Yes, Virginia: There Is No Santa Claus

Virginia is often cited as a state which followed the “Michigan Model” in which the public system becomes semi-privatized. According to Inside Higher Ed, all is not well in Virginia as the state there seems to be grabbing money from the universities.

False Ideal? (excerpts)

September 28, 2010

Virginia’s “restructuring” agreements, which provided select universities greater autonomy over finances in exchange for less state support, have emerged as a model that some public institutions in cash-strapped areas of the country would like to emulate. But to hear it from finance chiefs at Virginia universities now covered by restructuring, the agreements with the state haven’t been fully honored during the budget crunch.

Among the most vocal critics of how restructuring has played out is Charles W. Steger, the Virginia Tech president who now has “a whole list of things” he says run afoul of the management agreement his university entered into in 2006. While there is much to applaud about how the agreement limited red tape for Virginia Tech, Steger says the state is not allowing universities to hang onto money raised from tuition and auxiliary services like dormitories, dining halls and student fees…

The state, however, has always had an escape clause on the agreements — and even critics like Steger don’t dispute that. Indeed, state budget officials say the agreements were intentionally written to allow for a tweaking of the arrangements in dire budget times…

In addition to Virginia Tech, the University of Virginia, the College of William and Mary and Virginia Commonwealth University have all entered into restructuring agreements.

Among the examples Steger and others have cited as a potential agreement violation is the state’s handling of contributions to the Virginia Retirement System. The state is required to make payments into the VRS for university employees and other public workers, but lawmakers chose this legislative session to reduce payments into the system by $620 million. Per their restructuring agreements, university officials assumed that the reduction in retirement contributions would translate into savings for their campuses. But that’s not what happened. The state clawed back those dollars to fill deficit holes in other areas, denying restructured universities the opportunity to use tuition and auxiliary funds for offsetting campus budget cuts, boosting financial aid offerings or investing in capital projects.

It would not have been unexpected for Virginia to recoup the amount of state appropriations that otherwise would have gone toward universities’ retirement contributions. The distinction in this instance, however, is that the state also collected “non-general” funds that are generated from university tuition and auxiliaries. That move has given rise to criticism that the state is redirecting students’ tuition payments toward priorities that may have nothing to do with the campuses the students have paid to attend.

The restructured universities may have the biggest beef with the state’s actions, because taking money from tuition and auxiliaries appears to break at least with the spirit of agreements that were designed to allow universities to function more like independent businesses that could fend more for themselves. Even so, all public universities — restructured or not — were taken aback by the raiding of funds previously viewed as sacrosanct, several university officials told Inside Higher Ed…

While none dispute that the General Assembly’s budget has the final say on appropriations, it’s clear the agreements that governed restructuring anticipated a scenario where the state might reduce its retirement contributions. In that instance, the agreements noted that the institutions should “retain non-general fund savings … rather than reverting such savings back to the Commonwealth.”

In addition to the retirement savings, universities and other public agencies saw the state take aggressive steps to draw money from interest earned on auxiliaries. Virginia Tech estimates $205,000 in lost interest, and Virginia Commonwealth expects $500,000 in lost interest. To get some sense of the collective losses, the University of Virginia anticipates that retirement savings and auxiliary interest losses combined will total $18.1 million over the biennium.

— Jack Stripling

Full article at http://www.insidehighered.com/news/2010/09/28/virginia

So keep your hand on your wallet when you go back to Virginia: