The State University System Might Become The State's Bank

There's no doubt the Missouri Legislature faces a tough challenge when they come back in session in a couple weeks; a $750 million  budget deficit that must be closed. This is a time for innovative thinking, but also a time for facing reality.

The Post Dispatch reported on an idea floated by Governor Nixon's office to have Missouri universities float interest free loans to the state.  According to the article the largest contributor would be University of Missouri who would kick in $63 million. Missouri State would add another $13 million and an additional $10 million would be shared by three more state schools.  The proposal is reported to be something Nixon is just kicking around.  It is also not the first time the governor has tried to make a deal with higher education. In each year since he took office in 2009, Nixon has attempted to cut a deal with colleges and universities before presenting a budget. In the first year, it was stable funding in exchange for no tuition increases. For the 2011 budget year, the deal was no tuition hikes if budget cuts were limited to 5 percent. (source: Colubmbia Tribune)

Senate Appropriations Committee Chairman Kurt Schaefer (R- Columbia) said such a proposal has many flaws even on its surface. For one, it basically asks MU to subsidize other institutions who have not "taken any steps towards efficiencies" like MU has. This is a typical progressive concept; take money from the responsible and proactive and give it to those who are neither.

The proposal is promoted as a good alternative for the universities because it would provide them a return of this money in seven years, whereas making the cuts necessary (estimated to be 50% of state scholarship funding) would cut into the institution's reserves. But this justification itself demonstrates why this proposal is unrealistic.

The major reasons the state has such a large deficit is because it is losing federal stimulus money and federal Medicaid funds. Does anyone realistically see either of those sources of revenue returning any time soon?  Should a state budget be developed assuming the availability of emergency revenues like stimulus funds?  With the roll out of Obamacare, is Medicaid funding likely to increase? Asking for a large loan to cover the deficit assumes that such shortfalls are temporary and can be overcome by economic gains or the magic appearance of outside revenue, neither of which is a realistic assumption.

The state will spend seven years trying to pay back the universities who will have to find other sources of revenue in the interim or cut back on their own budgets. Realistically, both of these things will have to be done regardless. Between the permanently stalled economy and the growing public resistance to the high cost of higher education (and subsequent debt), colleges and universities can count on dropping student enrollment. This loan process will simply slow the drain of funds. In the mean time, it will push more students towards the Dept of Ed's Federal Direct Loan Program.

The bigger question that should be asked is, "Should our institutions of higher learning be in the business of providing bail out loans to a fiscally unbalanced state?"  When your alma mater called you for a donation, did you think you would be funding the state, or did you assume that your money would actually go towards helping someone else get an education? Are all state reserves fair game when trying to balance a budget?  If they are, what impact will that have on state institutions retaining any reserves in the future? If you knew someone else could raid your savings account any time they wanted to, with no return on their borrowing, would you keep a lot of money in savings?


We will be watching the governor's budget proposal closely when it comes out next month.  Like a credit card junkie who thinks paying down their balance is just something you do for a short period of time before you can resume your previous spending, the state is in need of spending rehab. It must face the reality of what its income limits are and learn to live within them.