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Greenville Business Magazine

Higher Education System Grapples with Complex, Three-Legged Monster

Aug 31, 2017 08:30AM ● By Emily Stevenson
By Kristine Hartvigsen

It’s one of the oldest analogies in tax policy discussions — the three-legged stool, with each respective leg comprising sales, income, and property taxes. If one pool of tax revenue is cut disproportionately, one or the other of the remaining pools must make up the difference. Ergo, if the stool becomes unbalanced, it topples over. This scenario illustrates that no single funding source should be over-tapped lest the others be forced to carry a disproportionate burden to meet a government’s collective needs and the overall funding system be jeopardized.

This year, the state Commission on Higher Education (CHE) is grappling with a similar scenario. The three primary legs of the CHE stool are access, affordability, and excellence. All are interconnected, but for the purposes of this article, we’ll focus on access and affordability.

Established in 1967, the CHE reports to the governor and the General Assembly on the status of higher education in South Carolina. Its responsibilities include overseeing academic quality, sustaining funding models to support higher education ideals, and approving capital improvement projects for the state’s 33 public colleges and universities.

Jeff Schilz, the CHE’s interim executive director, says these are difficult times in higher education funding, and no single institution should implement funding policies that are out of proportion with the other, interdependent members in the system.

Since the 2008 recession, per-student funding of the state’s public colleges has dropped by an estimated 37 percent despite a marked increase in enrollment. The state now contributes only 15 percent or less to college and university total annual budgets. In order to break even, those institutions must find money somewhere, and that often results in continual tuition increases. Higher tuitions significantly place college out of reach for many, particularly lower-income families.

Out-of-state or non-resident students pay more than double the tuition as in-state students, bringing significant revenue to S.C. colleges and universities. The University of South Carolina, for example, receives more revenue from non-resident students than any other revenue source. However, the CHE asserts that USC routinely waives a substantial pot of potential revenue through abatements granted to out-of-state students. And that pot grows every year.

In testimony before the Senate Education Committee’s Tuition and Scholarship Subcommittee on August 15, USC President Dr. Harris Pastides said:  “South Carolina residents pay less because non-residents pay more. … The bottom line is we increased non-resident enrollment and non-resident tuition revenue to save South Carolinians money. Why? Because the decline in state funding has forced us to. South Carolina has suffered from the 4th largest cut to higher education funding in the country.”

USC in Columbia grants non-resident tuition abatements totaling $94.5 million a year — by far the highest in the state. And that is increasing at a rate of about 10 percent per year. Clemson is an extremely distant second at $28.2 million in abatements.

An estimated 42 percent of USC-Columbia’s undergraduates were non-resident students in 2016. Pastides pointed out that abatements are not cash payments; they are discounts, and offering these discounts is a long-accepted business practice across higher education. “It is true we offer more than any other university in our state,” he said, “but we are also the largest. … We compete in a free market for students. Market forces drive our enrollment strategy while we keep prices lower for South Carolinians.”

Schilz says the Commission’s overarching duty is to identify threats to the long-term stability of the state’s higher education system. The abatement situation threatens the integrity of the system’s collective funding model.

“Tuition abatements are a cost that the University is bearing. They are waiving revenue, but it’s still a cost. That is funding that could be applied elsewhere.” Schilz explained. “Over the next 10 years, with a 10 percent annual increase, USC estimates that figure will reach over $1.6 billion. … This is a real problem that is not just facing USC but the entire state. The commission’s concern is fundamentally one of sustainability. Before we go down that path, it probably makes sense for the state to determine if this is sound policy or if an alternative path is necessary.”

Schilz says the CHE does not oppose tuition abatements for out-of-state students. However, with USC granting almost $100 million in waived tuition, the University far distances itself from the rest of the pack. “$27 million (on average) is kind of in line for the region,” he said. “And when you see this kind of outlier, it makes you take notice.”

On a related topic, the CHE has been under fire recently by critics alleging the agency has provided lax oversight of capital projects.

“It’s true that, in the past, the Commission rubberstamped proposals,” Schilz acknowledged. “But the commissioners on the board now understand this is impacting costs and affordability. So they are looking much harder at projects” and particularly how they are funded. That has resulted in the CHE’s first project denial in about a decade — a football stadium at Coastal Carolina University. “The CHE turned it down because it was funded 100 percent by student fees,” he said. The CHE prefers that institutions pay cash down up to 50 percent with the remainder financed through bonds.

Schilz maintains that the Commission should retain authority in approving capital projects. “The Commission is the only entity that looks at how the project fits within the larger higher education system,” he said, adding that the CHE may soon advocate for higher education institutions to submit five-year capital plans for approval rather than the piecemeal, ad hoc project submissions, as is currently the case.