Old and New Thinking about Financing the Research University

by Charles Schwartz, Professor Emeritus of Physics
University of California, Berkeley    Schwartz@physics.berkeley.edu
December  2007

     The leading research universities, like my own University of California (UC), are having a difficult time with finances.  The standard complaint from our administrators is that the governments, state and federal, are not providing enough money and that is why, regrettably, they have to raise student fees so much.

      I want to take a different look, focusing on an old accounting habit that gives a misleading answer to the simple question, What do we spend on undergraduate education and what do we spend on other missions?  First, some background.

     Every professor at a research university knows why we are here.  We are good at research; we love doing research; we are hired and promoted by the university because of our research abilities and accomplishments; we gain the respect of our peers through our research work. And we believe that our research work is valuable to all of human society.

     We also have a belief that other people – the general public and their elected representatives in government – do not appreciate our research very much.  They are mostly concerned with the education of undergraduate students (their kids), something that our excellent university also provides.

     We are happy with the bargain: we will provide a first rate undergraduate education that they want and they will provide the support we need to carry on our research and the closely related graduate education programs.

     Sometime, long ago, this bargain was sealed in the budget arrangement that was worked out between university administrators and the state government.  It is called the I&R budget. I&R stands for Instruction and Research. It covers the entire academic year salaries of the faculty and supporting staff in the departments; and along with this comes the necessary institutional infrastructure and overhead.  It is one big bundle of appropriation, which allows us to carry out the undergraduate education and the graduate education and the faculty members’ own research activities throughout the academic year (that is called Departmental Research as separated from Sponsored Research.).

     It is common to take that whole bundle of expenditures, divide it by the number of students we enroll, and call that the Average Cost of Education or the Average Cost of Instruction – so many dollars per student per year.  For example, the official pronouncement at UC is that the Average Cost of Education is about  $17,000 per student and student fees cover only about 30% of that cost.

     If you detect a slight lack of candor in that arrangement, it could easily be excused by saying that no harm is done: teaching and research are both “public goods” and they are both paid for by public money; how that money gets divided between those two missions is not worth fussing about. That is The Old Thinking.

     Something changed in the early 1990s. A severe state budget crunch led to the introduction of tuition charges at our public universities. Called “student fees” they were specifically intended to supplement the basic I&R budget when state funding was cut. These student fees have been rising a lot more in recent years.

     A new rationale was adopted for this major change in financing for our public universities. It goes like this: Since students attending the university would go on to better paying careers, this higher education provides a “private good” and they, the students, should pay for it, at least in part, rather than passing the entire cost on to the taxpaying public. That is The New Thinking.

     This new rationale and the new reality of the rising cost to university students and their families ought to require that we reassess The Old Thinking. This is challenging.

     There is the issue of telling the truth about which money pays for what.  If undergraduate education is now seen as a private good, then it ought to be separated out of that big bundle, the I&R budget.  The research mission of the university is certainly important as a public good; and it would seem quite improper to blithely dump some of that cost on undergraduate students. 

     What are the actual numbers?  Anyone who has experience at a research university would have to admit that undergraduate teaching is going to be a rather small portion of that whole I&R bundle of costs. My own calculations, based on a detailed study of UC accounting records, as well as an official faculty time-use study, come out with the shocking result that undergraduate fees at UC are now just about 100% (not 30%) of the amount that this institution spends, averaged per-student, on undergraduate education. (For more details, see  http://ocf.berkeley.edu/~schwrtz/Part_11.html )

     The following table shows my estimates of the actual undergraduate cost-per-student for several leading research universities, both public and private. These results were obtained by extrapolating the detailed calculations for UC. This data is for the academic year 2004-2005 and the numbers are rounded to the nearest $thousand.

Institutional Cost-per-Student for Undergraduate Education

Tuition & Fees
U. California
Harvard U.
M. I. T.
Stanford U.
Yale U.
U. Illinois
U. Michigan
U. Virginia

     These results are rejected by academic administrators and by my faculty colleagues – although not for any objective fault that they can identify.  Some rely upon a 2002 study by the National Association of College and University Business Officers (NACUBO), which baldly says that all of the cost of Departmental Research should be loaded upon the accounting for undergraduate instruction. Clearly, the implications of my analysis are just too threatening. It brings back the fears behind that Old Thinking: “Who is going to pay for the research component of faculty salaries?”

     Returning my focus to the public research universities, we need to Think Again. Let’s connect the dots and understand the logic that appears to be driving state officials, and their taxpaying constituents, in not wanting to give the University all the money we say we need.  It is that same rationale, mentioned above, that individual students get the benefit of this education and so they, not the taxpayers, should pay for it. 

     Look again at the official numbers: UC says that students are now paying only 30% of that cost. Thus, they can very reasonably say, when state budgets are tight, that more of the cost of running UC should be passed on as higher student fees.

     Oops!  The funny math of that old game, the I&R budget, has now come around to bite us, speeding our universities on the path of privatization. Perhaps we ought to clean up our financial story.


The opinion piece above has been rejected for publication by the Chronicle of Higher Education, insidehighered.com and the Wall Street Journal; a shorter version was also rejected by the Los Angeles Times, New York Times, Sacramento Bee and San Jose Mercury News.