A 'Slush Fund' At Mr. Jefferson's University?

August 14th, 2016 | Posted by admin in Uncategorized

Funding American higher education has emerged as a central issue in the 2016 presidential campaign. Senator Bernie Sanders's pledge to support free tuition at America's public colleges has now morphed into a major plank in Hillary Clinton's campaign: she wants to make college free for middle-class Americans whose families earn under $125,000 per year, while also making college debt-free for all Americans. Donald Trump has yet to issue any postsecondary policy recommendations - but promises to do so soon.

Meanwhile, student loan debt now tops $1.3 trillion, with no end in sight, as tuitions rise faster than inflation. The nonpartisan Committee for Economic Development reported that between 1982 and 2012, postsecondary-education spending rose four times faster than the Consumer Price Index and twice as fast as health-care expenditures.

Nonetheless, public higher education institutions often plead poverty, as many state legislatures have cut their support. These reductions have, in turn, prompted many schools to shift more costs to students and their families, a scenario that partially explains the almost overnight explosion in student debt.

This cost-shifting might explain the growing debt burden, but it does not explain the overall increase in postsecondary spending since 1982. That explanation lies with how our postsecondary institutions are managed and governed.

It is against this backdrop that a major controversy has recently erupted at one of our pre-eminent public research universities, the University of Virginia, founded in 1819 by Thomas Jefferson. UVA is governed by a 17-member Board of Visitors, whose chair is called the Rector. In conjunction with the Board's quarterly meeting on June 10, 2016, Rector William Goodwin informed the entire Board of Visitors that the University had amassed surpluses of some $2.3 billion over many years as the result of several university profit centers.

This money had been carried on the university's investment statements as "University Operating Funds," indicating they were necessary for operations. But UVA's administration was quietly laying plans to transfer these balances to a new "Strategic Investment Fund" intended solely to enhance the university's reputation and to garner it the top spot in national rankings of public research universities. Meanwhile, UVA tuition had increased by 74 percent during the last seven years and 30 percent in the last three years alone.

The discussion about how this "Strategic Investment Fund" would operate was held only in a closed session, arguably violating Virginia's open-meeting laws, and the Fund was actually created by the administration before the Board of Visitors approved it. Moreover, the rationale invoked for the closed session - to consider confidential, employee-specific matters - was disingenuous.

Finding $2.3 billion of unrestricted money is a big deal. To put this sum in context, UVA's annual operating budget is approximately $3 billion, and the university has a good-sized endowment of $5.7 billion. Since 2009, the operating surplus generated unspent investment returns of some $700 million.

Only one member of the Board of Visitors, Helen Dragas, challenged the legality of discussing the enormous balances only in a closed session, the ethics of raising tuition while pleading poverty to parents and legislators, and the wisdom of directing the money entirely to faculty projects rather than rebalancing the tuition scales. She raised these issues in connection with the June 10 meeting, her last Board meeting before her term ended on June 30.

Ms. Dragas attracted national attention four years ago when, as Rector, she carried out the Board's near-unanimous wish to seek the resignation of UVA president Teresa Sullivan, only to have to reinstate Ms. Sullivan after a significant outcry. That learning experience convinced Ms. Dragas to focus on the importance of greater transparency, stronger accountability, and better governance at America's public universities.

Full disclosure: I graduated from the University of Virginia School of Law and have a daughter who is a UVA sophomore. Given her experience on the UVA Board of Visitors, Ms. Dragas in 2014 founded and chairs Partners 4 Affordable Excellence @EDU, a nonprofit organization devoted to lowering the costs and raising the quality at our public universities. I have served as president of Partners since October 2015.

While this "slush fund" was accumulating, UVA was simultaneously pleading poverty and requesting that the legislature in Richmond increase its funding. Ms. Dragas has been the only member of the board to consistently oppose tuition increases well before the surplus was revealed. Since then, she has requested a full audit of the "Strategic Investment Fund," a tuition rollback, a five-year freeze on tuition increases, a reduction in the $67 million spent annually on subsidizing out-of-state students to attend UVA, and a reduction in some overly generous administrative salaries.

Thus far, this matter has played out mostly in the Virginia press, with Democratic and Republican lawmakers in Richmond now calling for investigations. The matter deserves national attention: how UVA's administration and governing board resolve it will have important implications for all of American public higher education.

First and foremost, there are critical issues here that involve good governance, transparency, and openness - not to mention the important interplay between university boards and management. We need governing boards that ask relevant questions, insist on accountability, and do more than rubberstamp administration proposals. Likewise, we need administrations that provide clear, accurate, and timely information to their governing boards and that embrace accountability - to their governing boards, students and taxpayers, and state legislatures.

It would be a shame if today's focus on higher education simply resulted in more spending rather than achieving higher quality for a lower price. Before we spend more, doesn't it make sense to enact the necessary structural reforms that will help bend the postsecondary-education cost curve down?

As the University of Virginia was being built, Mr. Jefferson watched the enterprise from afar - through a telescope at his nearby mountaintop home, Monticello. Today, UVA needs close-up accountability, which it looks like this episode is about to deliver.

Charles Kolb served as Deputy Assistant to the President for Domestic Policy from 1990-1992 in the George H.W. Bush White House. He was president of the French-American Foundation - United States from 2012-2014 and president of the Committee for Economic Development from 1997-2012. He is currently president of Partners 4 Affordable Excellence @EDU.

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