Sizing up the University Budget Cuts: The 2.5% Fallacy

Sunday, March 1, 2015 at 5:42 PM by

The Governor’s budget proposes cutting state funding for the University of Wisconsin System in the 2015-17 biennium by 13% below the current level, and by 17.8% below the level requested by the university.  A cut in state support of that magnitude, coupled with frozen tuition, would not only hurt students, but would also be a tremendous blow to one of the engines of Wisconsin’s long-term prosperity.  

However, the Governor’s office and some proponents of the budget bill contend that a better way to look at the proposed cut is that it’s just 2.5% of total spending for the University System.  For a number of reasons I think the 2.5% figure is misleading and inaccurate.  It’s a lot like saying that a 13% cut in Social Security benefits would only amount to a tiny drop in the total net worth of all retirees in the U.S.  That might be an accurate statement about the aggregate wealth held by retirees, but it’s of little or no consolation to most Social Security recipients. 

There a number of more specific problems with framing the proposed cut as being just 2.5% of university spending, including the following: 

That figure doesn’t account for inflation – Because costs are rising, freezing a funding level requires making spending cuts.  If the inflation rate is 2% per year, then after two years a 2.5% cut would  for all practical purposes be a 6.5% cut, and a 13% cut would effectively be a 17% loss of spending power.  Although lawmakers sometimes downplay the effect of inflation and contend that a freeze is not a cut, they know better.  That’s why early this year the Assembly increased their per diems by 56% for each night that state Representatives are in Madison. 

The cutbacks are likely to compounded – Another significant flaw with the 2.5% figure is that it assumes that the university’s federal funding won’t be adversely affected. Although cutting state support for the university system doesn’t automatically reduce federal funds, it is likely to indirectly reduce federal revenue. State funding cuts will hurt the UW system’s ability to hire and retain top-tier faculty, which can be expected to reduce the amount of federal grant funding that comes into the UW campuses.  

Federal funding is inflexible and unevenly distributed – Even in the unlikely event that federal grant funding doesn’t take an indirect hit, that’s not much consolation because those grants are awarded for specific research purposes and can’t be used to prevent the layoffs and other sorts of cuts that would result from a 13% drop in state funding.  Furthermore, federal funds aren’t distributed across much of the university system.  Regardless of how successful a few departments at UW Madison or UW Milwaukee are in receiving research grants, that funding is irrelevant to the vast majority of students in other departments and on other campuses.   

Tuition is capped – The argument that the denominator used for calculating the size of the cut should also include other revenue sources, such as tuition, might be a bit more defensible if the university had the flexibility to generate more revenue from those sources.  However, the Governor’s plan would freeze tuition for the next two years, and some legislators have suggested even longer restrictions on raising tuition.  Since it appears that tuition revenue won’t even keep up with inflation during the 2015-17 biennium, it seems a bit disingenuous to use figures that imply that tuition and federal revenue will cushion the impact of a 13% reduction in state funding. 

I wish I could say that the debate over the size of the proposed cuts for the UW System is just an “academic” matter, but that clearly is not the case.  Even before this round of proposed cuts, funding for the university system had dropped significantly, and a new and deeper round of cuts will have negative implications far beyond campus walls. 

In order to help build a strong middle class and develop the skilled workforce necessary for our state to compete in today’s global economy, policymakers should be striving to increase the number of well-educated college graduates, rather than taking actions that reduce the quality of and access to higher education for Wisconsinites.   

Jon Peacock

4 Responses to “Sizing up the University Budget Cuts: The 2.5% Fallacy”

  1. Jerry says:

    Jon and Tamarine………..after you’ve had a chance to analyze the total budget will it be possible to provide a summary of all the programs or services that will be cut, reduced or eliminated by Walker. This would be most valuable to use in letters to the editor and to our legislators so that the public is made aware of how devastating this budget is in terms of impacts on individuals, schools and local government. Finally it would allow for a demonstration of the fiscal damage that Walker’s budgets and policies have done to Wisconsin.
    Thank you.

    • Jon Peacock says:

      I hope to write something along those lines later this week — focused on the budget changes that affect kids (either negatively or positively). Perhaps later we can pull together a summary of the most significant cutbacks across all parts of the budget, but I suspect it will be a while before we get that done. (Keeping it to a manageable length will be a challenge.)

  2. lufthase says:

    Mr. Peacock,
    Thank you for digging into this. I was curious about how these cuts fit in a historical context, so I compiled the two spreadsheets linked below from UW System and Legislative Fiscal Bureau websites. I think these data tell a revealing story about just how drastically the burden of paying for a public college education has been shifted off of the state and onto students, and how faux-populist platitudes like blaming “lazy” faculty for high tuition rates just doesn’t hold water . E.g., in the 1970s UW students paid 25% of their cost of instruction, and today it’s as high as 80% at UW-Milwaukee. I encourage you (or anyone interested in this) to take a look at these data (and copy/share/etc.). Perhaps by cobbling this all into one place, I may have saved you some legwork.

    UW System Funding & Allocations Since 1994:
    https://docs.google.com/spreadsheets/d/1lQsTB8XI3SNiD0Kih-5cj8x5_NnCGRwKy00uH53KIZE/edit?usp=sharing

    UW System State Aid, Tuition, Cost of Instruction, & Enrollment Since 1973:
    https://docs.google.com/spreadsheets/d/1XPX0saYydRUemQ4OnXH-j56oLu0xgT9O0nVmX5P5SE0/edit?usp=sharing

    I found pg. 86 of the materials for the 8/19/04 Board of Regents meeting to be immensely helpful in creating these spreadsheets:
    https://www.wisconsin.edu/regents/download/meeting_materials/2004/august_2004/august%282%29.pdf

    • Jon Peacock says:

      Thanks for pulling all of that information together! I haven’t had a chance to review it carefully yet, but look forward to doing so.