REMARKS TO THE TEXAS PUBLIC POLICY FOUNDATION
ANNUAL LEGISLATIVE ORIENTATION CONFERENCE
America’s prosperity results from the continual increase in labor productivity. The Labor Department tells us on average workers today produce twice as much per hour as their counterparts did at the time of America’s Bicentennial in 1976. That has made things more affordable –it takes less time at work to pay for a loaf of bread, television set, airplane trip or a pair of blue jeans then it did in 1976.
College education is an exception. It takes far more hours of work to pay the tuition at the University of Texas or A & M then it did in 1976, despite those school’s vast endowments. There are many reasons for that which we cannot go into here, but a huge part of the problem is productivity has not risen in higher education –it has almost certainly fallen. And while the costs associated with faculty have increased, and while some faculty are very well paid for what appears to be little teaching or highly meaningful research, this problem is overshadowed by the problem of administrative bloat.
In 1976, it took about three professional non-instructional persons to service every 100 college students. These persons are what we would roughly call administrators –deans, associate provosts, diversity coordinators, public relation specialists, and so on. Today, instead of three, it takes six of these persons. What are the implications of this? Assuming UT Austin followed the national trend, there would be about 1,650 more administrators than in 1976 even after adjusting for enrollment growth; assuming these persons made, with benefits, and average of $80,000 a year, there is $132 million more spent on administrators –or nearly $2,500 per student. Put differently, the tuition at Austin could be reduced by nearly one-fourth if the school today was as lean administratively as 39 years ago. Or put still differently, one-third of the gap between reality and the $10,000 degree could be filled by slashing administrative staff back to 1976 levels, adjusting for enrollment growth.
I looked at an organizational chart for UT Austin. It was fairly complex, with 34 boxes for various administrative units. But that was just the tip of the iceberg. I looked into one of the units with a box, the College of Liberal Arts, and it had its own organizational chart with 43 boxes –not only was there a Center for European Studies, but there was a second center for East European and Russian Studies, and yet a third for Slavic and Eurasian Studies. Isn’t one European studies administrative unit enough? I opened another of the 34 boxes under the President’s Office, the one for the Development Office, and counted 118 employees. This is just one UT campus. And don’t forget not only the other universities, but also staff offices overseeing entire systems, such as at A and M, where there are ten major offices under the Chancellor, often with duplicative offices at the level of the individual campuses. And, I am not done yet – Monday I counted 205 employees working at the Texas Higher Education Coordinating Board.
Universities complain that new regulations, such as safety and affirmative action rules, force them to hire more staff for compliance purposes. While this has a grain of truth to it, I would bet no more than 10 percent of the staff increase is mandated by any law. I am not intimidating, by the way, that Texas is any worse than typical nationally –indeed, the University of California has nearly 2,000 nonteaching employees working just in their central office. But being “typical” is a disgrace in itself.
There is another factor that suggests I have been mildly understating the administrative bloat problem. While good comparable historical data are hard to find, it is clear that salaries for at least some of the expanded bureaucracy have been rising far faster than the rate of inflation, compensation of employees generally, and more than that of the faculty who perform the core academic mission.
We all know about multi-million dollar football coaches and even million dollar university presidents and chancellors, but we do not realize that salary escalation goes further down the administrative hierarchy. At my typical state university in Ohio, the chief financial officer in the mid-1970s made perhaps 25 to 50 percent more than the typical full professor. Today, he makes almost triple the average full professor’s pay. It is not uncommon for schools to replace retiring CFOs making $250,000 a year with new ones making double that. I suspect a similar trend is happening here.
Two questions arise: First, why has happened? Second, what can be done about it? The simple two word answer to the first question is: “perverse incentives.” In the competitive for profit market sector, business managers are rewarded for cutting costs, increasing profits, stock prices, bonus payments, etc. In the not-for-profit government subsidized university sector, rewards for efficiency are mostly non-existent, and, indeed, managers who add staff are given accolades by fellow employees who, strangely enough, often play a role in the evaluation of the bosses. When I was a department chair, I talked the university into giving me an extra faculty member, increasing my staff from 17 to 18. Labor inputs rose, services provided changed little, so productivity fell. But I was given high marks by my colleagues whose evaluation of me partially determined my salary. So inefficiency was rewarded.
Make no mistake: the vast expansion of federal student financial assistance has provided the cash to allow all of this to happen. Schools have raised fees to capture aid dollars given to students, and used the fee money to fund more administrators, higher salaries, and other amenities, my favorite being the “lazy river” at Texas Tech that allows students to contemplate life or sleep while floating on a raft.
The federal solution to the administrative bloat problem requires downsizing or eliminating federal student financial aid. In Texas, it lies in three “I” words –information, incentives, and innovation. We have no idea most of the time whether new administrative positions produce positive benefits to the school, because we do not typically measure outcomes well. For example, we create administrative positions to help fight high dropout rates, but where is the cost-benefit analysis of those positions?
We can reverse perverse incentives in various ways. Change funding formulas to reward schools who better contain costs to students – let the schools charge whatever fees they want, but effectively “tax” them on big tuition increases by reducing subsidies. Perhaps give bonuses to institutions lowering the ratio of administrative staff per student, although schools will game the system by redefining the word administrator.
Finally, let me make a comment specifically about UT and A & M that Bill Powers and John Sharp will not like, but so be it –I am an outsider with no skin in the game. These schools, especially UT, have advantages no other public university has –huge constitutionally protected endowments. Allow them, indeed force them, to use those endowments more aggressively to lower student costs. At UT, if half the endowment income were dedicated to tuition reduction, fees could come down about $2,000 a year. Or maintain current fees but give need-based scholarships that reach also moderately affluent middle class families. With huge endowments, these schools should either be the very top American public universities, which they are not, or they should be relatively cheap, which they are not as well.