Regents’ Proposed Revenue Model A Lose-Lose For Iowa Universities

universitiesFor deep background, first click here and go read the historic Powell Memo (also known as the Powell Manifesto), which “essentially marks the beginning of the business community’s multi-decade collective takeover of the most important institutions of public opinion and democratic decision-making” specifically including higher education.  The Powell Memo is divided into ten sections.  Note Section 1.

  • The Campus
  • Television
  • Other Media (radio/newspapers)
  • Books, Paperbacks And Pamphlets
  • Paid Advertisements
  • The Neglected Political Arena
  • Neglected Opportunity In The Courts
  • Neglected Stockholder Power
  • A More Aggressive Attitude
  • Quality Control Is Essential
  • Relaltionship To Freedom

In 1971, conservatives became greatly alarmed by liberal thought that tended to be quite prevalent on college campuses.  Conservatives believed capitalism was in danger and the Powell Memo served as the conservative blue print to launch a decades-long attack on the institutions of democracy by infiltrating them with corporate-friendly ideas. It is scary to read because as you read it, you can easily see how they have done exactly what they set out to do in weakening the pillars of democracy –  education, the media, the courts, elections, etc., over the last 40-odd years.

Last year, the American Association of University Professors also identified the odd and troublesome resurgence of PBF (Performance-Based Funding) and embarked to find out what was driving it. What they found was quite interesting.

“The conceptual framework above has driven our most recent exploratory analyses with higher education researcher Austin Lacy exploring the factors associated with state adoption of performance-funding policies. Perhaps unsurprisingly, our work suggests that partisan politics have been playing a prominent role in performance-funding adoptions, in the context of statistical controls for a variety of other factors: all else being equal, states with greater Republican representation in the legislature have been significantly more likely to adopt performance funding. It appears that stricter accountability policies and the use of market-like incentives have greater appeal on the political right, making the adoption of a performance-funding policy more likely in “red” states.

Increasingly, though, some questions are arising, along with some discontent. Do allocations under such policies adequately reflect the major differences in institutional missions and the kinds of students served, or are they exacerbating inequalities in institutional funding? Are available data sufficient for the task of making funding distinctions? Such approaches may tend to highlight certain performance indicators at the expense of others for their ease of measurement, rather than their importance to the public and their value in serving the public good. Also, these approaches may be seen on campuses as undermining campus autonomy and the professional judgments of on-campus leaders, faculty, and staff. Indeed, performance-funding mandates present an interesting paradox: the programs, coming on the heels of an era during which many states sought to empower campuses by decentralizing certain functions formerly overseen by state-level authorities, serve as a mechanism whereby state officials have recently strengthened their hand over the direction of campuses. There is a risk, too, that quality may actually decline under such regimes if indicators value output volume more than output quality—take the simple example of eased graduation standards producing larger graduating classes that, in turn, lead to decreased per-student educational expenditures.”   more

 Do your homework first. Go read the Powell Memo.  Then consider what the Regents, the Branstad administration, and ALEC are trying to do to education now.  Posted below is the UI’ evaluation of the Regents’ proposal. Draw your own conclusions.

The following is a summary by a University of Iowa faculty member of Gary Fethke’s evaluation of the Regents’ proposed revenue model. The model would have to be approved by the Iowa legislature before it is enacted.


Evaluating the performance-based revenue model adopted by the Board of Regents

by Gary Fethke
June 4, 2014

In his article, Dean Fethke summarizes how the Regents’ proposed performance-based funding model will affect the State’s Universities and higher education in Iowa. It is not “Iowa dollars for Iowa kids” as it first seems. Instead, the proposed funding model incentivizes each Regents’ University to seek out Iowa students at the expense of the other two Universities.[1]  It promotes a war for students in which all three Universities, the State and the students all lose.

The following points summarize his observations:

1. Under the funding plan, Dean Fethke estimates that the University of Iowa would lose $47.8 million annually.

a. This is a 21.5% reduction in the University of Iowa’s state appropriation.
b. The cut is equivalent to laying off 500 to 700 full time employees.
c. To offset this under the model, the University would have to add roughly 5,000 new resident students.[2]

2. The funding model creates an arms race by rewarding each University for more resident students, but ONLY at the expense of the other two Universities. If resident enrollment increases at all three State Universities, the allocation is unaffected and the allocation per student actually falls. With fixed total funding awarded in proportion to relative numbers of resident students, each University individually has incentives to (1) reduce resident tuition, (2) lower entry standards, (3) increase non-resident tuition to further subsidize residents, and/or (4) cut back on high-cost programs that have high value to the state. Dean Fethke studies each option in turn.

3. Changing resident tuition is not effective. For each individual University, decreasing resident tuition may attract students. However, Dean Fethke estimates that a $1,000 reduction in resident tuition would cost the University of Iowa $8.4 million even after accounting for the increased state allocation according to the model.[3]   Alternatively, the University could increase resident tuition to offset lost revenue. To offset the projected loss in funds the first year alone ($11.2 million), the University would have to increase resident tuition by nearly 18%. As a result,resident enrollment would likely drop by 6%. Additional increases, with even lower resident enrollment, would follow each year as the cuts are fully implemented. This is the opposite of the revenue model’s intentions.

4. Lowering entry standards is not effective. For each individual University, lowering entry standards would promote higher enrollment, initially attracting students from the other two Universities.4  But, the other Universities would have to respond in kind to compete, ultimately lowering standards and quality across the board with no ultimate effect on funding allocations. If total resident enrollment rises under lower standards, then the allocation per student falls. Thus, the plan promotes a race to the bottom.

5. Increasing non-resident tuition to cover the losses is not effective. Raising non-resident tuition is infeasible for UNI and has limits for ISU and UI. Further, many non-resident students remain in Iowa after graduation, offsetting Iowa students who leave the state for college or leave upon graduation. Increasing non-resident tuition would reduce this valuable source of “brain gain” and actually accelerate brain drain. This runs counter to the plan’s intentions of promoting an educated young Iowa workforce.

6. Cutting back on high-cost programs is feasible, but reduces the value of each University and the University of Iowa in particular to the State. The revenue model does not consider costs of different programs fairly. It costs more to educate students in numerous UI programs not offered at the other Universities (e.g., law, dentistry, medicine, pharmacy, etc.). Because the programs differ across the Universities, the average annual cost of educating a student at UI, ISU and UNI differ: $20,317, $13,932 and $13,182, respectively. The current allocations from the Regents represent 67%, 62% and 57% of these costs, respectively.[5 ]  The new allocation would make it 53%, 70% and 73%, clearly heavily favoring ISU and UNI.[2] Under the funding model, UI could (in fact, would be forced to) alter its cost structure by shifting to lower cost programs, but then no resident students would be able to study in areas such as law, dentistry, medicine, pharmacy, etc. This will lead to increased costs for Iowa students who much pursue these degrees out-of-state and likely lead to shortages of professionals in the state. In addition to UI, both other Universities would have similar incentives to cut high-cost, but high-value, programs reducing their value to the State.

Dean Fethke argues that the best solution for the State is to create a revenue model that promotes healthy competition between the Universities, not a war for students. Barring that, he argues that the UI needs to pursue greater autonomy from the State, including the ability to set its own tuition to (1) balance the needs of the State for the programs offered with the costs and (2) balance resident and nonresident tuitions with program costs, supply and demand.


1 In fact, if each University increases resident enrollment while leaving the proportions across Universities unchanged, the funding model allocates EXACTLY the same total amount to each University with a LOWER subsidy for each Iowa student. Lower state subsidies will lead to tuition increases and HIGHER COSTS for Iowa students and families. This is the opposite of the revenue model’s intentions.

2 To put this in context, in 2012, the Department of Education estimated that 20,342 Iowa high school graduates went on for further education in Iowa while 3,145 went out-of-state. In total, 6,930 new resident freshmen
enrolled at the three state Universities. Source: U.S. Department of Education IPEDS Data Center

3 This assumes that ISU and UNI do not respond with lower tuitions themselves. If they do, the losses to all Universities increase

4 Lowering entry standards may have adverse long run revenue effects. It is likely to reduce the graduation rate in the long run. A lower graduation rate would decrease funding according to the Regents’ revenue model and offset some of any gains achieved from higher enrollment.

5 These numbers are calculated from the numbers in Dean Fethke’s report, but do not appear in it directly.

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1 Response to Regents’ Proposed Revenue Model A Lose-Lose For Iowa Universities

  1. Dave Bradley says:

    great article. Those obsessed with dollars only miss so much of the whole picture.
    I hope every legislator, regent and those in the administration take a look at this.


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