Proposal to Make Public Universities Whole

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November 23, 2010; Source: Wall Street Journal | Oregon is suffering from what University of Oregon president Rich Lariviere calls one of the “worst-funded public systems of public higher education in America.” His solution? Writing in an opinion piece in the Wall Street Journal, Larivierre proposes—as part of a three-part plan—a unique endowment scheme that would relieve the university of the vagaries of state support for the school by sharing the responsibility equally between the public and private sectors.

He notes that 20 years ago, the Oregon legislature appropriated $63 million for the university. For the current fiscal year, funding is expected to drop to $60 million, or $34.9 million in 1990 dollars. The shortfall in state funding is too much of a burden to pass off to students and their families in higher tuition. As Lariviere notes, “College is being put beyond the reach of too many worthy students. The goal at our university is to sustain high academic quality, while providing these young Oregonians with an affordable education.”

Under his proposal, the state would lock public funding for the university at $63 million over 30 years. He says that would be sufficient to cover debt payments, at a 7 percent taxable bond rate, on $800 million in general obligation bonds. “Meanwhile, the university will pledge to match the $800 million in bond proceeds with private donations, and we will raise the private money before the public money is used for these bonds. The combined $1.6 billion public-private endowment will create a solid base for the university’s financial operation, replacing the erratic seesaw of annual state appropriations.”

Based on the university’s average annual 9.8 percent return on its endowment since 1994—even accounting for the recent stock market collapse—Lariviere believes that “the new public-private endowment will generate $64 million in operating revenue for the university in its first year. This is more than the current annual appropriation. Projecting returns of 9 percent and assuming distributions of 4 percent, the endowment’s annual payout will increase to $263.4 million in its 30th year. The endowment’s capitalized balance of $6.9 billion at that point will secure the university’s future.” Is Laiviere relying on too rosy a forecast or is he correct in saying his proposal answers the question of how to make higher education affordable without “sinking” Oregon and other states into a “financial hole?”—Bruce Trachtenberg