A PASCU Chapter at Each PASSHE University - Part 10

The Quest for “State-Related” Status

As we saw last week, proposed changes in the law that would benefit all fourteen PASSHE institutions have been successfully concluded over the years but, in the last five decades, there have only been two publicly-cited attempts by individual PASSHE universities to become “State-Related;.”  IUP was the first university to make the attempt in the 1960s, and West Chester University became the second in 2014.

 
Note that Pennsylvania is virtually unique among the fifty states in regard to its designation of a small number of otherwise “private universities” within the state’s boundaries as “state-related” universities.¹
 
State-related status was granted to Temple University in 1965, and to the University of Pittsburgh in 1966.  Lincoln University received that designation in 1972.  As part of the agreement on becoming state-related, all three of these formerly private universities became “instrumentalities of the State,” allowed elected State officials to select one-third of their governing board seats, and looked forward to  receiving one-third of their annual operating revenue from the State.
 
The relationship between Pennsylvania and its four “state-related” universities is clearly transactional as well as mutually beneficial, having persisted for some 50 years.  It is the details of those transactions and the university benefits that make state-related status attractive to PASSHE Universities, as we shall see. 
 

State-Related Status as a Transaction

Merriam-Webster defines a “transaction” as “a business deal; an occurrence in which goods, services, or money are passed from one person, account, etc., to another.”
 
From 1950 to 1967, college enrollments in America by students age 18-19 grew² from 30% to 50% of that population!  That growth spurt shaped the impetus to create “state-related” universities. 
 
With Pennsylvania’s 14 “state-owned” (now PASSHE) institutions already operating near maximum capacity, the Commonwealth needed to find ways of expanding classroom seats  to accommodate that upsurge in college enrollments, and did so in a way that maximized the seats available to these new students, while minimizing the marginal costs that the State would have to provide in the bargain.
 
The “services” which the State-Related universities would provide to the State involved providing baccalaureate and graduate degrees to additional Pennsylvania students.  In exchange for those services, the State would provide a minority share (one-third) of annual university operating revenue, and receive in return a minority share (one-third) of the university governance board seats.
 
These three state-related universities continue to have one-third (12 /36) of their governance board seats controlled by the State, while the State share of their budgets today is closer to 15% than to 33%. But while the State’s financial contribution share has fallen below one-third, the State’s share of the governance board seats at these state-related universities remains at one-third, as originally agreed. 
 
Penn State, Pennsylvania’s fourth state-related university, was considered to be “State-related” long before the other three private universities were so designated in the mid-60s and early 70s.  Penn State is Pennsylvania’s Land Grant University and has been receiving State funding since its founding in 1855.      

State-Related Status as a Mutual Benefit

Pennsylvania has clearly benefitted from conferring state-related status because it enabled the State to meet its growing and Constitution-mandated educational obligation at a relatively low marginal cost, compared to the cost of expanding existing State universities or creating new ones to meet the demand.
 
The four universities also benefitted greatly from the state-related status conferred upon them, both initially when the State was honoring its one-third funding commitment in exchange for its one-third governance share, and even now as the State continues to control one-third of their board seats while providing much less than the originally agreed upon one-third funding share.
 
A plausible reason for why the State-Related universities are content with the state-related bargain—despite the steady erosion of the State’s funding commitment over time—is that these universities share between them more than $0.5 billion each year, while retaining control of their own destinies with a two-thirds super-majority of seats on their respective governance boards.

Why State-Related Status is Attractive to PASSHE Universities

 
For FY 2014-15, the 14 PASSHE universities received a total of $412,751,000 in State Appropriation while the four State-related universities received a total of $521,087,000.  During that same fiscal year, State appropriation made up about 25% of PASSHE’s operating budget, and about 15% of the total operating budgets of the four State-related universities.   The balance of those annual operating revenues comes from the private checkbooks of students, parents and private donors, primarily alumni at those schools.
 
Another way of saying that is this:  The PASSHE Universities are now 75% private, financially speaking; while the State-Related Universities are now 85% private, financially speaking!
 
That is not a very big difference as far as their respective funding shares are concerned.  But governance shares are another matter entirely.  At the State-Related universities, the universities control 67% of the seats on their governing boards, meaning that State-Related universities—with their two-thirds majority in board seats—can control their own destinies when the most important university decisions get made.  
 
Although the PASSHE universities receive a slightly higher share of State Appropriation (25% of their annual operating budget instead of 15%) those universities control zero seats on the fifteen PASSHE governance boards.  As a result, the students, parents and alumni donors at the 14 PASSHE universities, who are paying 75% of the bills, have no say with regard to how their $1.2 billion share of PASSHE’s $1.6 billion annual operating revenue gets spent.  Those decisions all get made by Pennsylvania’s elected officials and their political appointees, PASSHE's minority financial stakeholders, who are now providing 25% of the funding. 
 
The lack of any voice in governance is a major reason why State-Related status is attractive to PASSHE Universities.
 
To be continued.    
 
¹ http://en.wikipedia.org/wiki/Commonwealth_System_of_Higher_Education.
² http://www.postsecondary.org/last12/1131101age.pdf.