Wisconsin's Walker and higher ed: Alchemy

It's hard to believe that Gov. Scott Walker's proposal to cut $300 million from the budget of the University of Wisconsin system over the next two years would allow the school to maintain its quality. Walker, a Republican, would prohibit the university from raising tuition during that period but instead give university officials more flexibility in managing contracting and construction projects.

The theory is that this flexibility could yield savings equal to at least 13 percent of the university's budget. Good luck with that.

Walker's proposal provides a stark example of a broader trend that has been too little noticed: In the past three decades, many states have cut their appropriations for higher education, drastically eroding the quality of public universities.

As Prof. Tom Kane of Harvard and I have shown, states have tended to reduce higher education spending during economic downturns, but then have not restored the money during recoveries. The cumulative effect of this downward ratcheting has been enormous.

In 2000, states devoted 13 percent of their budgets to higher education. By 2014, that share had shrunk to less than 9.5 percent. If, over the past five years, allocations had kept pace with other types of state spending, then funding for public colleges and universities in 2014 would have been $16 billion more than it was. That's a loss of more than $1,000 per student enrolled in public colleges in just the past five years — and the trend has been going on for a few decades.

The myth has been that tuition hikes can offset these spending cutbacks. (In Wisconsin, Walker isn't even trying for that.) In reality, they haven't. And it's not surprising: Given that, 30 years ago, state governments contributed four times more than tuition to public higher education budgets, to offset a 20 percent reduction in state support, you'd have to raise tuition by 80 percent. State legislators are not willing to impose that kind of pain on students and their families.

Instead, the harm has been more subtle. In 1980, new associate professors at the University of Illinois at Urbana-Champaign and the University of Texas at Austin (both leading public universities) earned about as much as much as their counterparts at the University of Chicago and Rice University (leading private schools). By 2000, the public professors were earning about 15 percent less, and now it's 20 percent less.

If blunt spending cuts are not the answer, how can states better manage their higher education budgets? One unexpected strategy is to contain the cost growth in health care. Kane and I have shown that a big reason that state budgets have had to shift away from higher education has been increasing spending on health care. This is just one more reason why it's imperative to double down on measures to improve value and constrain medical costs.

Another way that universities can address their budget problems is to vary students' tuition depending on their course of study.

But these can't be the only solutions. Walker, however misguided his university-funding proposal, is absolutely right about the need to seek more efficiency in higher education. That said, it doesn't pay to pretend that flexibility on contracting and construction can do the trick.

Cost pressures in education historically have been driven by "Baumol's disease" — the rise in salaries for workers who aren't becoming any more productive. College lectures historically have required one professor per classroom of students, limiting the potential for increasing productivity. And yet professor salaries have had to keep pace, at least to some degree, with outside opportunities, where productivity gains have driven up wages. The result has been a cost squeeze.

The question many colleges have been asking is: Can online learning defeat Baumol's disease? After all, in a virtual classroom, one professor can teach a far larger number of students.

This can't happen fast enough to save the University of Wisconsin system, however, if Walker's proposals are carried out. The flagship campus at Madison was ranked 47th nationally this year by U.S. News. Anyone care to bet on where it will be in the 2017 rankings?