First, however, a look at our history would be helpful. ASU is one of four institutions created in 1909 to serve as regional schools. Funding for these institutions was relatively modest initially compared to the state’s only university at that time, and the growth of state support for these schools has faltered with variations in the state economy.

Only one of the regional schools, ASU, has experienced significant growth in the last several decades. During this time, state funding failed to correspond to or recognize the growth in enrollment, change in role and scope, expansion of programs, and development of staffing requirements of ASU. As the result of larger numbers of students addressed by stagnant state support, the ratio of state dollars appropriated to fund each student at ASU lagged behind the similar ratio found at other universities. This circumstance, termed as “full-time student (FTE) funding inequity,” has persisted for decades and is still a fact in the ASU resource picture.

Several things are important to note about this situation:

• The FTE funding inequity is the result of growth over time, without corresponding increases in state funding over time to recognize and respond to that growth. While the pinch is felt annually as ASU develops operational budgets, the greater effect is cumulative: The annual base budget, upon which subsequent budgets are built, has not grown in proportion to the growth of the institution. Taken over the long term, a $2 million shortfall in funding in year one, for example, would have produced an additional $20 million (or more) over a decade if actually funded. The FTE student funding inequity seen now at ASU has persisted for previous decades and has resulted in a cumulative budget shortfall which could have built a new library collection, or purchased thousands of computers, or hired hundreds of professors, or have been used for other important purposes.
   
• These funding problems, and their solutions, are political. The Legislature has appropriated money over time without regard to the relative growth of universities, as they can be compared to each other in size, productivity, or scope of programs. This practice must be changed, if any semblance of equity is to be achieved in the money the state provides to support a student at any given state university.
   
• The equity problem is exacerbated when state funding for each student is considered including the two-year schools. In that cohort of institutions, extraordinary state support is given to some two-year school students, even exceeding funding for students at the universities. Some funding equity must be achieved within the two-year school appropriations, and in relative comparison of the appropriations among the two-year and the four-year institutions. Again, the problems, and the solutions, are political.

Fortunately, Senate Bill 12 of the 2003 General Assembly has focused attention on these issues of equity, and a Joint Legislative Committee has for several months studied funding for two-year and four-year schools. While the committee has not yet issued its final report, the conclusion is inevitable that significant inequities exist, and that the appropriation process must begin to address and remedy this situation. How can this be done through the appropriation cycle of the Legislature?

First, the Legislature must recognize relevant data which could be used to compare institutions by size, productivity, role and scope, and, hopefully, the extent to which historic funding shortages have affected particular institutions. ASU would fare well in comparison to other institutions in this examination.

Second, the Department of Higher Education, as a part of the executive budget recommendation, should acknowledge budget and funding inequities and advocate that a more rational and balanced system of funding higher education be embraced by the appropriators, and be reflected in the executive recommendation to the Legislature. A potential development in this regard will be addressed later in this article.

Third, the Legislature must continue to realize that an enormous investment of the people’s money has been made in the Arkansas public higher education system and for its students, but that continuing support, undiminished, is necessary to maintain that investment. If the goal is to improve the system and the success of students in it, then additional funding for higher education will certainly be needed, as additional funding for the schools will be needed. Many would hope that the public schools and public higher education would be considered simultaneously for funding needs by the state, and perhaps during the Special Session of the Legislature next week.

Fourth, as we consider the need for growth of the state’s economy as the necessary way to produce money to pay for public education at all levels, the higher education community must be regarded not only as a conduit to that objective but as an active and invited participant in the process. The state universities’ faculties and staffs have some of the best minds, the most productive research capabilities, and the most connected national networks to inform discussions about the economic future of the state. Moreover, the universities are today teaching those who will direct that future. Regrettably, the great resources of the state universities are underutilized in diagnostic, assessment, and planning activities conducted by the state. We could be helpful if invited to participate.

Such an opportunity may exist for the faculty and staff of Arkansas State University. The Governor has appointed a Blue Ribbon Committee to study the issues surrounding higher education in Arkansas. The committee, appointed in mid-November, had its first meeting yesterday, and will continue to meet through Spring 2004. Any outcome of the committee deliberations may be pertinent to the General Assembly, which will convene in 2005. While the Blue Ribbon Committee does not include representatives from state universities, the business and civic leaders who are on it may benefit from the counsel and expertise which could be provided from ASU. If representatives from the ASU faculty and staff are sought for service to the committee, I hope that you will consent to participate. Future First Friday reports will address activities of the Blue Ribbon Committee.

If state appropriations to the universities are not now equitable, and if the Department of Higher Education and legislative recommendations and appropriations thus far have not addressed equity issues, how can this situation be fixed? The answer may lie in the development of a funding recommendation and appropriation based upon an observable, measurable, and transparently defensible method of distribution of state monies to the universities. But the process which has been identified previously as ”The Higher Education Funding Formula” does not have these qualities.

Problems with “the old formula” have been that the Department of Higher Education funding recommendation has not been based upon a formula, the Legislature has not funded the department’s recommendation, the legislature has not used any formulaic method for appropriations, and that there has not been a logical, measurable, or defensible basis for appropriations, other than as a straight percentage of increase, or through political coalitions which produce appropriations. In percentage increases, the rich get richer but equity is not achieved. Political alliances have changed and will change because of term limits, but are no sure way to address equity concerns.

”The old formula” which was developed years ago was suspect to begin with, because it had so many extraordinary aspects that made it difficult to understand, hard to track, and almost impossible to use to forecast with accuracy for the purposes of planning and projections.

A ”new and improved” formula has been developed by Dr. Stanley Williams (formerly at ASU, and now on the finance staff at the Department of Higher Education) and his colleagues at ADHE, in conjunction with the four-year university presidents and chancellors. A draft of the formula and its projected outcome is included as an attachment to this report. A separate two-year school formula is to be developed, as is a rationale for funding higher education entities identified as non-formula units, such as the Division of Agriculture of the University of Arkansas, or the medical sciences campus. Please look at the attachment (in PDF format), and please let me know your observations regarding the proposed concepts in it.

There are several important aspects to the core concepts behind the proposed draft formula:

• Money should follow the student in some demonstrable way. In this case, that way is through actual enrollments.
   
• Distribution of money should be attributable and auditable. In this formula, a student in a class in a department representing a discipline equals a unit of value, the multiples of which result in measurable outcomes of funding.
   
• While the formula does not look backward to correct historical funding shortfalls, if used over time it will be useful to establish bases for institutional decision-making which relate to funding, or to the use of funds. Especially in the area of budget allocation and reallocation, the university budget and planning process will have data upon which specific decisions can be based.
   
• The formula can be used to measure and assure a relationship between productivity costs and potential funding distributions based upon those factors.

The new formula concept may be helpful at ASU to realize some operational goals and to help us obtain additional state resources. The formula recognizes that there are cost differences among the disciplines. We know this intuitively, and we observe this fact in the marketplace, but the formula may help us realistically account for these differences. We may have informed discussions about differentiated tuition levels; special fees; course loads and class sizes relative to return on investment; individual, departmental, and collegiate productivity; reallocation of existing resources; projections for costs of new programs; and, new funding requests based upon productivity.

As a distinctive aspect and potential benefit for ASU-Jonesboro, a premium is recommended by the formula for instruction generated at the upper division, graduate, and specialist levels. Since ASU-Jonesboro has these activities and two-year schools and some baccalaureate institutions do not, we may finally recognize a tangible outcome to correspond to our investments in these areas.

A clear funding advantage may accrue to the institutions which have and can sustain doctoral programs. The graduate students in, and those headed toward these programs, will bring monetary benefits which can be used in support of these activities, and in this way make a distinction between the “universities” and other post-secondary providers.

Much work has yet to be done with the draft formula concept. For example, if the formula were to be run on the existing productivity of this institution, we would gain $8 million or so per year as an addition to the annual base, assuming there would be enough money to fund the formula, about $80 million of new money. But suppose there is only $12 million of new money available. Can the formula concept be made to be scalable for different eventualities and still value the core concepts? These and similar issues will need to be addressed as the new formula is developed.

Of course, all of the potential resources necessary for our future also include gifts, grants, project support, beneficial partnerships, designated capital efforts, and a range of entrepreneurial activities, in addition to state support. These may be the subject of subsequent First Friday reports.

The current development of a new funding formula, the advent of a Blue Ribbon Committee for Higher Education, the start of an extraordinary session of the General Assembly to address the Lakeview decision, and the beginning of our own annual and biennial budget process have made this discussion of state financing for ASU a timely topic. State support is essential for our success, and will continue to be important throughout our future.

I would be grateful for your comments about this material or any other aspect of your interests in ASU. I can be reached at president@astate.edu.

Les Wyatt, President