The problem with letting “the good times” roll is that it is hard to stop the rolling when the economy goes downhill.
During the last few years, while North Carolina’s powerful economy filled the state coffers, the University of North Carolina was able to start many new, expensive programs. After the 2007 legislative season, in fact, UNC officials praised the legislature for its generosity.
This year, with tax revenues spiraling downward, those new programs still require funding, even as the university system explores making cuts to key academic programs. Richard Bostic of the legislature’s fiscal research division estimated that the system would need $38 million in permanent cuts and $143.5 million in “one-time budget reversions.” The fiscal research division is charged with providing information to the legislature as it crafts its budgets.
“These cuts will be painful,” said UNC system president Erskine Bowles said at the Board of Governors meeting on Friday, February 13.
Last Wednesday, February 11, Bostic laid out some of the major higher education budgetary issues facing the General Assembly. His presentation to the Joint Committee on Education indicated the legislature’s largesse to the university has created enormous financial demands. The new programs created during the last full legislative session in 2007 will be difficult to address politically, and will put financial pressure elsewhere on the system. They are scheduled to grow over time, and they will not yield their intended returns for several years (if at all).
Three of these programs are the EARN Scholarships, research conducted at the new North Carolina Biotechnology Center at Kannapolis, and the University Cancer Research Fund at Chapel Hill. Additionally, a new dental school for East Carolina University received initial funds for planning in 2006
Bostic also cited enrollment growth as another considerable factor forcing cuts—there is often a spike in enrollment during recessions. He expects an additional 12,399 UNC students in the next two years, costing the state an extra $44.8 million in 2009-10 and $54.4 million on top of that in 2010-11.
But the programs that began in the 2007 legislative session best illustrate what can happen when good intentions become fiscal mandates. The EARN (Education Access Rewards North Carolina) Scholarships are $4,000 grants for the first two years of college for first-time college students whose family income is less than 200 percent of the poverty line ($41,300 for a family of four in 2007). Last year, the legislature expanded the program to include qualifying students at the state’s private schools.
Bostic said that program provided an estimated 12,000 students at the state’s private, public and community colleges with $45.5 million in its first year (2008-9). Next year, it will cost at least double that amount, since there will be another year of recipients added (along with rising educational costs).
In 2008, the legislature also shifted the primary source of funding for the EARN scholarships from the General Fund to the Escheat Fund. The Escheat Fund is created from unclaimed property that reverts to the state, such as when a property owner dies with no heirs and no will. Approximately $7 million of the money for 2008-9 came out of the General Fund, since Escheat money cannot be used for students at private colleges.
The EARN scholarships are not the only need-based scholarships funded from the Escheat Fund. In 2008, these other need-based programs pulled $100.7 from the fund—and the Board of Governors is requesting an additional $23.4 million for the 2009-10 fiscal year. According to fiscal research division estimates, the Escheat Fund, which had nearly $700 million in 2007, will be empty by 2012, depleted by scholarships programs. At that time, funding for the scholarships will likely revert to the General Fund—becoming a hefty nine-figure burden on taxpayers.
Last year, the legislature gave universities and community colleges $6 million for operations at the North Carolina Biotechnology Center in Kannapolis. After his presentation, Bostic suggested that the amount might be closer to $10 million this year. While supporters of the project point to potential future benefits from the research, this is still a highly speculative venture with no immediate gains.
The University Cancer Research Fund is another program established during the 2007 legislative session that is getting a big jump in funding this year. The state’s annual commitment to this fund will increase to $50 million for the next fiscal year, a $10 million jump. This year, it has a $40 million budget, with $8 million coming from the Tobacco Trust Fund, $16.5 million coming from taxes on tobacco products (other than cigarettes), and $15.5 million coming from the General Fund. The future might hold other increases, depending on how much revenue is produced by the tobacco taxes.
Cancer research is hard to argue against on an emotional basis, yet there are perhaps trillions of dollars devoted to it worldwide. An additional $10 million, or even $50 million, does not seem likely to make much difference. Some sources, however, suggest that North Carolina’s ambitious support of the Fund is necessary to keep world-class scientists at UNC-Chapel Hill.
Another medical program initiated by the 2007 legislature that has costs escalating over time is the East Carolina Dental School. This year, it will begin a serious push to get the school ready for the first class to enter in 2011, including hiring of key personnel. The expected operating costs will be $6 million in 2009-10 and $8 million the following year.
North Carolina’s need for another dental school is debatable, but even if it was essential, construction at ECU has been held up as UNC capital projects have had their funds frozen due to the economic downturn. Even if the project is completed on schedule, there will be no return on investment until at least 2014, when the first class is expected to graduate.
Another program Bostic described as an “issue” is the Distinguished Professors Fund, started in 1985. In order to attract and retain top professors, donations to fund distinguished chairs at UNC colleges are matched by the state. While this is an excellent selling point for the universities, this year it is putting pressure on the budget.
According to Bostic, the C.D. Spangler Foundation pledged $26.9 million to the fund over a six-year period. The actual donation amount from Spangler is increasing this year from $4.6 million to $6.8 million. When that amount is combined with the other donations for professorships that also need to be matched, the state is responsible for $8 million in matching funds for distinguished professorships next year. Not only that, but there is a $5 million backlog of donations from previous years that must be matched before many other professorships can be created.
Perhaps, if the legislature hadn’t been so generous in good years, the university system’s cuts wouldn’t have to be so “painful” now that times are lean. Bostic said that the state is committed to these projects, but “commitments can be broken. They aren’t constitutional amendments. It’s nice if you can afford it, but…” Yet with so much money already devoted to these projects, it will be hard to reverse directions.