Looking at Higher Education Funding in Texas—and How We Got Here

By Kate McGee in Features, Jan | Feb 2019 on January 3, 2019 at 9:31 am | No Comments

Ahead of the 86th Texas legislative session, a comprehensive look at public university funding—and what it means for the future of UT.

Brian Haley was driving home from church on the first Sunday in June 2003 when he got a phone call. It was then-state Sen. Rodney Ellis’ chief of staff telling him to rush down to the state capitol.

The Texas Legislature was wrapping up the 78th session and the Senate was about to vote on a controversial bill to shift the power of raising tuition from lawmakers to public universities, known as tuition deregulation. Haley, then a junior and student government president at UT Austin, and students from across the state had come out in force against the bill.

“[The chief of staff] said, ‘Come down here. The Senate is going to actually pull this up,’” Haley, BA ’04, JD ’09, Life Member, recalls.

Haley needed to run home and grab a suit jacket, but the staffer said Haley didn’t have time. So, he ended up borrowing one from Ellis, a man twice his size.

“As I walked down to the Senate floor, swallowed up by a suit jacket, I remember thinking it was an apt illustration of where our issue stood that day,” Haley says.

That fear was confirmed when he arrived on the Senate floor. Haley was told the bill was holding up the entire state budget. Lawmakers were making compromises and it would likely pass. But a handful of students, still in Austin after spring finals, wanted to show their opposition. Haley stood with students and held two fingers in the air as the senators voted, signaling their opposition. “It was a vivid moment in my mind forever,” he says.

It was also unsuccessful. Tuition deregulation passed and became law that September.

For thousands of Texas students and families, paying for college has gotten increasingly difficult over time. Many point to tuition deregulation as a turning point for college affordability in the state because it allowed legislators to shift the burden of paying for the state’s public universities onto students. Last year, Texas students graduated college with an average of almost $27,000 in student debt (according to the Houston Chronicle, UT Austin students graduate with an average of $25,000 in student debt), about two times more than when deregulation took effect.

“Deregulation let the legislature off the hook to adequately fund higher education,” Ellis (D-Houston), MPA ’77, JD ’79, Life Member, said in an email. “It removed many of the incentives for universities to forcefully ask legislators for more funding and, not surprisingly, the legislature hasn’t been inclined to make it a priority.”

Tuition is just one part of how public universities are funded in Texas. But over the years, it increasingly makes up more and more of public university budgets. In 2017-18, tuition made up 21 percent of UT Austin’s $2.98 billion budget, compared to 5 percent in the mid 1980s. Whether it’s to improve college access or for political show—or both—state lawmakers and school leaders say something needs to change for Texas students and their families.

But that won’t be easy.

As the 2019 legislative session begins this January, university officials and lawmakers expect the legislature will take another tough look at how the state funds its public universities.

While Texas’ economy continues to grow and attract more people and business, many argue Texas needs a higher education system to train and educate people for the influx of those new jobs. According to researchers at Georgetown University, more than half the jobs in Texas will require some type of postsecondary education by 2020.

While there is pride in Texas’ higher education system, from its football teams to its world-class research, funding the state’s higher education system can contradict another aspect of the state that many Texans love: low taxes.

“[You hear,] ‘We need to lower taxes, we need to take burden off the property owner.’ And we hear people say, ‘We have to fund higher education at higher levels,’” says Raymund Paredes, BA ’64, PhD ’73, Life Member, commissioner of higher education at the Texas Higher Education Coordinating Board. “Those two things don’t go together. You can’t do both.”

State budgeters estimate lawmakers will have a $2.8 billion “beginning balance” this session, after they make required outstanding payments to programs like Medicaid and K-12 education, and continue funding Hurricane Harvey recovery. Lawmakers could tap Texas’ $12 billion Rainy Day Fund to pay for Harvey relief instead, but there’s no guarantee.

That remaining money also needs to be divided among a variety of competing interests, like the state’s need to reform its foster care system and invest in mental health services, Rep. Donna Howard (D-Austin) says.

“The list goes on and on,” she says. “And in this is still higher ed trying to find its funding source. So, I think we’re going to have some challenges.”

Discretionary Funding

In Texas and across the country, funding higher education depends entirely on the will of state lawmakers.

While public K-12 education in Texas is a state constitutional requirement, higher education funding is discretionary. Lawmakers hold the power to allocate more or less funding and it often requires a strong advocate in the legislature pushing for more money and battling against other needs. There’s only so much funding available after the state makes its required payments.  Officials often say the state essentially “backs into” a total number for higher education within the overall general revenue without much wiggle room unless they decide to increase funding.

The state then uses formulas to distribute that allocated pot of money across all public universities. Formulas are based on the number of classes universities provide and semester credit hours are weighted depending on the class. For instance, a nursing or engineering class costs more to teach than an English or philosophy class, because they can require expensive equipment and lab space.

The UT System receives funding from the Permanent University Fund, whose value comes from land leases on 2.1 million acres in West Texas. From the $21.8 billion PUF, a payout called the Available University Fund is taken. Two-thirds of the AUF goes to the UT System, while one-third goes to the Texas A&M System. Nine percent of UT Austin’s $3 billion budget is made up of funds received from the AUF—about $250 million. The PUF makes up a majority of UT System’s $26 billion endowment fund.

More controversial in recent years are “special items,” which are funds allocated to universities outside of the funding formulas. They can be used for anything from new degree programs and additional faculty to research programs and facilities, like UT Austin’s McDonald Observatory or the Texas A&M Forest Service.

Last legislative session, the state Senate tried to eliminate $1 billion in special items. Lawmakers said special item funding is out of control and needs an overhaul, but universities said losing that money would force layoffs and even possible school closures. Eventually, most universities saw those items put back in the budget. In the interim session, a committee of House members was tasked with reviewing higher education finance.

Howard served on the committee. While there was general bipartisan support for special items, she says there was agreement that there could be a more strategic way to organize and review those allocations on a regular basis. She expects lawmakers will review special items again during this 86th legislative session.

Disinvestment of Higher Ed

Since higher education funding is discretionary, increases in funding usually come in years when Texas’ economy is strong. It’s also often the first place to see cuts when the economy is on a downturn.

Tuition deregulation was done in 2003 in part to make up for higher education cuts made as lawmakers tried to address a $10 billion deficit without raising taxes. In 2011, higher education saw another round of budget cuts after the housing crash. Those coincided with a push from former Gov. Rick Perry to get universities to run more efficiently and focus less on research. Perry introduced his seven “breakthrough solutions” to run public higher education more like a business, including ideas like rating teachers based on student evaluations and separating research and teaching. Former UT Austin President Bill Powers became locked in a power struggle with Perry after the university said the solutions were the wrong approach, even releasing a report responding to each of them.

Current UT student government president Colton Becker says research has opened doors for him during his time at UT Austin, leading him to change his major from nursing to advanced nutritional sciences. He sees research as an important way to attract the quality educators he feels UT Austin needs to maintain its standing as top-tier university.

“The university has to be able to offer competitive wages in order to recruit esteemed faculty members—which contribute a lot of value to quality of educations that UT offers,” Becker says. “It’s a massive bureaucracy. There are always funding needs. Research and faculty are the foremost concerns among administrators in terms of budget and what we need to keep UT advancing and growing.”

Even though Texas spent more money on higher education last legislative session than it did in previous years, it hasn’t kept up with the exploding student enrollment. Between 2010 and 2015, Texas came in dead last nationally in the total per-student revenue growth, according to the State Higher Education Executive Officers Association. Instead, per-student revenue declined 10 percent.

During that time, Texas voters elected more conservative leaders for governor, lieutenant governor, and attorney general. The state Senate also saw a more conservative shift. Many of these lawmakers believe in limited government and low taxes, and are looking at ways to cut government spending. That isn’t a friendly arena for those who want to increase revenue streams to higher education.

“You’ve got two very competing, sometimes incompatible phenomenon happening,” Paredes says. “We live in state where there’s huge pressure to hold down taxes, particularly property taxes, which affects funding for public education, which in turn affects higher education.”

Sen. Kel Seliger (R-Amarillo) chairs the Senate’s Higher Education Committee. As an advocate for more higher education funding, but also a conservative lawmaker who wants to keep taxes low, he tries to straddle the line between the “incompatible phenomenons” that Paredes describes. [Editor’s note: Seliger is married to current Texas Exes president Nancy Seliger, BBA ’83, Life Member.]

“I’m always optimistic that we’ll do the right thing,” Seliger says. “But the right thing is different to every single member. We just have to compete for the money, realizing there are a lot of people in the state of Texas who do not want the state of Texas to have any more money.”

Effect of Tuition Deregulation

After Haley graduated from UT Austin, he returned two years later for law school. In the legislative session in between, lawmakers passed a bill to allow universities to add a student regent to the board. In 2006, Perry appointed Haley as the first-ever student regent to the UT System Board of Regents.

After fighting against tuition deregulation as an undergraduate, Haley was now serving on the board with the power to raise the cost of college. His perception changed as he participated in the tuition setting process. Haley says he realized how much the university benefitted from having the flexibility to bring in additional funding.

“Our institutions desperately needed this money and needed a mechanism to ensure they could meet the rising cost of education, repair and renovation needs, teacher recruitment, teacher retention, and student academic enhancement,” Haley says.

Haley feels proud of the system he helped develop. He says it ensures student voices are included in deciding how tuition is set.

But he also saw that lawmakers used deregulation to gain political points with voters at the same time they were reducing funding to public universities.

“The pressure we were getting from the lege to not raise tuition, it was a session later, literally a year and a half,” he says. “They’d gone from not wanting to take responsibility to then wanting political cover and saying, ‘We’re preventing regents from raising tuition yet we don’t want to fund it.’ So it was incredibly disheartening to see.”

One thing is clear: since deregulation, every Texan attending college in-state has seen their tuition bill increase. Between 2003 and 2017, the statewide average total academic charges increased 138 percent. At the same time, state investment in higher education declined by six percent when adjusted for inflation. Since 1984, the state general revenue that UT Austin receives has declined by 35 percent, as of 2017.

“When [deregulation] occurred, members of legislature came to understand that for whatever reasons they didn’t want or weren’t able to fund higher education at certain levels, schools could make it up,” Paredes says.

Still, he argues Texas’ higher education system is a better deal than other public universities across the country. The statewide average tuition at public universities this year was $10,300, just slightly higher than the national average of $9,970, and lower than states like Michigan ($13,420) and Pennsylvania ($14,770), according to the College Board.

Last legislative session, lawmakers filed bills to try and keep tuition costs down. Lt. Gov. Dan Patrick supported a tuition freeze for four-year schools, while others filed bills that would ban tuition increases beyond the rate of inflation. Haley, who works in private equity but still follows state higher education politics closely,  found this to be demoralizing.

“It’s disheartening to see members of legislature file these bills to look to their constituents that they’re trying to reign in tuition costs, but the best way to reign in tuition costs is to increase revenue to the universities,” Haley said.

Robert Estrada,  BS ’69, JD ’83, Life Member, Distinguished Alumnus, served on the Board of Regents with Haley. He supported tuition deregulation so schools have flexibility to address individual needs. But he says tuition increases alone can’t pay for quality higher education.

“Whatever increases have resulted from deregulation … that has just put a dent in needs for higher education,” Estrada says. “But it doesn’t come close to funding what an entire university needs on a year-round basis.”

When lawmakers were considering tuition deregulation in 2003, Ellis told them, “You can never raise tuition enough to address your needs … you’ll get the short end of the stick. Legislators will not appropriate money for you.”

Fifteen years later, he feels like history has validated his argument.

Wise Spending Habits?

“Yes, there have been comparatively mild decreases in state funding which have unfortunately been accompanied by comparatively wild increases in university spending,” says Tom Lindsay, director of the Center for Innovation in Education at the conservative-leaning think tank Texas Public Policy Foundation. “K-16 has become administration-heavy, and teachers and students are suffering as a result. We would like to see more money from existing budgets go to teaching and learning, students and teachers, less to administration. This is a national issue.”

Last year, the Texas Tribune reported that since 2011 the amount that the UT System spent on administration has quadrupled to a high of $143 million. Meanwhile, the amount that the system put toward financial aid during that time, $38 million, barely changed.

Universities, including those in the UT System, started to see pushback to major initiatives. When former UT Chancellor William McRaven, BJ ’79, Life Member, Distinguished Alumnus, announced the system was purchasing 300 acres of land in Houston for $215 million to expand the system, lawmakers were concerned it would hurt the University of Houston System. Many grew curious as to how the system was spending its money, especially after the payout from the Available University Fund grew to $603 million in 2017 due to the fracking boom. The UT System is now selling the land.

Lawmakers have also been critical of UT System’s decision to build new offices in downtown Austin.

“I think that a lot of the public feels the universities are more interested in empire building than they are in tending to needs of students,” Paredes says. “Those are public perceptions we have to address whether they’re accurate or not.”

There are signs that the Board of Regents has heard the concerns. The fiscal year 2019 budget saw a 16 percent reduction for system administration. A report by a taskforce of UT System Regents that was released in October 2018 also looked at areas where the system could become more efficient and less top-heavy.

Still, at a Legislative Appropriations Request hearing in September, the new UT System Chancellor James B. Milliken asked lawmakers to increase funding for universities for the next biennium.

Looking Forward

While the House higher education finance working group offered no official recommendations after their two meetings this winter, lawmakers sent a letter to the speaker of the House with areas to study further.

One possible funding change they evaluated is performance-based funding for public universities which would tie higher education funding to performance measures like graduation rates or the number of students who continue from freshman to sophomore year.

For the past four legislative sessions, the Higher Education Coordinating Board has advocated for the state to adopt performance-based funding to fund four-year schools. Right now, all community colleges and technical schools receive a portion of their funding based on a series of success metrics.

Paredes argues performance-based funding could incentivize universities to focus on improving areas like student graduation and completion rates. Howard, who served on the working group, says lawmakers were concerned performance based funding would be used to replace current funding instead of as a supplement. “If you’re producing incentive funding you have to have a base and you put additional money on top of that,” Howard says. It’s unclear if there’s enough political support to make that kind of funding change.

At press time, it is likely that Speaker of the House will be Rep. Dennis Bonnen (R-Angleton). He served on the House Higher Education Committee during the 2011 legislative session and as vice-chair of the Joint Oversight Committee on Higher Education Governance, Excellence, and Transparency in 2013. It’s unclear what Bonnen’s leadership means for higher education.

Texas has established high standards for its higher education system throughout the years beyond its football programs. The Higher Education Coordinating Board set an ambitious goal that 60 percent of Texans will have some kind of postsecondary credential by 2030. Right now, the state is at 42 percent.

In a San Antonio Express-News editorial this year, the editorial board argued that more state investment in higher education is needed if the state wants to achieve that goal, and others.

“Recruiting students is the easy part; keeping them enrolled comes with many challenges. And that requires investment in programs that will ensure student success. When funds are tight, these type of programs suffer,” the board wrote.

Higher education supporters, like Estrada, say that type of investment is needed not only to help students, but to improve the state’s economy overall.

“I hope we start recognizing we’re not going to keep the Fortune 100 businesses that we’ve attracted if we don’t produce PhDs, scientists, executives that those companies need to keep going,” Estrada says. “There’s a reward for doing more and more for higher education and I’m just hoping elected officials start recognizing that in higher numbers.”

Illustration by Alex Nabaum.

An editing error resulted in a an earlier version of this article incorrectly stating that the Available University Fund has a value of $22 billion. It is the Permanent University Fund that has a value of $21.8 billion.