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UM System looks for new revenue amid funding crunch

Sunday, February 7, 2010 | 12:01 a.m. CST; updated 12:46 p.m. CST, Tuesday, February 9, 2010

COLUMBIA – The academic building of the future in the University of Missouri System may be less, well, academic.

City government, local developers or others might be given office space in new academic buildings to offset building costs.

Mixed-use buildings are one of the options on the table for a series of regional meetings with interested local parties proposed by UM System President Gary Forsee to address the system-wide need for new facilities.

If built, such a project would represent a first for the UM System, Forsee said.

“That has been the control line that we didn’t want to blur,” he said, “but we’re in a different environment now.”

With less money from the state and a proposed continuing freeze in in-state tuition, the university is looking for ways to find more revenue.

The regional capital forums are one of five initiatives Forsee presented Jan. 29 at the UM System Board of Curators meeting as means of achieving this goal.

Another is to create additional public-private partnerships like the Tiger Institute for Health Innovation, formed in September between MU and the medical technology firm Cerner Corp. , in which 30 MU Health Care employees were absorbed by Cerner.

Including federal stabilization and stimulus funds, Missouri had a 6.1 percent increase in funding for higher education last year. This was the sixth largest increase in the country according to the Grapevine Report, an annual survey of public higher education funding released in mid-January.

But with the increase, Missouri’s per-capita funding for higher education is still among the 10 lowest in the country.

Forsee’s remarks came one week after Missouri’s top education official warned officials at state colleges of dire consequences if they do not work together to achieve greater efficiency — including closing campuses, folding independent campuses into university systems and abolishing athletics.

A letter sent by Robert Stein, commissioner of higher education, raised alarm about funding two years from now, after the expiration of $1.2 billion in federal stabilization funds in Gov. Jay Nixon's budget recommendation for next year.

Nixon and the presidents of Missouri's four-year public colleges and universities agreed to freeze in-state undergraduate tuition next year in exchange for preserving 95 percent of state funding for higher education. If approved by the legislature, the deal would mean a $24 million reduction in funding for UM's core programs.

Capital projects

Forsee said at the curators meeting that the first regional capital forum will be in Columbia in the next few months. Earlier, he said he hopes to include state officials in the discussion, but the forums are an acknowledgment that state funding for capital projects has been lagging.

Rep. Chris Kelly, D-Columbia, said he supports the plan, which he discussed with Forsee when it was first introduced in October, and that he would be happy to participate in the forum.

Kelly has also introduced a bill to allow residents to vote on an amendment to the state constitution that would issue bonds for capital projects for higher education.

“Higher education institutions are desperate for facilities,” Kelly said.

A similar amendment passed in 1982, Kelly said, and is expiring this year.

The bill would complete projects originally slated to use funds from the sale of some of the Missouri Higher Education Loan Authority's assets under former Gov. Matt Blunt, including more than $30 million for the Ellis Fischel Cancer Center. The projects were put on hold when Nixon took office and finally canceled when Nixon unveiled his budget recommendation for next year.

Other projects across the state would be funded according to a priority list prepared by the Coordinating Board for Higher Education.

Kelly’s bill has 50 co-sponsors in the House, including House Majority Floor Leader Steve Tilley, R-Perryville. But a similar bill proposed by Kelly last year stalled on the Senate floor after passing the House because of concerns about increased spending.

If the bill passes out of the House again this year, Sen. Kurt Schaefer, R-Columbia, will lead it in the Senate as he did last year.

Kelly said the bill has the votes in the Senate. Schaefer said he isn’t sure it will succeed.

“I think it’s going to be a hard fight,” he said.

The funding formula

The state’s higher education appropriation is determined each year by Missouri’s legislature, and the uncertainty of this funding makes long-term planning difficult for colleges and universities, Schaefer said.

House Budget Director Allen Icet, R-Wildwood, said the money could be better divided among public universities.

He said that employing a fixed formula to divide funding would be more fair because it would take lobbying out of the process.

Such a formula does exist, said Nikki Krawitz, UM vice president for finance and administration.

It was developed several years ago in conjunction with the Council on Public Higher Education in Missouri.

The formula would fund schools on the basis of credit hours taught each year, with graduate courses and courses requiring laboratory work counting for more, said Brian Long, executive director of the Council on Public Higher Education in Missouri.

Successful implementation of the formula would require greater funding, Forsee said, because at the current level, money would have to be taken away from some schools to give increased funds to others.

Tuition's share

Historically, the state appropriation has accounted for 70 percent of UM's operating budget, with tuition accounting for most of the remaining 30 percent, Long said.

But in the past several years, state funding hasn’t kept pace with costs, he said.

In the UM System, tuition now accounts for roughly half of the operating budget, Krawitz said.

“Clearly, the burden has shifted from the taxpayer to the student,” Long said.

Despite increases in tuition, UM enrollment has increased over the past 10 years.

"The pricing of higher education is not unlike any other commodity," Krawitz said. "If people associate a high enough value with a program, they will be willing to pay more."

She said that it might be worth exploring pricing in which popular programs charge more in tuition.

Private partnerships

In November 2009, when Forsee and Nixon announced the tuition plan, Forsee said that the funding model for public higher education is broken.

With its two major sources of funding essentially frozen — in-state students account for nearly 85 percent of all students in the UM System, Krawitz said — the UM System is exploring other options.

It’s not alone in doing so, Forsee said.

Universities across the country are starting to look at ways to increase revenue, Forsee said, as they’ve run out of areas in which to make cuts.

He cited MU Health Care’s partnership with Cerner to form the Tiger Institute for Health Innovation, announced in September, as one approach to help the problem.

The institute aims to complete development of electronic medical records technology that was already underway by the former MU employees, with potential profits from any research to be split evenly between MU and Cerner.

While examples abound of corporate support for scholarships or specific programs, Forsee said the Tiger Institute is unique in that a “corporate entity has come in and started to underwrite our operating costs.”

Forsee said he is optimistic about several similar deals in progress, but because they are complicated, they may not be formalized anytime soon.

“This is not what, historically, a university has done,” Forsee said.

Out-of-state students

A New York Times article in October 2009 examined public universities like the University of Michigan and the University of Virginia that have made up for insufficient state funds by attracting more out-of-state students and charging them in excess of $30,000 a year in tuition.

Other schools such as the University of Massachusetts-Amherst and the University of Wisconsin-Madison are following their lead.

Forsee said he doesn't think this is the answer because so many other states are looking to do the same thing.

"If you've got all of us saying that," he said, "that will cause you to want to pay attention to your in-state students."

Krawitz said some of these states have achieved these goals by denying access to some qualified in-state students, which is not the policy of the UM System.

The university's role in the state

Last year, Forsee set a five-year goal of increasing economic development revenue to $50 million, which would mean increasing the amount of university research that is commercialized through licensing to outside companies or creating small companies.

At the January curators meeting, Forsee announced a $5 million Enterprise Investment Program to aid this process.

The university hired a transactional lawyer last year to help put deals in place and is looking to hire an intellectual property lawyer, said Mike Nichols, UM vice president for research and economic development.

Under the terms of most licenses, the university receives anywhere from 2 to 10 percent of net revenue from a product after it has been developed, Nichols said.

Licensing income in 2009 increased to more than $10 million, from $6.7 million the year before. The biggest moneymaker is Zegerid, a heartburn medication developed at MU that was recently approved by the Food and Drug Administration to become an over-the-counter medication.

The university signed 77 licensing deals last year. Nichols said that the success rate for venture capital is generally low, with one out of 10 deals a “home run” and two or three breaking even. More than half fail.

The $50 million target is a stretch goal, Nichols said, but if the university were to achieve 70 percent — producing $35 million in revenue — no one would complain.

Beyond its impact on the university, Forsee frequently touts the impact UM’s economic development will have on the state by creating jobs and increasing the state’s tax base.

At the tuition announcement in November, Nixon said education plays an important role in the economic recovery of Missouri. He pointed to the deal as proof of the value the state places on keeping education affordable.

But as state funding accounts for a decreasing portion of UM's operating costs and the university is forced to look to outside sources to supplement these funds, it brings into question UM's relationship with the state.

At the University of Michigan, state funding accounts for only 7 percent of the university's operating budget.

If the state appropriation were to be supplanted in its share of the budget by outside sources, Long said, there would certainly be an instinct to pay attention to the people who are providing this funding.

But he said that UM campuses – and other state institutions – would still remain committed to the public.

While Forsee emphasizes the need for growing outside revenue streams, UM and the state are "inextricably linked," he said.

"We and the state have to be partners in educating Missourians as a first priority," Forsee said.


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