Budgetary Blues: As the Annual Higher-Education Budget Battles Heat Up, New Challenges Ranging from the Repeal of the Estate Tax to the Internet Pose Bottom Line Problems
Bascom, Lionel C., Matrix: The Magazine for Leaders in Higher Education
The smell of theatrical grease paint faded, and the roar of crowds that once flocked to the Kansas State University stage every summer was silenced this year when trustees for the institution faced a budget shortfall that current funding could not meet.
After a successful, 25-year run; University Theatre is forgoing its 2001 season to pay off a $60,000 operating deficit. Operators hope to resume productions in 2002.
KSU's woes are symptomatic of the annual plague that descends on the campuses of the nation's private and public institutions every year.
It's budget time, a ritual when administrators, faculty, staff and students briefly join for a wringing-of-hands ceremony in all effort to raise needed funding to finance their programs for the coming year.
This year, though, three new factors may impact the budgetary process: a possible end to tax-saving incentives that encourage donations to schools, the policies of a new president in Washington, and the growing phenomenon of distance learning that could shrink enrollment at some schools.
The funding and tax priorities of the Bush administration could radically alter financial aid, grants and outright financing for higher education. Proposed new tax codes and student performance incentives touted by the administration could substantially change the way public colleges and universities are financed.
The Internet, already a deeply ingrained part of every university and college's infrastructure, also represents a threat to enrollment, some administrators fear. While the Internet has become an integral teaching tool for professors to deliver course material and communicate with students, some institutions are using the distance-learning concept to widen recruiting efforts to attract students. The idea represents a golden opportunity to increase enrollment for some schools. It could potentially also weaken the enrollment of smaller schools that can't compete with more comprehensive programs.
The state of Pennsylvania this year allocated $336 million to finance public education at its 14 four-year state universities and 15 two-year community colleges. Still, faculty, staff members and students from these colleges boarded buses in March to travel to Harrisburg where they pleaded with Gov. Thomas Ridge and the legislature to allocate even more funds for their schools.
In Ladysmith, Wis., the 450-student Mount Senario College was forced to put its president on an unscheduled leave this spring, eliminate several administrative jobs at a school with a staff of just 40, and cut athletic programs because of financial and management difficulties it encountered last year.
In Burlington, Vt., a 75-year-old institution had to face the ultimate budget crisis last fall when trustees at Trinity College voted to close its doors, putting 125 teachers, staff and administrators out of work. Declining enrollment aggravated the fiscal crisis, say officials.
"We hoped to be the exception to the prevailing trend of financial difficulty faced by most small, single-gender, liberal arts colleges without significant endowments," says Trinity President Jacqueline Marie Kieslich.
Edward Connors, chairman of the Trinity Board of Trustees said the decision was unavoidable. "We couldn't ensure a financially sustainable future."
This year proposed tax code changes might weaken the ability of students to pay for college, or for some institutions that rely on private funds to attract money to finance new or existing programs.
Existing tax codes traditionally aid schools in attracting more students by offering them financial incentives to enroll in programs they otherwise might not pursue.
In a policy statement released in April, the American Association of State Colleges and Universities said these tax incentives are not inclusive enough to help most students who attend public universities today. The programs, which represent more than $7 billion a year in tax expenditures, raise concerns on two fronts. First, "AASCU has not supported the use of tax incentives as a means of federal student aid delivery," the organization said. Moreover, "using the tax code as a vehicle for student financial assistance tends to benefit students from middle- and upper-income families, who are already more likely to attend college."
The association recommends that the Bush administration and Congress "rewrite existing student loan guarantees and interest deduction laws to accommodate increased borrowing by students and families to finance postsecondary educations."
The number and size of these loans have risen dramatically during the past five years, financial aid officers say, and show no signs of slowing.
"Providing relief for this growing burden, especially for the neediest borrowers, should be a priority for federal policy makers," the AASCU says.
One way to do this, some college administrators say, is to lift the existing 60-month cap on the federal tax deductibility of student loan interest.
"We'd like to see government incentives that lead to less student borrowing and fees, not more," says Hilary Goldmann, AASCU director of Congressional Relations. "We'd like to see an end to loan origination fees. On the tax side," Goldmann says, "we'd like to see the government turn tax deductions into a tax credit. These are ways to help students borrow less."
Debt forgiveness laws regarding student loans are incompatible with tax codes, too. When current student loan laws were written, they included provisions that tied repayment to income. This was done to help low-income borrowers honor their debt instead of lapsing into default. However, current tax policy penalizes student borrowers by taxing any loan forgiven as taxable income.
"This policy is counterproductive to the objective of providing an incentive for at-risk borrowers to repay their loans," says Edward Elmendorf, AASCU vice president of Government Relations and Policy Analysts.
DEATH AND TAXES
While escalating costs plague both private and public institutions, some private school administrators are worried about a proposal by the Bush administration to repeal controversial estate taxes. A similar move to repeal these taxes last August in Congress was staved off when President Clinton vetoed a bill that would have gradually repealed federal inheritance taxes. Opponents say repeal will severely hamper the annual fund drives at the nation's colleges and universities.
"The University of Pennsylvania is a private institution," says Michael Masch, vice president for budget and management analysis. "Since we don't receive any state funding, our largest sources of income come from tuition and gifts."
The school raises additional funds by operating income-producing enterprises such as fee-based veterinary, dental and medical clinics, but the main source of the university's fund raising efforts still come from private donations.
Without the incentive to use gift giving to obtain tax relief, they argue, would-be donors might spend their money elsewhere. Bush campaigned on a pledge to repeal that legislation, and has included estate tax repeal in his first budget package to the Congress. Under the Bush plan, repeal of the estate tax could cost $294 billion over 10 years in lost revenues, according to the Center on Budget and Policy Priorities. Several studies say without estate taxes, the loss to the endowments to colleges and other charitable organizations is incalculable. "The research on the effects of the estate tax on charitable giving has consistently shown that levying estate taxes increases the amount of charitable bequests," said analysts for the Washington, D.C.-based center. More than $10 billion from private donors went to higher education in 1999, the last year for which figures are available. Private donor contributions make up more than 53 percent of the total gifts, according to the Council for Aid to Education. "President Bush's proposal to eliminate the estate and gift tax, however, would remove an enormous tax incentive for the wealthy to make charitable gifts," the CBPP said.
But not everyone agrees that repeal would spell an end to philanthropic donations. Without an estate tax, the gifts that wealthy donors leave to colleges might tend to be higher, argues Robert Lindgren, vice president for development and alumni relations at Johns Hopkins University. If they knew their heirs no longer faced an estate tax, "they might be willing to give us more," he says.
Other Bush proposals regarding public and private education funding have come under fire by the National Association of Independent Colleges and Universities. That organization has targeted the president's 2002 budget plan, saying Bush's incentives do not go far enough to help most needy students.
"While the proposal would add $1 billion to the Pell Grant program, it does not do enough to support key student aid programs that serve low-income students," the NAICU said in April. "The administration's budget would increase the maximum Pell Grant by just $100, to $3,850," a spokesman for the group said after the president's proposed budget was made public. The president's plan fails to increase funding for other student aid programs, including Supplemental Educational Opportunity Grants, Leveraging Educational Assistance Programs, Perkins Loans and the Federal Work Study.
"After listening to the president advocate leaving no child behind, it's extremely disappointing that his first budget does little to help the millions of students who rely on federal student aid to attend and complete the college of their choice," says David L. Warren, president of the NAICU. "America's college students expect more from this administration."
The NAICU may just be posturing, rattling an annual budgetary saber in an attempt to be heard by members of a Congress that will ultimately vote on the Bush budget sometime next fall.
"This is really just the beginning of the process," says Stephany Giesecke, director of budget and appropriations for the NAICU. "Our job is to make sure the bar is raised and to keep raising the bar," she says. "Congress really decides the dynamics and right now, the House is tending to do whatever the President sends up. The House leadership is in lockstep with the White House."
So while the rhetoric is high regarding budgets this time of the year, Giesecke says, the reality about funding educational programs is encouraging.
"We've definitely got bipartisan support for our programs," she says, noting that the successful funding campaigns have always been tied to the clout and sway wielded in the corridors of both the House and U.S. Senate. "It's not like there's anybody that says they don't like our programs. That's not the problem. The question is, when these appropriations come up in September or October, will there be enough money in the pot? We really won't know until the end of the year."
In the meantime, these budget proposals come at a time when the number of college-age students in the United States and the financial burdens they bring with them continues to grow.
In February, the congressional Advisory Committee on Student Financial Assistance issued a warning about the skyrocketing increase in the number of students who are reaching college age. Their numbers will cause severe strain on the already over-burdened student aid infrastructure. Academically qualified, low-income students could be shut out of higher education, without significant reinvestment in student aid programs, the committee reported.
In April, the Senate approved a budget resolution that increased education funding by $250 billion in the next 10 years, including the maximum Pell Grant by $600 this year.
THE DISTANCE-LEARNING DILEMMA
Looming in the shadows is yet another potential problem for schools feeling the squeeze of the budget belt: the growing availability and popularity of distance learning. It is creating unprecedented enrollment competition among schools that were never rivals in the past.
"Externally, the globalized telecommunications revolution has altered the world, moving us from the industrial age to the information age," the Association of American Colleges and Universities said in a policy statement at its annual meeting in New Orleans in January. "Distance learning has strained the traditional ideas of "campus" and "learning community." With many students passing through more than one and often several institutions, each college or university will no longer be a universe unto itself."
Although not new, distance learning remains an experimental realm at most colleges and universities. But this is rapidly changing as working models have become programs at some schools. Many of the 111 institutions participating in a Distance Education Demonstration Program, sponsored by the U.S. Department of Education, for example, have merged portions of their online programs in an effort to offer their students more comprehensive programs a single school could not provide efficiently.
Franklin University in Columbus, Ohio, has formed alliances with 86 community colleges across the country since the pilot program began in 1999.
While these alliances tend to offer students a wide range of course offerings and programs, they also pose some challenging financial concerns at participating institutions.
"New York University has been working with the National Student Clearinghouse, a nonprofit organization funded by the student loan industry, to refine their national enrollment database," coordinators for the Distance Education Demonstration Program said in a recent report. "This database would make it easier for institutions to track enrollments across schools and for students to achieve financial aid eligibility in a consortium setting."
There are other budget concerns surrounding distance learning.
"The community colleges of Colorado are testing a new paradigm for delivering aid that decouples the delivery of student aid for costs related to instruction, such as tuition, fees, books, supplies and equipment from costs relating to living expenses," the Demonstration Program report said. "Western Governors University is experimenting with ways to deliver financial aid in a competency-based educational environment, where student progress is measured not on the number of courses taken but rather on the progress they are making toward fulfilling competencies required for their certificate or degree."
Brigham Young University is experimenting with a Web-based financial aid system that allows users to apply for financial aid, submit personal data, communicate with financial aid personnel and monitor their application processing, all in a secured online environment.
Currently, an era of cooperation reigns among participants in this program as well as in less formal pilot efforts around the nation. How long this will continue as competition increases, is anyone's guess. "If competition increases, will institutions guard proprietary information more closely to the detriment of the openness that characterizes higher-education institutions today?" the report asked.
"Many more institutions are developing courses offered wholly or in part via distance education simply to take advantage of the potential technology provides to enrich instruction or to provide student choice," the report said. "All, of course, are investing in the development of quality of distance programs for the promise of future benefit which for some include recognition of leadership in the field, and for others profits."
The overriding question many schools will face is what is the true cost of this technology, and who will pay for it?
(Vanessa Neupmann contributed to this story.)…
Questia, a part of Gale, Cengage Learning. www.questia.com
Publication information: Article title: Budgetary Blues: As the Annual Higher-Education Budget Battles Heat Up, New Challenges Ranging from the Repeal of the Estate Tax to the Internet Pose Bottom Line Problems. Contributors: Bascom, Lionel C. - Author. Magazine title: Matrix: The Magazine for Leaders in Higher Education. Volume: 2. Issue: 3 Publication date: June 2001. Page number: 22+. © 2000 Professional Media Group LLC. COPYRIGHT 2001 Gale Group.
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