Don’t oversell college subsidies

We are supposed to feel sorry for the poor, benighted people of Colorado, Florida, Montana, Oregon, Utah, and Washington.

Yes, it’s true that these places contain lots of well-educated, successful people, with more on the way every day. Their populations have all grown faster than the national average since 2010, with Colorado (3rd), Utah (4th), Florida (5th), and Washington (8th) ranking particularly high.

It’s also true that these states have some of the nation’s best-performing economies, measured either by growth in gross domestic product per person (all six states rank among the top 10) or by job creation (Florida, Oregon, Utah, and Washington are in the top 10).

According to new report from the Pope Center for Higher Education Policy, however, these six states rank far below the average when it comes to state expenditures on colleges and universities. North Carolina, on the other hand, ranks 4th in the nation in state subsidies per student, even after the belt-tightening the University of North Carolina system experienced in the immediate aftermath of the Great Recession. In fact, North Carolina’s state spending on higher education is double or more that of Colorado, Florida, Montana, Oregon, Utah, or Washington, again after adjusting for student enrollment.

Does that mean North Carolinians simply care more about education than our counterparts in other states do, or that we know something they don’t about how to build a 21st century economy? Such are the conclusions you’d be encouraged to draw by certain public officials, lobbyists, and editorial writers. But they are nonsensical.

Because colleges and universities offer valuable goods and services, they will always attract voluntary revenue from students, donors, and industry partners. Many students will see their tuition outlay as a good investment in their future earnings or as a means of acquiring other things they value, such as intellectual stimulation. Many individuals, foundations, and corporations will anticipate similar value from giving money or developing partnerships with scholars and campuses.

The traditional argument for taxpayer subsidy is that, even accounting for private purchases or patronage, higher education will be underprovided. That is, campuses are said to confer more benefits on society as a whole than user charges and voluntary donations can finance. Economists call this a “positive externality.”

Whatever you think of this justification for government subsidy, it has always been implausible to maintain that most or even a large share of the benefits of higher education go to people other than its direct beneficiaries. So it has always been implausible to insist that taxpayers be the single largest source of funding for colleges and universities.

According to the Pope Center, however, that’s still the situation in North Carolina. State appropriations represent 43 percent of the UNC system’s total revenue, with government grants and contracts making up an additional 20 percent (including Medicare and Medicaid dollars spent at university-owned hospitals). Tuition and fees make up 23 percent of the total, with the remainder consisting of philanthropy, private contracts, and other user revenue.

Those who think North Carolina should continue to be an outlier when it comes to higher-education finance have a tough case to make. Dozens of academic studies have asked whether states that spend more on colleges and universities outperform other states in some measurable way. The results are mixed at best. For example, of the 29 studies published since 1990 on a potential relationship between higher-ed spending and economic growth, only 31 percent found a positive one. Most studies found no relationship at all.

It’s not hard to see why. After a certain point, the economic costs of taxing households and businesses to fund large subsidies for higher education exceed any additional benefits produced.

To put the matter more bluntly: kids still enroll in colleges and universities in places such as Colorado, Florida, Montana, Oregon, Utah, and Washington. They still think great thoughts, make connections, and learn useful skills. Their professors still conduct research and perform community service. Taxpayers just aren’t on the hook as much for all these activities. It’s okay, really.

John Locke Foundation chairman John Hood is the author of Catalyst: Jim Martin and the Rise of North Carolina Republicans.
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