UNC's Bad Efficiency Grade | Eastern North Carolina Now

   Publisher's note: The article below appeared in John Hood's daily column in his publication, the Carolina Journal, which, because of Author / Publisher Hood, is inextricably linked to the John Locke Foundation.

    RALEIGH     Over the past three fiscal years, the University of North Carolina system has received hundreds of millions of dollars less in state tax dollars than it sought, as legislators of both parties struggled to close the fiscal gaps triggered by the Great Recession.

    Tuition increases, research grants, and other receipts have offset some of the effect on UNC campuses. But the system has also had to reduce its expenses - hiring or retaining fewer adjunct faculty, asking tenured faculty to teach more classes, and economizing on administrative and support functions, for example.

    Good.

    The truth is that over past three decades, public universities have become bloated, outdated institutions that fail to deliver their core service - undergraduate education - in an efficient manner. Many North Carolina leaders have long thought of the UNC system as an outlier from the national trend. They were correct: UNC was actually worse than the average public university system in cost-effectiveness.

    I wrote about one set of data in my recent book Our Best Foot Forward. As of 2010, the direct operating cost of undergraduate instruction in the UNC system was estimated to be about $10,000 per student, or 20 percent higher than the national average. This figure was actually an undercount of the full cost, which would include facilities and other expenses, but provided a useful point of comparison.

    Now a new analysis, using a different approach, has yielded a similar result. In a report published last month, the U.S. Chamber of Commerce graded every university and community college system on six criteria: 1) student success (chiefly the graduation rate), 2) efficiency and cost-effectiveness, 3) meeting labor-market demand, 4) transparency and accountability, 5) policy environment, and 6) innovation.

    The UNC system received mediocre grades on the labor market, transparency, and policy environment criteria. It got a split decision on innovation. In student success, UNC's six-year graduation rate is still below 60 percent, but that's actually a bit higher than the national average, so the system got a B.

    In the area of efficiency, however, UNC out-and-out flunked. Its grade of F stands in stark contrast to other university systems that also outperform the nation in graduation rates. Virginia, for example, got an A for student success and an A for efficiency. Florida, California, Illinois, and New Jersey got As for student success and Bs for efficiency. Maryland got a B for student access and an A for efficiency. And South Carolina, Michigan, Mississippi each got Bs for student success and Cs for efficiency. (Yep, there goes the basket case that is Mississippi, showing us up again.)

    Fiscal realities have forced the University of North Carolina system to begin adopting some of the more-efficient practices of its competitors. Tenured professors at N.C. State are teaching 15 percent more credit hours than they did in 2008, for example. Campuses are delaying costly new programs or projects to focus on their core missions. Administration has been slimming down a bit.

    Why did it take a budget crisis to begin this process? Because UNC system is different from most other systems in another key respect: North Carolina taxpayers still pay the majority of the operating cost for undergraduate education. Nationally, however, student tuition and fees cover an average of 91 percent of that cost.

    The discrepancy explains why so many North Carolinians, including the political class, had fooled themselves into believing that UNC was a "bargain." Keeping tuition artificially low meant keeping taxes artificially high. The net effect wasn't a cost savings. It was a cost shift - and because households with students in college have higher-than-average incomes, it was a regressive one.

    It is no accident that our biggest productivity problems are found in services such as education and health care where consumers don't shoulder or even know the price at point of sale. Without price competition, there are few incentives to pursue efficiency and productivity.

    Now UNC has such an incentive. The spigot of taxpayer dollars has been turned clockwise - or, if you prefer, to the right.

    Hood is president of the John Locke Foundation and author of Our Best Foot Forward: An Investment Plan for North Carolina's Economic Recovery.