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Privatizing Public Higher Education
by David Lotz and Dan Schmisseur
Privatization is a highly charged word that suggests social and economic progress to some and capitalism-gone-wild to others, especially in the context of education. But over the past 40 years there’s no doubt that one subtle yet significant change occurring in public higher education is the trend toward its privatization, meaning that private entities are gradually replacing taxpayers as the dominant funding source as state appropriations account for a lower and lower percentage of schools’ operating resources.
To many, the privatization trend is something of a surprise because the funding models for public colleges and universities are not widely understood. But for the faculty, students and alumni of public universities, it’s a trend worth noting.
The privatization trend is a market-driven phenomenon that has resulted in many benefits for society—more competition for top students and faculty, more research, and more accountability to philanthropists and businesses seeking societal value for their investments.
Privatization fosters an environment where the strong will not just survive but prosper, where the advantages will far outweigh the limitations. The privatization trend has been part of the equation that is fueling the McCombs School’s climb toward the upper echelon of business schools in the world.
Indeed, today more than 30 percent of the McCombs School’s services are funded by private contributions. Not only was this not the case a generation ago, it was unthinkable.
In the post-war United States, both tradition and social mores dictated that taxpayers funded public universities and businesses or philanthropists provided working capital for private universities. In Texas, custom was further reinforced by perceptions surrounding the University’s endowment that were not based on reality, as noted in this excerpt from the report issued by the Committee of 75 (a panel of private citizens and University alumni who evaluated the status of the University at its 75th anniversary in 1958):
“While the University Permanent Fund is a tremendous asset for The University of Texas, the almost legendary stories that have grown up around it have worked also to The University’s detriment. To an appreciable extent, private and industrial grants have been discouraged because many think that ‘The University doesn’t need the money.’
“The Committee of 75 is convinced that The University of Texas does need the money from these private sources – indeed, must have it in dramatically increased amounts if we are to have a University genuinely ‘of the first class.’ Our investigations show that no state university has yet attained eminent status without this type of support.”
As the Committee of 75 recognized, universities need private support because it is endowments that fund the chaired professorships that help recruit and retain star faculty. If it’s true in football that great talent wins championships, it’s equally true in academia that a great faculty wins the prestige and high rankings that yield more resources for the University and more value for its graduates.
In his book published in 1962, some 20 years prior to the University’s Centennial, Fifty Years of Education for Business at The University of Texas, full-time accounting professor and parttime historian C. Aubrey Smith had already identified the recruitment and retention of an outstanding faculty as the primary barrier between the Business School and its ambitions:
“[This]has been one of the most serious problems confronting all four deans of the College of Business Administration. On several occasions during its early years the School was on the road to accomplishing such a feat when salary reductions, depression, or war prevented. Unlike some privately endowed schools and colleges, the School of Business at The University of Texas at Austin had no outside help or special funds and contributions to fall back on.”
By the early 1980s, as the University approached its 100-year anniversary, skyrocketing energy prices and an inflationary economy had caused grave financial concerns for individuals and enterprises alike, but for Texas, there was a silver lining. The University’s endowments were invested primarily in productive oil fields and conservative, interest-bearing securities. Soaring interest rates swelled the returns on the Permanent University Fund endowment, giving the state, at least for a short while, an unexpected surplus to save, spend or invest.
Recognizing an opportunity, the University’s administration, led by President Peter Flawn, persuaded the Board of Regents to use a portion of the surplus for an innovative private support campaign called the Centennial Endowed Teachers and Scholars Program. During the campaign, which coincided with The University’s 3-year celebration of its 100-year anniversary, donors endowing a faculty position within a college would have the opportunity to use University matching funds to either double the endowment’s size or create a new endowment of equal size in the same or another college or school at the University. President Flawn, who had declared a “war on mediocrity” upon taking office, seized this opportunity and rallied the entire campus to embark on an unprecedented fundraising campaign.
“When I became dean, we were just starting the Centennial Program,” says Bill Cunningham, who succeeded George Kozmetsky to the deanship of the College of Business Administration. “I remember going to my first Business School Foundation meeting as acting dean. George had set a very aggressive goal of something like $6 million. I was sitting next to the chairman, and he turned to me and said, ‘What’s your goal for the business school?’ I said, ‘Twelve. $12 million.’ There was no science behind that number, but I was going to show the world that I was prepared to do what I could do to make it a better place.”
Cunningham proceeded to tour the state with Advisory Council chairman Sam Barshop and Business School development officer Tom Loomis, organizing alumni gatherings and meeting business leaders to pitch the merits of the unique philanthropic opportunity afforded by the matching gifts campaign.
In two years, the school had raised $24 million for endowed faculty positions in the Business School. This was an incredible feat that for the first time allowed the school to attract a number of high quality senior faculty from other prominent institutions.
Under President Flawn’s leadership, endowments for UT Austin increased from $21 million to $181 million by the end of the Centennial. The Business School played a significant role in the enormously successful campaign on many fronts, particularly in helping raise endowments for other colleges in the University from matching funds.
Thus, the one-time opportunity to transform income from the Available University Fund into chaired professorships provided the impetus for the Business School to introduce Texas businesses and philanthropists to the value proposition of business education at The University of Texas at Austin, where private support leverages our existing infrastructure to yield tremendous returns for society, as measured by quality research, dynamic executive education and future business leaders.
With the Texas Legislature recently awarding public universities greater autonomy in setting tuition and fees at market-driven rates, the most significant historical disadvantage for public universities has now been removed. However, state governments throughout the U.S. are struggling to balance fiscal budgets. Thus, usually the question is not whether university budgets will be cut, but by how much.
Given this challenging environment, how will the McCombs School not only stay competitive but rise to the top ranks of public business schools? The answer resides in the growing numbers of McCombs School alumni, our state’s resilient business community, and the scores of individuals who will see their lives and businesses positively changed by the research, teaching and outreach of our faculty.
Today, the McCombs School is well positioned to achieve Dean George Gau’s ambitious goal of hiring more than 40 tenure-track faculty by 2010, who are expected to raise the bar in the classroom, help to attract more industry partnerships, and increase our leadership in the core business disciplines.
An important tool for the future is the remaining $35 million in the McCombs matching program. In Leading in the 21st Century, the McCombs School’s strategic plan for 2004-2010, Dean Gau outlined new priorities for the program designed to attract the private support that is essential to achieving our goal of becoming the best public business school in the nation.
As we continuously improve our products and services with strategic investments in people and facilities, we will offer individuals and corporations a corresponding rising value proposition for their philanthropic gifts. Simply put, private contributions will yield better results for society than ever before.
David Lotz is assistant dean and director of development for the McCombs School of Business. As head of the Office of Resource Development, Lotz oversees McCombs School fundraising and undergraduate alumni relations. Dan Schmisseur is a 1992 McCombs BBA and an independent consultant in Austin who has researched and written about the McCombs School's history.
For information on specific programs at the McCombs School, consult our contacts page. For media information, contact the Communications Director by phone at 512-471-3314 or by email at CommunicationsDirector@mccombs.utexas.edu.
