Public colleges and universities currently receive significant subsidies from state governments through state appropriations for operations. As a fraction of university operating costs, these state appropriations have decreased substantially over time, but in a very erratic fashion. The fact that these important subsidies have been so erratic makes planning very difficult at a state school. Also, state budget rules do not allow institutions to save money for future use. This chapter argues that the implicit financing contract between states and their public institutions is irretrievably broken, and advocates a new system for state support. State support should go to students in the form of vouchers. Schools should not receive any direct appropriation from the state, but they should own their tuition revenues. This twin reform would change the politics of higher education within states, and give state universities better incentives. This “New Compact” would ensure financial stability at public institutions.
Keywords: New Compact; state appropriations; state revenues; subsidies; vouchers
Chapter. 6916 words.
Subjects: Financial Markets
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