How Tuition Helps Bankroll Construction

October 21, 2010

Investigative Reports

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By ERIC WARD

 

It’s no secret that state-funded colleges and universities in South Carolina have been raising their tuition at price-gouging levels over the past decade.

It’s also no great mystery that some of those schools, especially bigger ones like the University of South Carolina in Columbia, have been on a mad building spree during these years.

But it might not be so widely known that there is a direct, vital link between the two patterns.

Yes, if you’ve been wondering what gives with all the building projects at USC and elsewhere, look no further than that link, which ties a college’s tuition revenue to the amount of debt it can take on for bricks-and-mortar projects.

It’s a simple formula defined in state law. The way the equation works is: More tuition money equals more debt capacity equals more construction.

Simon Wong, a curious, wonkish researcher with The Nerve’s parent organization, the South Carolina Policy Council, recently rooted out the tuition-construction link by digging into the S.C. Code of Laws, S.C. Commission on Higher Education data and state financial reports.

With a university’s tuition revenue tied to its state bond debt, Wong explained in an interview with The Nerve last Friday, “People who bought the debt would have more confidence that they’ll get their money back, and that’s why increasing tuition is a huge deal.”

Indeed, the tuition-construction link holds profound implications for higher education in South Carolina.

In a recessionary era, from the biggest cities to the smallest towns and rural plots of the Palmetto State, families struggle to pay tuition costs that have skyrocketed more than 100 percent, and in many cases much more than that, at publicly funded colleges and universities since 2001-02.

The Commission on Higher Education maintains a 10-year history of tuition costs that can be viewed here.

Meanwhile, state-funded schools have marched forward with their building plans at varying speeds.

For the big dogs like USC and Clemson University, the pace has been brisk.

In just a couple of USC examples, the university is building a multimillion-dollar athletics village and only days ago the USC board signed off on some $239 million in additional capital projects.

But the results of what some see as USC’s empire building have been mixed.

Witness the university’s Innovista research campus, into which USC has sunk tens of millions of dollars chasing as-yet unrealized visions of rivaling North Carolina’s renowned Research Triangle.

Such forays into economic development by USC and other state-supported schools have come under increasing scrutiny amid their tuition hikes and the withering economy, which has taken a $2 billion bite out of the state’s general fund in the past few years.

“Our institutions of higher learning need to find a balance that properly funds their primary objective – educating students – and keeps the cost of a college diploma obtainable for our state’s students,” state Rep. Chip Limehouse, R-Charleston, wrote in an op-ed published Sept. 8 in the Moultrie News. Limehouse chairs a House subcommittee that oversees higher education issues.

PRIORITIES IN PERSPECTIVE

When it comes to the state’s publicly funded colleges setting priorities, a simple little thing like a phone line puts the matter into perspective.

In July, The Nerve interviewed USC associate professor of political science Mark Tompkins by phone for a story about the length of South Carolina’s legislative session, which is among the longest in the country.

But it wasn’t exactly easy to get Tompkins on the phone. That’s because he had to go to the political science department’s phone to talk.

Why? Because the line in his Columbia campus office had been disconnected.

Budget cuts, he explained when The Nerve asked him about the situation.

A woman answering the political science department’s phone last week said all faculty lines remain disconnected because of budget cuts.

Trying unsuccessfully to reach sociology professor Patrick Nolan, chairman of the USC Faculty Senate, The Nerve discovered last week that the same is true in the sociology department.

“I knew that some faculty had chosen to do that because they do everything by e-mail,” USC spokeswoman Margaret Lamb told The Nerve by phone. “They prefer e-mail.”

Underscoring the connection between tuition and construction, meanwhile, the S.C. Budget and Control Board recently took aim at the link in meting out a smackdown to state-supported schools.

The board, which must approve all building plans at publicly funded institutions, passed a resolution halting most projects at four-year colleges that raised their in-state undergraduate tuition more than 7 percent this year, and two-year schools more than 6.3 percent.

The resolution allows colleges affected by it to proceed with their projects if they roll back their tuition increases to at or below those respective percentages.

Some, including Clemson, quickly did.

Yet despite such an obvious example of the tuition-construction link, the way it works often has been missing from media reports on the rising cost of going to college in South Carolina and public debate about it.

Many stories about the building moratorium the Budget and Control Board handed down, for example, did not explain the link and instead reported college administrator boilerplate – decrying state funding levels for higher education.

“USC spokeswoman Margaret Lamb said the university lost $105 million, or 47 percent of its state funding, in the past two years, which contributed to a 6.9 percent tuition jump for the 2010-11 school year,” said an article in The State and Post and Courier newspapers before the Budget and Control Board action.

The story did not mention millions of dollars in federal Recovery Act funding USC has received, significantly offsetting those state funding reductions.

The dispatch goes on to paraphrase Lamb saying most construction projects are paid for with private money, athletics revenue, or county or federal funds.

Perhaps, but regardless that is only one side of the story, as the axis of tuition and construction plainly shows.

Although the relationship between the two has been largely overlooked, Wong, the Policy Council researcher, brought it into the light by authoring a brief explainer that the organization posted on its website earlier this month.

In just a little more than two pages, Wong shreds any notion that university building projects are all about “private money, athletics revenue, or county or federal funds.”

Wong tells how state schools “issue bonds to raise the cash needed for capital building projects.” It happens through a Budget and Control Board application process.

Wong then cites two sections of state law governing the process.

The first, 59-107-40, requires that an application to issue bonds include:

  • the school’s schedule of tuition fees;
  • the total amount of tuition revenue the college netted in the previous fiscal year; and
  • an agreement that the university’s “tuition fees shall be revised from time to time and whenever necessary to provide the annual principal and interest requirements on the proposed bonds,” and all outstanding state bonds that have been floated for the school.

The second part of the code, 59-107-90, caps the level of state bond debt that schools can incur, and actually ties that amount to their tuition. The law says a university’s annual debt service payments on state bonds cannot exceed 90 percent of its tuition revenue in the previous year.In other words, Wong writes, “The more tuition collected, the more debt may be issued.”

INCENTIVE TO INCREASE?

Hmm, does that help explain record-size freshmen classes at USC in the past two or three years?

Does it further sound like a built-in incentive to raise tuition if a university wants to build, say, an athletics village – as in USC’s case – or an addition to the home of its industrial engineering program, as is Clemson’s game plan?

“I’m like, so, this means there’s a link,” Wong says of what he learned about tuition and construction through his research.

Wong says he isn’t sure why many colleges in the state are consumed with building new facilities. But he guesses that it’s about marketing to prospective students. “It’s like, look at how cool our campus is, you know,” says Wong, a 25-year-old former high school math teacher.

In an e-mail to The Nerve, Lamb disputed the tuition-construction link.

“Our tuition had nothing to do with our indebtedness,” she said. “As for capital spending and tuition costs …. at USC Columbia, capital items represent 6 – 7% of tuition, and this has been true for years.

“In this year’s 6.9% tuition increase, which generates about $15.8 million, only $650,000 of that is for capital spending, and that is for a Student Health Center that our students need and have demanded.”

Continuing, Lamb wrote, “Given that we are a 200 year-old campus, one might fairly ask why it doesn’t cost more to support our capital needs, especially since there’s been no state bond bill for a decade. The answer is we have worked hard to secure alternative funding sources as one would expect.”

Wong set about his research after attending a higher education summit Gov. Mark Sanford hosted in the Columbia area Sept. 28, one day before the Budget and Control Board dropped the hammer on the collegiate building boom.

Sanford organized his summit in an effort to focus the state’s higher education debate on affordability and accessibility. The governor has long been critical of the exorbitant tuition hikes, repeatedly advocating tuition caps, and in the run-up to both events last month he called on state-supported schools to put the brakes on their construction projects.

But they ignored him, whereupon the Budget and Control Board brought its coercion to bear.

So, what do students think about all of this?

Well, suffice to say this is hardly an era like the 1960s in terms of campus activism.

Shortly after Sanford’s summit, the 50-member USC Student Senate unanimously passed a resolution supporting the university’s board and criticizing the governor.

The measure says “it is the sense of the Senate that in times of a faltering economy and budget cuts, the Board of Trustees has taken all necessary steps to protect the student body from bearing the full burden of funding the university.”

It continues by thanking Sanford for calling the summit, but says the Senate “remains disappointed in the lack of leadership and progress from his administration.”

Taylor Cain, a senior majoring in history at USC Columbia, serves as Carolina’s Student Government vice president.

Naming USC President Harris Pastides, Cain says the university administration has done an excellent job preventing USC’s state funding cuts from affecting the quality of the school’s education offerings “even though higher education in this state might not be a priority for the Legislature and the governor.”

Asked about USC’s building campaign, Cain responded, “I think it helps attract students to this university.”

She said she was not aware of how the university’s tuition revenue serves as a backstop for its construction debt, nor of academic departments having their phones turned off because of budget cuts.

Of course, not all USC students are lining up behind the administration and the board.

“I actually agree with the governor on some of these projects,” says Chelsie Paulson, chairwoman of the USC College Republicans. “I look at it from the perspective of I’m not getting an education because of the building I’m in.”

Paulson, also a senior, is majoring in public relations through the School of Journalism and Mass Communications. “We’re stuck in the basement of the Carolina Coliseum,” she says of her school, “and I will tell you what – it’s not a pretty sight. But I’m still getting a great education.”

She cites the International Business master’s program in the Moore School of Business as another example. The program is consistently ranked the best in the country among public universities.

“What made the international school of business so good?” Paulson asks. “It’s not the building they’re in.”

Reach Ward at (803) 254-4411 or eric@thenerve.org.