What University Administrators Gain from $300 Million in Cuts

Guest post by Lenora Hanson and Elsa Noterman, graduate students at University of Wisconsin, Madison.

Over the past two weeks the University of Wisconsin System and UW-Madison administrations have gone on the defensive against the hemorrhaging of state support for higher education recently proposed in Scott Walker’s Biennial Budget—including $300 million in budget cuts (the largest cut in the 44-year history of the UW System). But the current proposed budget cuts and university restructuring should be understood within a larger historical and political context—one in which a push for privatized education has happened not simply due to partisan divisions at the state Capitol, but also because of financial and material incentives for the UW System.

The UW administration’s narrative, along with that of others in the local and national media, blames Scott Walker and tea-party Republicans for both recent and ongoing budgetary crises in higher education in Wisconsin. In part, memories of the historic resistance to Walker’s attack on labor in 2011 only fuels this narrative. As a result, anger about and actions against the budget are being directed towards the state Capitol. Sending campus and system-wide emails, talking to local and national media outlets, meeting with legislators and creating open forums on campuses to discuss the cuts with students, faculty and staff, UW System administrators are taking every opportunity to inveigh against the 13 percent cut in state funding—and emphasizing the inevitability of tuition increases and job losses if these cuts go through. But the administration’s defensive posture around state cuts to university funding is not new; indeed, it has provided the catalyst for much of the System’s rhetoric around austerity measures in the past. As Chancellor Blank made clear in October 2014, even maintaining current state contributions would require “implementing substantial cuts” within the university, one reason she has recommended considering increases to out-of-state undergraduate tuition. This posturing arguably obscures the administration's ongoing efforts to consolidate control over the university, making them appear as passive respondents to a continuous Republican onslaught. 


More of the same

There is precedent in the UW System for trying to restructure the university and reduce reliance on state support, one that perhaps grows out of UW-Madison’s aggressive attempts to free itself from the burdens of state regulation. In 2011, then-Chancellor Biddy Martin infamously held secret talks with Walker’s administration to discuss what she called the “New Badger Partnership” (NBP), which would give UW-Madison autonomy from the state by making it, and it alone, a public authority (also known as a public-benefit corporation). Budgetary cuts and labor issues were at the forefront of critiques of the NBP. Less attention was paid to the fact that in the original version of the NBP, the UW-Madison would have won the ability to issue bonds (essentially debt plus interest) for its campus construction projects instead of relying on the state to do so. The NBP, at least as originally drafted, failed to be implemented due to public outcry and bipartisan legislative opposition. But in December 2012 a “Task Force on Restructuring and Operational Flexibilities” was put together to recommend to the state certain “flexibilities” that would be given to the entire System, and the Budget and the failed NBP had not provided specifically to UW-Madison. One of the recommendations issued was to grant the system the ability to lease or bond for their own projects:



While the state disagreed with the Task Force recommendation to remove the state from the design and implementation of new buildings, they agreed that the System should be given the capacity to lease, or bond, their own projects. This ability, however, “would require statutory changes” (59) that the UW System did not have in 2012.

In making an appeal to the state for greater control over capital projects, the Task Force made an important point for us to keep in mind. Of all UW System projects, nearly 60 percent each biennium are funded by university‐generated revenue and receive no taxpayer support. This means that only 40 percent of the construction projects built on UW System campuses are paid for by state tax dollars, and thus only 40 percent are built primarily or specifically for instructional purposes.


Buildings Race

In their drive for increasing revenue, universities around the country are competing to attract the same wealthy out-of-state students to their campuses. In the fall 2014 semester—for the first time in at least fifteen years, over half of the students at the Ann Arbor campus of the University of Michigan were from outside the state. This followed the announcement last year of a $500 million building spree at the university. At UW, out-of-state new undergraduate freshmen increased by 42 percent between 2003 and 2012—and these out-of-state students paid more than twice as much as their in-state classmates (UW Data Digest). To attract these non-resident students, administrators are increasingly taking on capital building projects and recreational amenities—such as upscale apartments, climbing walls, and food services. This buildings race—where universities are trying to out-build the competition—has lead to increases in tuition (the most flexible source of revenue). In Wisconsin, spending on non-instructional campus buildings has drastically increased in recent years (see above graph). On average, these building projects now cost students $192 a year—and will continue to do so for up to 30 years. Of course, this cost does not include the price of building maintenance, upkeep, and debt services (the interest that is paid—over many years—on the loans used to finance these projects). In the end, these building projects often cost more in debt service payments than the initial construction price-tag. Currently, costs and debt service are largely guaranteed by segregated fees and revenues generated from parking lots, dining services and other non-instructional services. But with the public authority model tuition is likely to become a significant—if not the primary—source for paying off bonds as well providing the capital necessary for taking on future debt.


Pledging Tuition?

Lo and behold, the statutory changes previously recommended by the UW Taskforce (see above) have emerged in the current budget bill proposed by Governor Walker, which grants bonding issuance and management to the UW System for those projects not backed by public monies, or general purpose revenues (60 percent of construction projects in the system). It explicitly allows the newly-formed UWSA Board of Regents to: “issue bonds that are not public debt and specifies that the state pledges that, unless bondholders are adequately protected, the state will not limit or alter any rights before the UWSA satisfies the bonds. The bill eliminates all appropriations to the UW System under current law, except general purpose revenues for educational programs and the payment of certain construction debt” (emphasis added 16-17).

The latter section of the above quote is important because it seems to suggest that funds to pay for non-instructional construction costs and debt service (remember, the majority of construction projects on campus) are no longer guaranteed by the state, but by the UW Board of Regents (BOR) and its revenue sources. Previously, UW Madison’s construction costs and debt service were backed by the state through general obligation bonds, which means they were backed by a certain percentage raise in taxes that could be levied to cover costs. In other words, all previous bonds issued to pay for university construction projects—for both academic and non-academic purpose buildings—were at least hypothetically backed by public debt. But what are the revenue sources that the BOR will be able to rely on, then?

If we needed a crystal ball to know where the UW System is going, we only need to look to the past. In 2009, Prof. Bob Meister at UC-Santa Cruz sent shockwaves through the University of California system when he revealed that in order to continue funding the building boom on campuses across the state, the UC System had pledged access to 100 percent of tuition revenues to pay off the debt service on those projects should all other revenues be cut. Why was tuition promised? Because, “although tuition can be used for the same purposes as state educational funds, it can also be used for other purposes including construction, the collateral for construction projects, and paying interest on those bonds. None of these latter uses is permissible for state funds.” In other words, it is a more flexible source of revenue for the university administration. As of 2017, just as the state cuts enumerated by the current budget will get even worse for the UW System, tuition setting ability will rest wholly with the Board of Regents. So while the $300 million dollar cuts will certainly necessitate tuition increases, so will the System’s newly acquired control over construction projects if they follow the trend suggested above. And if the cuts have appeared as a surprise in recent weeks, the construction project “flexibilities” been in the works for years. 


Flexible not free

Given the amplifying costs of debt services for capital projects, there is then a greater incentive (and arguably a financial imperative) for the university administration to regularly increase the price of university education. At the University of California System and University of Michigan—where university administration has complete control over bonding (and are thus responsible for paying the debt services)—tuition rates have increased dramatically. Across the UC system, for example, between 2008 and 2010 student tuition rose by 109 percent. At the University of Michigan, tuition has increased by 233 percent since 1990. While the state of Wisconsin currently has a tuition freeze for in-state students until at least until 2017, Chancellor Blank has asserted that she will be lobbying the Board of Regents to raise tuition for students not affected by the freeze—including nonresident students and those in professional schools. Given that after the last tuition freeze in 2004, tuition increased 18 percent, it is also very likely that following 2017, the cost of education will increase for all UW students.

This most recent attack on higher education in Wisconsin needs to be understood not strictly as a partisan issue, but as a new development within the university itself as a site of accumulation, investment and speculation. This development needs to be considered when we decide who our targets and who our allies are not only in responding to attacks, but in working towards building the university we want now and in the future.