Oregon Colleges Prepare for Spending Cap

Voters in 3 states will decide on budget restrictions in closely watched elections

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Text: 2 more states with proposals on the ballot to cap spending

List: State referenda related to higher education

Graphic: Higher-education appropriations in states that will vote on spending caps

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By JEFFREY SELINGO

Salem, Ore.

The next round in the battle over the future of state taxpayer support for higher education takes place here next month, when voters will decide if Oregon should become the latest state to adopt a spending cap. On the ballot is Measure 48, which if approved on November 7, would limit increases in the state's biennial budget to correspond to the rate of population growth, plus inflation.

Two other states, Maine and Nebraska, have similar ballot initiatives. The three measures are modeled after Colorado's Taxpayer Bill of Rights, often called Tabor, which was approved in 1992, and resulted in a 20-percent reduction in financial support for higher education earlier this decade before voters narrowly agreed to roll back the cap last year.

The Colorado experience, where higher education took the biggest hit of any sector of state government, is what has college leaders in this state worried. In some ways, the vote looms larger in Oregon than in Maine or Nebraska because, unlike in those states, overall appropriations for higher education in Oregon are actually lower than they were in 2001, by some $100-million.

The outcome of these initiatives is being watched closely by anti-tax activists who tried to get similar measures on the ballot in more than a dozen other states this fall. A win anywhere could bolster their future attempts elsewhere, including in Michigan, Nevada, and Oklahoma.

In Oregon, the tension over the proposed spending cap has been ratcheted up by an unrelated referendum on income taxes, also on the November ballot, that is projected to cost the state $641-million in revenue in the 2007-9 biennium if it is approved.

Limits on the state budget "will not just restrict growth," says George P. Pernsteiner, president of the seven-campus Oregon University System, "but will probably cause retrenchment just to make it possible to do the things we already committed to doing."

How the measure will be interpreted by the courts after the election is not yet known, but many state officials believe that it rations spending from nearly every revenue stream — not just taxpayer dollars. That includes such varied sources as tuition and even winnings from football bowl games.

As a result, at least one college president, Dave Frohnmayer of the University of Oregon, has suggested that if Measure 48 passes, his institution may cut its ties to the state to get out from under the restrictions.

"We would have to make a very significant move that would, in essence, make us quasi-private," says Mr. Frohnmayer.

After years of lobbying lawmakers for more money, college officials here and elsewhere are quickly coming to the realization that a referendum to restrict the growth of the state budget has the potential to inflict much more damage to their bottom line than any one politician can.

"It puts a state behind the eight ball," says Patrick M. Callan, president of the National

Center for Public Policy and Higher Education. "Higher education doesn't have the protection that other sectors have either because they are federally mandated or they have more political clout."

Many Undecided Voters

The one public poll released on Measure 48 so far carries mixed messages for colleges. The results of the survey by The Oregonian and KATU television last month showed support for the measure at only 32 percent. But while 42 percent opposed the referendum, 27 percent remained undecided.

Both sides in the campaign expect those undecided voters to take a position in the coming weeks as they are bombarded with political advertisements. A group called Defend Oregon Coalition, made up of 150 organizations, has raised nearly $2-million to defeat Measure 48 and Measure 41, the change to the state income tax. Its largest single contributor is the Oregon teachers' union, which gave $574,000.

Leading the fight in favor of the referendum is the Taxpayer Association of Oregon and its president, Don McIntire, who wrote Measure 48. The campaign is almost single-handedly bankrolled by Howard S. Rich, a New York real-estate investor, who leads Americans for Limited Government, a libertarian group that has donated nearly $900,000 to the Oregon operation and provides financial backing to the campaigns in other states as well.

Gregory J. Howe, a Portland lawyer who assisted Mr. McIntire in writing the measure, insists that the effort here is not part of any concerted national drive by conservatives to roll back taxes state by state. The cap, he says, is meant to put a check on spending, not revenue.

"Government really likes it when there is no limit to what they can spend," he says. "If we had a legislature with more fiscal discipline, we wouldn't need this."

In a briefing memorandum, Oregon's Legislative Fiscal Office estimated that if Measure 48 was in place for the 2007-9 biennium, the restrictions could mean that $1.5-billion to $2-billion of revenue "would be collected but not be available for expenditure."

While supporters call the referendum "the rainy-day amendment," the state's economist, Tom P. Potiowsky, notes that the measure does not specifically spell out what will happen to the excess funds. (Mr. Potiowsky resigned from his position late last month.) The only thing that is clear is that they cannot be spent.

Mr. Potiowsky predicts that higher education would bear the brunt of any governmentwide cutbacks. If the reductions are applied proportionately across state services, the education budget, which includes elementary and secondary schools, would be slashed by some $800-million in the next biennium.

Given that colleges have revenue sources not available to public schools, including private gifts and federal research grants, "there will be pressure on them to spend fewer state dollars to free money for other state agencies," says Mr. Potiowsky.

But colleges will be restricted in their ability to make up for the loss of taxpayer dollars with one key source of additional funds at their disposal: tuition. Because the referendum does not explicitly exclude tuition as a "disbursement" — as it does federal funds, for example — those dollars would be treated just like any other state appropriation.

Without tuition as a relief valve, the allocation of every dollar is likely to become a competitive sport. For now, the Oregon University System wants to spend $900-million on renovating buildings and new construction on every campus in the next biennium. But if a spending cap is put in place, Mr. Pernsteiner, the system president, wonders if such capital projects are the best way to use the restricted funds. "Every dollar you spend for capital is a dollar you can't spend on something else, such as classroom instruction," he says.

Finally Catching Up

Measure 48 appears on the ballot just as Oregon's public colleges have started to recover from the economic downturn that afflicted the state earlier this decade. Over four fiscal years beginning in 2001, lawmakers slashed spending on the Oregon University System by about $136.6-million, or 16.9 percent. Spending on Oregon's 17 community colleges was cut by about $185.5-million, or 31 percent, during that period.

The advent of those tight state budgets coincided with Mary Spilde's first year as president of Lane Community College, in Eugene. She recalls lawmakers saying in 2001 that "it was our year," with a promise to raise spending on two-year colleges statewide by $62-million. "By the end of the fourth or fifth special legislative session that year, it was all gone," she says.

To pare back spending, lawmakers stopped providing funds for noncredit "personal-enrichment programs," such as watercolor painting and conversational Spanish. Such courses accounted for 10 percent of the enrollment at Lane, and "because those programs were so inexpensive, they were part of our financial picture," Ms. Spilde says, helping to pay for more expensive programs in nursing and dental hygiene.

Those courses were also the only connection many members of the community, particularly retirees, had to Lane, Ms. Spilde notes. "That matters when we go asking for money," she says, which the college will do this fall when a measure on the local ballot asks taxpayers to provide $1.3-million more annually to the institution for the next five years.

With the loss of state dollars, tuition skyrocketed at Lane, as well as at other colleges in the state. The cost of a credit hour at Lane has almost doubled, to $69.50, since 2001. "We lost a lot of part-time students who could piece together tuition at $38, but not at $69.50," Ms. Spilde says. Between 2001 and 2003, enrollment dropped from 12,600 full-time equivalent students to 10,100 (it has since rebounded to around 11,000).

"We've gone as far as we can in terms of tuition," Ms. Spilde says. Like her four-year-college counterparts, Ms. Spilde is increasingly looking elsewhere for revenue. The assets of the college's private foundation have risen to $11.5-million, up from $6.5-million in 2001. The group recently received a $1-million gift from an anonymous donor to endow a chair.

Even so, the local and state governments still account for 54 percent of the college's budget. If Measure 48 passes, "it's going to be devastating," Ms. Spilde says. "We're at almost the lowest point we've been at in terms of funding. To put a cap on that is just irresponsible."

Serving the Public Interest

At the University of Oregon, the president, Mr. Frohnmayer, is even blunter in his assessment of the referendum: "It's mindless, silly, dangerous, and written sloppily by those who don't care or don't have an understanding of state-government finance."

Today the state's share of his institution's $450-million in annual revenue is 13 percent, about half of what it was two decades ago. With no sales tax and a measure passed in 1990 that limits property-tax increases (also written by Mr. McIntire), the state's finances are more closely tied to the ebb and flow of economic cycles compared with many other states, Mr. Frohnmayer argues.

In that environment, planning for any length of time longer than the two-year biennial budget is nearly impossible. "You're faced with the threat of tearing up your blueprints every two years," he says.

Taking the university private could release it from the volatility of the state budget, although Mr. Frohnmayer admits the institution then loses some of its "public character."

"A public university serves a public interest that private education is not committed to in terms of its mission," he says.

That's what concerns Edward Ray, president of Oregon State University, who says privatization is not an option for his institution, the state's land-grant university, even if Measure 48 passes. "If we stop being the people's college, who takes up that responsibility?" he asks. "There is a part of our populace that is going to get left behind in terms of higher education if we turn our backs on them."

Despite such dire warnings, Measure 48, of course, is not a referendum on the future of public higher education here. For voters, the question is not where in the budget the state should restrict its spending, but if the state should limit its spending.

Mr. Frohnmayer, a former member of the legislature and state attorney general, who ran unsuccessfully for governor as a Republican in 1990, says Measure 48, like many of Oregon's other initiatives throughout history, presents false choices for voters.

"We have a promiscuous initiative process without structural controls," he says. "Fundamentally it is not responsible for balancing the budget. That's why a ballot measure is not a substitute for the legislative assembly, because it only looks at one side of the ledger, either reducing spending or reducing revenue, but never matching the two."

HIGHER-EDUCATION APPROPRIATIONS IN STATES THAT WILL VOTE ON SPENDING CAPS How colleges have fared in the three states where voters will consider ballot measures next month to put caps on spending (in millions): Maine 2001-2 $239.80 2002-3 $242 2003-4 $239.10 2004-5 $239.60 2005-6 $247.90 Nebraska 2001-2 $525.20 2002-3 $520.60 2003-4 $498.80 2004-5 $505.50 2005-6 $542.40 Oregon 2001-2 $714.80 2002-3 $604.30 2003-4 $588.90 2004-5 $586.50 2005-6 $612.80 SOURCE: Annual survey by James C. Palmer, Illinois State U.