nationally. Minnesota also lagged the national population growth rate but, at 22 percent, held on at 21st nationally.
In terms of economic performance, however, a dramatic and ominous difference opened up. By 2001, the U.S. per capita income grew to $30,271, while Wisconsin and Minnesota achieved $28,911 and $32,791, respectively. Wisconsin had dropped $1,360 below the national average, and a whopping $3,880 below its sister state to the west. Had Wisconsin simply matched the performance of Minnesota over the last 20 years, we would have an additional $20 billion in our economy. As a consequence, Minnesota has now become, in the public discussions, our "aspirational model."
What are they doing that we're not? More important, what are they doing we should be doing? This question is best answered by economists, and the details are complex. Some things, though, are perfectly obvious, including some things that are NOT responsible for the difference.
The only practical way to increase per capita income is to generate and fill more high-income jobs. Looking back at Table 2, that clearly means we need more jobs that require post-secondary education. We hear a lot about "brain drain," as if simply keeping all Wisconsin graduates in Wisconsin would solve the problem. But there is no way to keep college graduates in Wisconsin without the jobs they want and need. That said, Wisconsin actually does quite well in retaining its own graduates. Where we fail is to attract college graduates from other states. Without a doubt, the jobs must come first.
During the budget debates last year, legislators and others wondered out loud whether Wisconsin simply has "too much higher education" – too many institutions, or institutions that are too expensive. Perhaps, they said, we could and should save money by closing a few campuses. Well, Wisconsin has a total of 31 public institutions, reasonably distributed around the state, serving about 250,000 students at a cost to state taxpayers of about $224 per capita. Minnesota, in contrast, has 52 public institutions serving about 219,000 students at a cost of about $283 per capita. Are the UW System and technical college systems too big? Too expensive? The evidence doesn't support that. At least a bigger, more expensive system hasn't seemed to hamper Minnesota, and maybe it's helped. Incidentally, Minnesota also has more private schools than we do (62 versus 38), and both states have 5.6 percent of their respective populations in post-secondary education.
Minnesota provides more per capita support for public education at all levels than does Wisconsin, as you can see by the accompanying graphic. If Wisconsin had kept pace with Minnesota, public higher education in Wisconsin would have been receiving an additional $321million in 2001 (an additional $59 per capita). Instead, by 2003, Wisconsin had further reduced its per capita support of higher education, dropping us even further behind Minnesota and well below the national average. In a knowledge economy, this is the path to ruin.
Table 3. Upper Midwest and U.S. Annual Investments in Public Higher Education.
| K-12 Annual Investments | Higher Ed Annual Investments | |||||
|---|---|---|---|---|---|---|
| Unit | Pop. (mil) | Billions | per capita | $Billions | per capita | |
| Illinois | 12,601 | 20.126 | $1,597 | 2.787 | $221 | |
| Indiana | 6.159 | 9.089 | $1,476 | 1.327 | $215 | |
| Iowa | 2.937 | 3.603 | $1,227 | 0.77 | $262 | |
| Michigan | 10.05 | 14.781 | $1,471 | 2.264 | $225 | |
| Minnesota | 5.02 | 8.452 | $1,684 | 1.419 | $283 | |
| Wisconsin | 5.441 | 8.543 | $1,570 | 1.221 | $224 | |
| U.S. | 288.369 | 392.091 | $1,360 | 63.648 | $221 | |
Data are from the Chronicle Almanac 2002, Chronicle of Higher Education, http://chronicle.com/weekly/almanac.
Far from having too much, the facts point to the need for more higher education. Does anyone doubt that a knowledge-based economy will need more workers with post-secondary education, or that there is an increasing need for periodic retraining and lifelong learning in the workforce? As for the sorts of jobs these workers will do, they are precisely the kinds of jobs UW-Madison has been creating for many years. We are the largest high-tech employer in the state (including more than 8,300 on-campus jobs on a payroll other than state funds or tuition), and we are by far the largest importer of people with advanced degrees. Beyond that, we can now count more than 220 high-tech companies that owe their existence to work that started in our laboratories. In the University Research Park alone we have 107 companies employing more than 4,000 people at an average income of $60,000 per year, and we have a long queue of entrepreneurs and new business ideas waiting to get out the door. As the venture capital markets and the public markets improve, they will be doing just that, and we will replicate the Research Park many times over. This is exactly the kind of growth the state needs.
Every institution in the UW System has similar stories to tell, and has the potential to stimulate the local, regional, and state economies in similar ways at various scales. In the last biennium, the UW System submitted an "Economic Stimulus Package" of budget initiatives aimed at getting the state economy revved up. Although these initiatives were favorably received, they could not be (or were not) funded. The System stands ready to roll up its sleeves and implement these plans, but we cannot do it without resources, and we certainly cannot do it in a climate of repeated deep cuts and retrenchments.
Everything we do in the UW System is built on a base of state support plus tuition. That is why we call it the "base budget." It leverages and makes everything else possible. I have argued that we cannot continue to decrease state support and increase tuition. That means we need to find ways to rebuild the state support component. It is time for the state to rededicate itself to the concept of public higher education.
Needless to say, this issue has been on my mind, generating an increasing sense of urgency, for several years now. Accordingly, it would be surprising if I didn't have some thoughts about possible solutions and strategic directions. Rather than presenting them here, I prefer to end with a challenge to Wisconsin citizens, businesses, and elected officials to join in a public dialog about our future.
The Wisconsin state motto is "forward." Historically, that has been a very apt motto, as Wisconsin has frequently led the nation in governmental and private-sector reforms and innovations. It is, indeed, time to move forward, but we need to do so in a thoughtful way. Combining the words "forward" and "thinking" is so symbolically compelling for Wisconsin's flagship campus that we have recently adopted "Forward. Thinking." as a tagline for some of our communications.
I hope I have stimulated some badly needed public debate that will allow Wisconsin not only to rebuild its vibrant economy, but also return to its position of public leadership in that new economy.