An Oregon idea for saving U.W.

Alarmed at the steep drop in state support, state universities are looking to creative finance to rescue their budgets. Here's an idea from Eugene that might play in Montlake.

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Paccar Hall at the University of Washington

Alarmed at the steep drop in state support, state universities are looking to creative finance to rescue their budgets. Here's an idea from Eugene that might play in Montlake.

How, exactly, are we going to fix the funding problems at the University of Washington? Divorce the state? Stay married but find some new funding sources? Re-establish generous support from the state? Financial wizardry?

One intriguing suggestion is in the Crosscut story by Dick Startz, which proposes a big tradeoff. The state would get out of the business of micromanaging universities and in exchange its money would flow just to student scholarships, producing a grateful bunch of voters. The university, free to control its own destiny, could find new money with tuition, more out-of-state students, dropping unpopular programs, and started high-demand ones. Liberals would like the way scholarships would tilt toward the needy. On the more conservative side, this modified "voucher" plan would induce some efficiencies through competition.

Variations of this idea have been in circulation at least since the 1990s. They mostly call for a cap on state spending, easing the financial pressures in Olympia, in exchange for much greater autonomy by the colleges — translating into higher tuition and more out-state students. The legislature clings firmly to its control: Democrats like the restraint on tuition and other politicians like to grandstand by telling the university how it should operate, and then boasting to local voters that they help create admission slots for their kids. It's a variant of the beat-up-on-Seattle-liberals game that still plays well in non-metropolitan areas.

In short, the legislature will probably need a stronger inducement than capped tuition. One example of such an approach is at the University of Oregon. That school has been so seriously underfunded by the state that it has become a kind of branch campus for Southern California, recruiting lots of high-tuition students from there while also pretty much backing away from the research major leagues. U. of O. president Richard Lariviere says that state funding for the Eugene school has dropped from $63.3 million in 1990 to $35 million (inflation adjusted) today. Meanwhile, tuition has increased 7.5 percent a year for the past 38 years.

The Oregon idea is to create a public-private endowment. Here's how it would work, as Lariviere explains in a Wall Street Journal ($) essay. First, the state agrees to lock in appropriations at $63 million a year for 30 years, enough to make 7 percent payments on $800 million in general obligation bonds. Second, the university pledges to raise enough money to cover debt payments for an additional $800 million in bonds. The university then lives off the interest of this $1.6 billion, with about half that annual payout being reinvested to grow the endowment. If all works well, the endowment will grow to $6.9 billion by 2040, thus securing the Ducks' future.

The proposal goes to the Oregon legislature next year. A similar idea was proposed for U.W. a few years ago. It went nowhere then, in part because of Speaker Frank Chopp's adamant opposition to anything smacking of "privatization." One can only imagine greater difficulties now, owing to the shortage of this kind of "hot money," and public skepticism about rosy projections of investment returns.

The likely route for the U.W. is to continue counting on state support, even at its sharply reduced level (as at most state universities) and then to look under all kinds of new rocks for addtional funding. These will be donor-directed funds that tap the wealth of local super-rich by creating sub-departments and interdisciplinary programs that match the donors' passions. The good side of this approach, besides more money, is that it will reflect current hot topics, such as climate change and global competitiveness for the region; in turn these programs will educate students for jobs that exist in the current economy. The downside is donor control, duplication of trendy ideas all over the nation, further decline in departments that are not grant-attractive, and not much attention to undergraduate instruction.

Some argue that if the U.W. went back to greater emphasis on undergraduate education, which is mostly what the legislators care about, it would regain state funds. A new president who really cared about teaching and learning might also help underscore this new-old commitment to public universities that serve the state and raise up the population. Desirable as this is, it's hard to image the state legislature would stay this course. Here's where the defeat of a state income tax is so deflating: the new money simply isn't going to be there.

One little candle in this darkness is the likely next governor, Rob McKenna, a loyal graduate (and student-body president) of the University of Washington. McKenna is a no-tax skinflint, but he does understand the critical importance of the U.W. to the region's economy. And saving Old Siwash is an issue that attracts needed King County and independent votes, as well as playing well across the state. One can well imagine the interesting conversations going on between former Gov. (and Regent) Dan Evans and this Republican governor-in-waiting.


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