On October 5, the News and Observer reported that UNC-Chapel Hill (UNC-CH) wrapped up a record $2.38 billion fundraising campaign in January of this year. The Carolina First capital campaign raised money for 208 professorships and 577 scholarships. Now ten months later the University is announcing a $4 billion capital campaign. $4 billion? That’s a huge number. Let’s just say, all things considered, the timing isn’t perfect. To date, only three universities have undertaken such campaigns. UNC-Chapel Hill would be the first public university to do so. When asked about the campaign, Roger Perry, Chairman of the UNC Board of Trustees candidly remarked, “It’s a real big number isn’t it?. . .It’s more market driven than need-driven. We could get by on less but we could use more.”
Fast forward to November 18. A UNC-Chapel Hill task force is proposing a 6.4 percent hike in tuition this year for in-state and out-of-state undergraduate students. If approved, the change would add about $275 a year to the average tuition bill. Reports say the revenue raised would go toward scholarships, faculty pay raises and other student support services measures.
The two examples illustrate two major issues in the ongoing discussion over the financing of public education. First the issue of student tuition. Some relevant math. Campus administrators say the undergraduate tuition hike would raise $510,000 in additional revenue. A proposal to raise graduate student tuition 6.5 percent will raise $530,000. Thus revenue from the two increases will total a little over $1 million dollars ($1,040,000).
While student tuition is one side of the discussion, state support and endowment funds are the other two sides. According to the 2007 NACUBO endowment study, the current market value of the UNC-CH endowment was $2.164 billion. Colleges and universities, unlike other non-profit tax-exempt institutions are not required to pay out 5 percent per year of endowment earnings. Many educational institutions as a general rule, loosely adopt the 5 percent rule, but there is no legal requirement to do so. Thus, under a 5 percent payout plan, the UNC-CH endowment generated about approximately $108 million in annual revenue for the university.
If UNC-CH moves forward with a $4 billion 4-year campaign the numbers will be even larger. For example, if next year Chapel Hill raises $1 billion toward its $4 billion dollar goal, the effort would generate approximately an additional $50 million dollars for the university. Obviously, these numbers are estimates that don’t take into account the recent volatility in the market, nor do they reflect the fact that many endowment funds are restricted in how monies can be spent. Still it doesn’t change the fact that the growing endowments of many major universities dwarf the current operating budgets of many institutions and provide universities with additional financial flexibility.
These developments mirror the ever-changing financing structure of colleges and universities. And here is where the issues described above raise some pointed questions. The NC State Constitution states the “the benefits of the University of North Carolina and other public institutions of higher education, as far as practicable, be extended to the people of the State free of expense”(Article IX, Section 9). Deciding the proper division of costs between taxpayers and students is a question of importance to every generation. Still, these questions take on even greater significance when ever-growing campus endowments are changing the nature of how educational institutions operate. I’m in favor of asking students to pay for some of the costs of higher education. Here in North Carolina, student tuition has on average covered approximately 25 percent of total education costs. I’m also in favor of public and private institutions being allowed to solicit gifts and contributions from the private sector.
Should more endowment funds be used to help hold down the costs of education to students? That’s a question that logically flows from this discussion. Some relevant facts: Between 2003 and 2007 undergraduate tuition and fees at UNC-Chapel Hill increased 31 percent. During the same time period, the market value of the UNC- CH endowment increased 97 percent. In 2007, the operating budget of UNC-CH (including Health Affairs and Academic Centers) was $738 million. The UNC-CH endowment was $2.1 billion. The trend lines are evident.
While colleges are tax-exempt institutions operating as a public trust, they’ve succeeded in defeating efforts to force them to disclose specific information on how endowment funds are spent, reinvested and administered. Senator Grassley’s Senate committee started to investigate this issue last year. However the committee didn’t go far enough with regard to information disclosure for non-profit institutions. Rapidly growing university endowments have helped to change the nature of university finances. It’s also underscored the need to know how endowment funds are spent and administered. UNC-Chapel Hill’s growing endowment is a good thing. It great public support for the university. However, with this growth come new questions, that require new information. Unfortunately, much of that information is not forthcoming. Until then, UNC’s request to significantly raise tuition while at the same time raising billions in endowment funds should raise more than a few eye brows.