George M. Dennison
President
The University of Montana

Missoula, Montana
September 2002

Good afternoon and welcome. I take great pleasure in greeting you at the beginning of another academic year--my thirteenth as President--as we continue the effort to realize the full potential of my alma mater, The University of Montana. I can think of no nobler or more challenging endeavor than service to public higher education in Montana, given societal needs and available resources. For the old hands, this annual ritual has become familiar, as have the sometimes elaborate, but always fascinating, explanations of our fiscal situation and enrollment prospects. The new members of the faculty and staff have yet to develop the sense of déjà vu that inspires either good or ill humor, depending on the personality. Familiar and perhaps even seemingly trivial, this event opening each year nonetheless stirs excitement at the imminent prospect of interacting with a new group of bright and inquisitive young people eager to learn. I realize that those of you either returning to or newly arriving on campus may indulge some concern as we begin another year under circumstances some people describe as challenging. Despite recent developments with the State budget that have cast a negative pall, I have a very positive view of our prospects for reasons I will explain this afternoon. In doing so, I will discuss our current situation in context, examine the near term prospects, outline the priorities as I see them for the next five years, and solicit your support for an ambitious agenda.

THE CURRENT SITUATION IN CONTEXT

In a recent issue of the Chronicle of Higher Education, David Breneman--former President of Kalamazoo College, former Bookings Institute Fellow, and current Dean of Education of the University of Virginia--warned us that this recession differs from those in the past because of its surprising intensity, likely duration, and predictable impact on higher education. As he argued, the rising pressures on state finances now apparent will persist for some years, and public higher education will at last have to come to terms with the trend that has taken its toll in the health care industry, other businesses and industries, and society at large. Devising strategies to assure viability in a situation severely constrained by resource scarcity will become the key to success. Down or right sizing, austerity, and cost control have become the watchwords. In his view, the best hope for most public institutions, especially the majority lacking extensive research infrastructure and adequate endowments, will require them to model their strategies after the successful community colleges that have adopted a just-in-time approach to academic programming and staffing and moved aggressively to exploit the efficiencies and effectiveness of information technology. We have heard similar predictions before, most notably from Peter Drucker, the management guru, who once described the research university as a rapidly deteriorating relic of the industrial past. According to this prognosis, failure to make the leap into the 21st century will lead to massive closures of public institutions for lack of resources.

In my view, Breneman’s dismal prospect rests more solidly than have other such predictions on an understanding of economic and societal developments during the last 30 years, the effects of which will impact public higher education into the next decade. The dominant trend became evident during the decade of the 80s, gained strength during the 90s even if somewhat obscured by the economic prosperity induced by the dot.com bubble, and hit with full force in the year after 9-11 delayed or perhaps derailed the maturation of the so-called “new economy.” In fact, the trend originated in the late 70s when the states began to reduce their appropriations per thousand dollars of average per capita income and to decrease the percentages of their budgets dedicated to public higher education. Most people do not fully appreciate the cost shifting that occurred as a result, with student tuition rising much more rapidly than the inflation rate in order to make up for the decline in state support. In the absence of general awareness of the relationship between State support and tuition rates, the public at large misconstrues what has happened and tends to think in terms of costs running out of control. Even more disconcerting, a parallel trend line reveals that until 2001 students and their families also committed a smaller portion of their incomes to higher education. As a sector of the national economy, higher education lost market share during a period when need for its services appeared to increase.

If we define need as a function of economic and technological change, then clearly higher education will become even more critical to all levels of government and all people as they struggle to remain competitive in the face of the new demands of the 21st century. Everyone agrees that higher education must play a vital part in economic and social development. However, not everyone agrees that state government must assign priority to higher education in preference to other needs when state revenues fall. In response to recessions, including the current one, state governments reduce appropriations for higher education just at the time when people need the services most and have fewer resources to finance access. These reductions explain the long-term trend mentioned earlier that will persist into the foreseeable future. The late Harold Hovey, an economist who devoted his entire professional career to analyses of state fiscal policies and expenditures, demonstrated conclusively that state revenues simply cannot grow fast enough during the next decade to sustain existing services at current levels and meet all identified needs, now expanded significantly by the emergence of homeland security concerns after 9-11. With growing need and rising demand for access coupled with declining state support, can higher education fulfill its public mission?

That question strikes me as one that will require our close attention during the next decade and beyond. During the 60s and 70s, when states appropriated a much larger share of their revenues to support higher education, the question of who benefits from and who pays for higher education typically elicited the response that the public should pay from 70 to 80 percent of the cost, with students and their families paying the remainder in tuition. Economists such as the late Howard Bowen, with most people in agreement, argued that the public should pay the majority of the cost because the public at large benefits most from an educated and engaged citizenry, a productive labor force, increased tax revenues, and the economic and cultural development stimulated by the creativity and productivity resulting from the research and training higher education provides. As a trade-off in exchange for the sacrifices they make in foregone income and the dedication of savings to pay for college expenses, those who attend college receive incidental benefits in the form of higher salaries and lifetime incomes and a higher quality of life. This argument persuaded policy makers to make the public investments in higher education that sustained the growth during the 50s, 60s, and early 70s.

Today the question of who benefits and who pays elicits a diametrically opposite response. According to economists and the general public, the student should pay the larger portion of the cost because the student receives the major benefits in the form of a higher salary, increased lifetime income, and better quality of life. Without question, the new argument rationalizes the reality of inadequate state revenues to satisfy all needs. The pressures on state dollars have increased dramatically to attend to the rising costs of health care for an aging population, the demand for an effective penal system, the escalating needs of K-12 education in response to reform and equalization efforts, and the need to refurbish aging infrastructure such as transportation and water systems. Because higher education has an alternative funding source from tuition and fees, policy makers shift the cost to the students and explain tuition as a form of user fee. To some extent, we in higher education have contributed to this reversal of rationale by emphasizing the purely economic returns to the individual and neglecting the larger social benefits of higher education. How often have you heard that a college education pays because of the return on the investment made by the graduates? But what about the public benefits? What will happen if we ignore them for an extended period? What about the return on investment by the society at large? This nation attained its enviable world position because of the commitment to public higher education. We must find ways to continue that commitment, however we manage the finances.

The situation in Montana mirrors that in the nation. Not all states have moved in lock-step to respond to recessions. Some have sustained a portion of their investments in higher education to assist with economic restructuring and recovery. For the most part, however, the trend I described has manifested itself in one way or another in virtually all the states. For The University of Montana, these developments have required aggressive efforts to diversify the revenue streams that support the institution in the performance of its public mission in education, research, and service to benefit the people of Montana. I will illustrate the changes that have occurred by reviewing a few numbers.

In 1992, the annual budget of the University totaled roughly $100 million, with $47 million dedicated to support the educational programs serving some 10,000 FTE students. The $47 million for educational programs consisted of about $3 of State appropriated funds for every $1 of tuition and fees. For 2003, taking account of the budget adjustments required because of the State revenue shortfall, the University will have a total budget of $255 million, with $97 million dedicated to support the educational programs that will serve about 12,000 FTE students. The $97 million consists of about $1 of State appropriations for every $2 of tuition and fees. Those who discern a trend toward what they call privatization of public higher education have this dramatic reversal in mind. In 1992, the State provided almost 34 percent of the University’s overall budget for the educational programs, research, auxiliaries (such as student housing and food service), public service, and technology transfer; and supported fully 73 percent of the cost of the educational programs. In 2003, the State will provide about 14 percent of the University’s total budget and only 36 percent of the support for the educational programs. As a matter of fact, despite a doubling of the University budget during the years from 1992 to 2003, the University will have only $1.4 million more State dollars in 2003 than in 1992, without taking account of inflation, but with 2,000 more students to educate. The budget for the educational programs more than doubled, but tuition and fees accounted for nearly 98 percent of the increase. Quite clearly, the additional revenue to fund the University has come from student tuition, research and technology transfer, auxiliary services, and private support, not from the State. This kind of radical change inspired Jim Duderstadt, former President of the University of Michigan, to comment that public universities have seen their status change rapidly from state supported to state assisted and finally to state located.

I have devoted attention to this dominant national and State trend in order to explain the context for University planning and action. In a phrase made popular by science fiction writers and a few astronomers, we are not alone. What happened in Montana occurred in other states as well, although the impact in Montana appears more dramatic because of the relatively low beginning point. In response, we have spent a great deal of time and energy during the last decade assessing the meaning of the trend line for the University. Because of that effort, we have a plan in place that will empower us to deal with these changing circumstances while serving the students attracted in record numbers to the campus. By working collaboratively in response to the fiscal realities of the 21st century, we have evolved an approach that will serve us well. We must become even more proactive and creative to stay ahead of the curve.

The approach we have taken requires careful attention to institutional priorities and goals in budget planning combined with an effort to educate the public about the implications of the movement toward privatization. Recognizing that the public at large had almost no awareness or understanding of the dominant trend, we took a leadership role in persuading friends in the private sector to establish The Alliance for Montana’s Future dedicated to informing Montanans at large that public higher education represents an investment in the future, not a drain on resources. Functioning as an educational organization and not as a lobbying group, the Alliance helped immensely during the recent Special Legislative Session by interacting with the policy leaders and urging them to consider the consequences of their actions in the struggle to restructure Montana’s economy. With ongoing assistance from the private sector, we must continue this educational campaign to make certain that all Montanans understand the critical role of higher education for the maintenance of economic and social well being. I believe that people will agree that public higher education has a special role to play. Because they do, they will have to choose from among three alternative responses to the ongoing trend and evaluate the consequences: 1) Continuation of the decline in State support; 2) stabilization of the current level of support; or 3) reversal of the decline and establishment of an appropriate level of public support. Of course, we prefer the third alternative. Whatever the public decides, however, we have the responsibility to control costs, stand accountable for the prudent use of available resources, and identify new means to sustain our public mission.

To conclude this portion of my comments, I want to explain briefly how we will respond to the reductions in the General Fund appropriations to the Montana University System mandated as a result of the revenue shortfall in the State. Until early spring, Montana remained one of only four states without revenue problems. Ultimately, however, a sharp decline in tax revenue forced some adjustments in Montana. In late June, the Regents voluntarily agreed to implement the Governor’s recommended recessions amounting to 3.5 percent of the General Fund appropriations to the University System. Anticipating additional reductions by the Special Session, the Regents authorized campus administrators to rely on tuition surcharges for up to half of the total budget adjustment, with the other half coming from actual budget reductions. In our earlier planning, we anticipated a total budget adjustment of $10.4 million for the System, or 7 percent of the appropriation. At the end of the day, the amount exceeded $12 million, including some pass-through funds in other agencies. At various times during the Session, the total soared much higher as the Legislators sought a balance. However, the Governor, Budget Director, and several Legislative leaders stood firm and insisted upon a number closer to the Governor’s recommendations. We owe these policy makers our gratitude for standing firm on our behalf. When the occasion permits, please let them know that we appreciate their assistance in these very difficult circumstances.

The Governor’s rescissions in June and the reductions mandated by the Special Session in August together require a budget adjustment for The University of Montana-Missoula of roughly $4.2 million. If we had left the smaller campuses in Butte, Dillon, and Helena to fend for themselves, we could have reduced the total by $550,000. Those campuses have only this year begun to restore their budgets to relative stability after extended periods of volatility. Had we required them to manage the reductions fully on their own, we would in all likelihood have had to provide assistance later. It seemed wise to take preventive and proactive steps now rather than to postpone payment certain to come later unless we act. The students on the other three campuses will still face significant tuition surcharges, as will students on the Missoula campus, to cover half of the mandated reductions in General Fund appropriations.

As we developed a plan to respond, we consulted student leaders on all campuses and they reluctantly agreed that the tuition surcharges offered the only viable means of maintaining high quality programs and responsive services. We informed all current and prospective students enrolled at or admitted to the Missoula campus of the reason for these additional charges. The surcharges of $2.50 per credit hour during Fall Semester and $10 per credit hour during Spring Semester will increase the annual cost of attendance for a student enrolled for 15 credits each semester on the Missoula campus by $187.50. However, the additional revenue generated by the surcharges will enable us to limit the net actual budget reduction to $2.2 million, thus protecting academic programs and services. Because of the attention we have given in the last few years to the development of an enrollment contingency fund, and thanks to the record enrollments we have this year, we can manage the current challenge without reducing budgets in the Colleges, Schools, and Departments across campus. We can, therefore, keep faith with the students by working together to deliver on our promise of an education second to none.

The institutional budget will change from our original plan as follows:

• Reduce the Contingency Fund by $860,000, leaving about $1.1 million in the account in the event of unanticipated problems.
• Redirect $400,000 from the Sustainable Futures Grant Program for the smaller campuses this year, leaving only $100,000 for planning grants. We will implement the Program next year as a proactive measure to avoid problems on the smaller campuses as the high school cohort group declines across the State.
• Commit $340,000 savings from improved business practices planned by Vice President Bob Duringer and his staff during the last year for implementation this year.
• Reduce deferred maintenance by $120,000.
• Extend network upgrades on campus over a longer period for a savings of $56,000.
• Reduce the utility reserve by $184,000, but leaving a reasonable remainder.
• Delay the computer replacement plan for staff by one year for $100,000.
• Commit unallocated funds of $140,000 recently received for enrollment increases.

With these actions and energetic effort to serve the students, we can manage and deliver the programs and services needed. Students will feel the effect by having to pay more than they had planned; we will do less than we had planned. If the situation had gotten worse, as appeared likely at various times during the Session, we could not have managed without severely impacting the programs and services to students. With your help and cooperation, and that of the students, we can get through the difficult transition and prepare for the future.

As you consider these facts and our situation, please keep in mind that every development has its up and down sides. Many of you will remember the difficult decisions we had to make over the last three years when enrollments failed to meet projections. Because of the decade-long movement toward privatization and its effect on the University’s budget for educational programs, enrollment shortfalls have a much more dramatic impact on what we can do than reductions in General Fund appropriations. Today a $1 reduction in General Fund appropriations has only half the impact of a $1 loss in tuition. Conversely, a $1 loss in tuition has twice the impact of a $1 reduction in General Funds. I think that comparison underscores the point that we must deliver on our promises to students. So long as the students continue to perceive fair value in the exchange of dollars for education, the University will do well. Much as we prefer more support from the State, we nonetheless have the responsibility to make certain that the University fulfills its public purpose and serves the needs of the students, Montanans at large, and the State of Montana. We must never forget that primary public mission.

PRIORITIES FOR THE NEXT FIVE YEARS

My vision for the next five years at The University of Montana-Missoula rests firmly on all that we have accomplished during the last decade. We cannot afford to rest on our laurels, but must act vigorously to create and nurture a University for the 21st century. Success in that endeavor will require that we remain on course and reap the benefits of the careful planning and diligent efforts of the last ten years. This decade of accomplishment has positioned the University well to thrive and compete under new conditions. But we must act with deliberate care to sustain the momentum. Failure to act now will undermine all that we have done.

In that regard, I do not agree with Breneman and Drucker that we must change our strategy and accept the future they describe. I disagree because I believe that we have the infrastructure and the faculty to compete well for external grants in support of graduate education and research. Moreover, with the assistance of The University of Montana Foundation, we can and do compete well for private support of our programs. These two sources help immensely, but they will not satisfy all the needs. We must continue to attract outstanding students by delivering on our promise of an education of the highest quality. We must also develop new streams of revenue to provide for qualitative improvements. We must stand fully accountable to the policy makers and people of Montana for prudent use of the resources the State makes available to us. And, understanding the fiscal limitations that exist because of conditions in the State, we have the responsibility and the capacity to assist with the restructuring that must occur to enhance the old and build the new economy. Finally, we must participate fully in the public discussion of the implications of the trend toward privatization of public higher education and its impact on Montana and Montanans.

Let me say as well that I believe we can help ourselves a great deal by more vigorously pursuing any advantages we can identify in the use of information technology. That does not mean that we should forget about quality and the human dimensions of a meaningful education and become a virtual university. Those who have thought seriously about this challenge tend to agree that the major benefits of the integration of information technology accrue to students on as well as off the campus. During the last few years, individual faculty and staff members on this campus have demonstrated the advantages of using information technology to serve discrete needs and enhance quality. I have in mind the Earth Orbiting Satellite Project, Gates Project, Digital Teaching Library, on-line Pharm.D. and M.Ed. Programs, and various courses and programs on campus improved by the selective and thoughtful use of information technology. In addition, a group of faculty and staff members have in the planning stages a large and complex project to digitize the curricula and libraries of the contracting countries. By choosing wisely and acting prudently, we can enhance the status of the University while contributing to its support.

For the next five years, we will pursue the following priorities.

1. Enhance the academic status of The University of Montana-Missoula by:
   • Raising expectations and adjusting admission standards to improve the student profile and assure that all entering students can benefit from the education we provide, while also taking steps to assure that we deliver on our promises to these students.
   • Pushing the University’s retention and graduation rates above the national averages.
   • Identifying and offering the array of programs responsive to needs within the community, region, State, and nation.
   • Recruiting and retaining outstanding faculty members committed to teaching, research, and creative activity to design and deliver our programs.
   • Increasing the diversity of the faculty and the students, with particular regard to Native Americans and international students, to prepare our graduates for productive and meaningful lives in an increasingly global society.
   • Graduating at least two more Rhodes Scholars and two more Truman Fellows.
2. Qualify The University of Montana-Missoula for Carnegie Classification as a Doctoral Research Extensive University by:
   • Doubling the number and stipends of graduate assistants.
   • Adding five new doctoral programs in areas selected to meet State, national, and international needs.
   • Increasing the number of doctoral degrees awarded to an average of at least 50 annually.
   • Attracting at least $70 million annually from external sources to support graduate education and research, with indirect cost recoveries of $10 million annually.
3. Stabilize the streams of support for the University by:
   • Meeting our enrollment goals.
   • Standing accountable for the wise and prudent use of State resources.
   • Contributing directly to the economic, social, and cultural development of the region and the State.
   • Applying information technology to enhance the competitiveness and responsiveness of the University.
   • Raising the University's endowment to $150 million, with
   • Six more Endowed Chairs; and
   • Additional Presidential Leadership Scholarships and Graduate Fellowships.
4. Raise the funds necessary to complete the renovation or construction of the facilities essential to continued success.
   • Student housing south of Dornblaser Field.
   • Renovation and expansion of the Chemistry Building.
   • Life Science Building.
   • School of Journalism Building.
   • Expansion of the Skaggs Building.
   • Renovation and expansion of the School of Law Building.
   • Bonnie Heavy Runner Native American Center.
   • International Center.
   • Montana Museum of Art and Culture.

I understand this agenda presents ambitious goals, but I believe that nothing short of its accomplishment will suffice. We have a great deal at risk, but we stand to lose a great deal more unless we rise to the challenge. I trust most people prefer a fighting chance to no chance at all.

CONCLUSION

I know through experience that you who have served The University of Montana share my commitment to and enthusiasm for it. I know also that you join me in welcoming this new group of faculty and staff members to help with our important work. The longer we serve together, the more we appreciate the perseverance and accomplishments of those who preceded us. Professor Edmund Freeman once described the University by analogy as a gnarled pine tree standing on a steep and rugged slope, visibly marked by the ravages of time, stately in its defiant resistance to all that had befallen it, and resolute in its reach for the sky. I think of that description often, certainly during difficult times, and also of the challenge given by the founding President, Dr. Oscar John Craig: “The University--It shall prosper.” It most assuredly has and will continue to do so through your dedication, commitment, and accomplishments.

Thank you for all that you do as we address the challenges before us. Have a great year!