Every couple of weeks, The Financial Times publishes a glossy magazine filled with baubles for the super-rich. Dubbed "How To Spend It," this supplement offers $45,000 per week Caribbean vacations, Aston Martin cars for nearly $200,000, timepieces and dresses priced well above $10,000, and coffee tables for more than $20,000.
Somebody, somewhere must be buying all this stuff - undoubtedly those fabulously wealthy people whom F. Scott Fitzgerald observed were different from the rest of us. And with sluggish global economic growth, it is helpful that those who have a lot of money spend it. After all, if you've got that much money, why not flaunt it? The old Reagan-era phrase was "trickle-down economics": a rising tide is supposed to lift all boats, even heavy yachts.
Earlier this summer, the University of Virginia's Board of Visitors acknowledged (after the information was shared with The Washington Post by outgoing board member and former Rector Helen Dragas) that UVA had amassed a staggering $2.2 billion in what UVA administrators euphemistically called a "Strategic Investment Fund." It is not unusual for major public and private universities to hold large sums of money, but figures of this size are usually found in restricted endowment accounts rather than scattered among dozens of cash operating accounts.
This fund was the result of "profits" generated from several centers at UVA, and the money had accumulated over several years. Soundly invested, the fund was also generating annual income of some $100 million that was added to the growing corpus. The rub is that UVA is a major public, nonprofit university that has also raised tuition by 74 percent over seven years and 30 percent during the last three years alone.
Moreover, while the profits and earnings flowed into this "Strategic Investment Fund," the university administration had repeatedly pled poverty before the Virginia General Assembly in Richmond. Administrators begged for increases in subsidies that came, of course, from Virginia taxpayers. UVA wasn't perceived as exactly "rolling in dough," but with this "Strategic Investment Fund," the school is now poised to launch a major shopping spree.
Auditors have blessed the way in which the "Strategic Investment Fund" was established, although there remain unresolved questions about whether the Board of Visitors and the UVA administration handled the issue with sufficient openness and transparency under Virginia's Open Meeting laws.
While the controversy over the fund continues, UVA has announced its first laundry list of projects on how it will spend some of the money. A tranche of $26 million will enhance cyber physical systems, expand student work-study programs, increase resources for a laboratory and research center to study cost-effective processes for converting natural gas into liquid fuel, fund new public service scholarships for law students, underwrite a plethora of new research appointments and scholarships, and enhance research computing, and on and on.
There is nothing inherently wrong with these investments in terms of spending priorities. Each one also comes, no doubt, with its own internal promoters and constituencies. After all, that is often how budgets grow in public institutions (including, by the way, the entire federal government, now almost $20 trillion in debt).
The problem is that these "priorities" exist in the first place, especially against the backdrop of continued, unsustainable student tuition increases and pleas of poverty to the Virginia legislature. This UVA example helps explain with remarkable clarity how we arrived at today's twin crises in American higher education: $1.3 trillion in student-loan debt coupled with unjustifiable and unsustainable cost increases that are turning many students away from pursuing higher education. What is now underway at UVA has been the predominant pattern across the postsecondary-education sector for over 30 years.
As the Committee for Economic Development reported in 2012, between 1982 and 2012, America's spending on postsecondary education rose four times faster than the Consumer Price Index and twice as fast as health care spending. This fact alone explains how what was once a core component of the American dream has now become unattainable - or too risky and too costly -- for so many young people.
Once these UVA spending priorities become reality, they will have to be sustained well into the foreseeable future. Just like new campus buildings - dormitories, student centers, athletic facilities, and stadiums - these initiatives will require ongoing maintenance and funding. The result is the type of cost escalation that, in turn, is used to justify ever-increasing tuitions and, in the case of public colleges and universities, ever-increasing subsidies. It's an endless, ratcheting-up effect: the beast, in short, becomes voracious.
Where is the focus on "affordable excellence" at these institutions? Why is the focus always on spending more rather than on spending better? No other developed nation in the world has established a postsecondary-education business model that inflicts unsustainable economic burdens on its young people and ever-increasing costs on its taxpayers.
No doubt the frenzied passion to maintain or even improve U.S. News & World Report rankings explains a large part of this spending on what are essentially input-oriented items. But especially in a period of slow economic growth, doesn't it make more sense for the men and women who govern and administer these public institutions to focus first on spending better before they decide to spend more? Also, shouldn't that spending be tied somehow to showing a positive, measurable impact on learning outcomes at each institution? And why not consider the possibility of reducing tuition when you are sitting on that much operating cash? First fund the fundamentals, and focus on the financial needs of all students.
"Affordable excellence" should be the goal of our postsecondary-education system, and that means finding ways to break the tuition creep - or, in this case, sprint -- that is crippling our students and alienating taxpayers.
Charles Kolb served as Deputy Assistant to the President for Domestic Policy from 1990-1992 in the George H.W. Bush White House. He was president of the French-American Foundation - United States from 2012-2014 and president of the Committee for Economic Development from 1997-2012. He now serves as president of Partners 4 Affordable Excellence @EDU.