Public-Private Predicament

by Annie Scott
September 16, 2010

Here’s what’s going on in a land far away but not so far apart from the Mitten …

UCLA’s highly regarded business school, the Anderson School of Management, made a headline-grabbing announcement last week: it wants to start saying no thanks to state dollars and transition toward full private funding.

While it’s difficult to imagine any public program turning down money these days, it’s a bit easier to see where UCLA Anderson is coming from when you consider the once-Golden State’s upside-down finances, perennial budget turmoil and bleak outlook. After years of struggling with declining, unreliable public dollars, the school has had enough with walking the shaky state-funding fault line.

Eager to grow its program and ascend the ranks of elite business schools (U.S. News & World Report ranks it 15th best in the nation this year), Anderson wants the greater flexibility and opportunity that can accompany self-sufficiency. For such premier state business schools, it seems the key to more money and control is opting out of public money. The LA Times reported the proposal’s supporters are chiefly motivated by the need to increase both Anderson’s tuition and pay, in order to better compete with the top-tier (and largely private) business programs for the best teaching talent. Proponents say the current state of affairs isn’t going to enable such growth.

Anderson’s plan is awaiting approval from the president of the University of California system, whose public mission goes back to the earliest days of the State of California. If approved, it would take effect next summer.

While a reported 80 percent of the Anderson staff support the proposed plan, others are crying foul. Concerned that this move smacks of privatization at the expense of research and the UC mission, the plan’s critics claim the potential competitive advantages aren’t worth the drawbacks. They’re calling for more deliberation and student input.

Anderson isn’t venturing into uncharted territory. A growing number of high-level public business schools, including the University of Michigan’s Stephen M. Ross School of Business (ranked 12th) and the University of Virginia’s Darden Graduate School of Business Administration (ranked 13th), have either implemented or begun considering similar private-leaning financing shifts. Ohio State, University of Texas-Dallas and University of Maryland have also taken steps to position themselves among the best business schools — public and private — in the world. As the Association to Advance Collegiate Schools of Business (AACSB) puts it, “they’re here to compete at the highest levels, and if that means acting like private institutions within a public framework, so be it.”

In Jack Lessenberry’s recent Dome column featuring an interview with University of Michigan President Mary Sue Coleman (“UM Proud to Remain Public”), she made it clear the university itself takes great pride in its public ties and has no current plans to privatize. Yet she also recognized the need for the university to make significant changes in order to keep pace.

Several years ago, Michigan’s business school had already crafted a vision to go a few steps farther down the path toward privatization. “We haven’t explicitly set out to say we want to be ‘more private,’” Robert Dolan, dean of the Ross School, told the AACSB in a 2005 interview. “But we do want to be the best business school of our type. That means being able to attract the top talent and compete with all universities, including private ones. Just defining our competitive set as other public institutions isn’t the right way to think about it. Our aspirations are much higher.”

The arms race among top business schools is spreading and pushing more public schools to consider all-private funding. As state budgets continue to pare down higher education funding, cash-strapped state business schools have no choice but to find other sources to supplement their revenue. Increasingly, such schools are describing themselves as “state-assisted” rather than “state-supported” — a subtle yet important difference.

With more distance from relying on public funding, these private-leaning programs are able to call more of their own shots and be responsible for their budgets. They have greater freedom and flexibility to increase tuition and faculty pay and build healthier endowments. They can operate more like a privately owned educational business that can compete with the best.

According to its 2009 operating budget, less than 1 percent of the Ross School’s $132-million budget came from “University Supplement,” while 71 percent was from tuition alone ($45,000-50,000 annually for full-time MBA). At present, UCLA Anderson gets a little less than one-fifth of its $90+ million budget from California (that includes their UC-system tuition revenue).

Since tuition levels have been rising for years as state funding has decreased, it shouldn’t surprise anyone that, if approved, Anderson’s tuition would increase over time to a range more comparable with those of top private business schools. One projection cited in Anderson’s new plan is that one year’s in-state tuition for a full-time master’s program would increase gradually from the current $41,000 to roughly $53,000.

While the math adds up for these business schools, it doesn’t necessarily add up for a segment of their students or prospective ones. As rankings and resources become ever more important to schools, they’re forced to pass along the costs (I mean “added value”) to the students.

When I was a child, my parents took advantage of the State of Michigan’s fabulous MET program. It enabled me to graduate from college with the incredible privilege of no student loans to repay (I am forever grateful to them and to that program). Interesting that now, with me only seven years out of college, more public graduate schools are becoming so top-notch they’re rising beyond the grasp of people like myself and my peers.

As two UC student critics of Anderson’s proposal pointed out in an LA Times op/ed, the lack of democratic process and student input behind this public-to-private plan sets a troubling precedent. There always will be scholarships for low-income students and there will be others who (or whose employers) can afford to pay full price; there is some evidence that privatization hurts the middle class.

For MBA students planning to go on to public service or nonprofit positions, repaying those larger loans will become significantly more difficult. As the op/ed argues, “If they believe that public education is too cumbersome to save, it is time for them to change course and recommit to acting as stewards of one of the best public universities in the world.”

I understand why these state business schools want to go private, but selfishly, I wish they would realize there are good reasons why a public school is different from a business.

Annie Scott lives and works in San Diego and sends dispatches back to her beloved Michigan.