‘Eating our seed corn’
Pawlenty curtails the high costs—and returns—of higher education

by Paul Morel

When Governor Pawlenty slashed state budgets several weeks ago, one of the largest victims of his budget balancing actions was state funding to higher education. In total, the Minnesota university system lost $50 million, with $25 million each taken from the annual budgets of both the University if Minnesota and the Minnesota State Colleges and Universities. Branded by the governor as nonessential state services, the higher education system now faces some tough choices about how to fulfill its mission of educating Minnesotans without raising tuition to unreasonable levels.

“The last two years the University has raised tuition in the neighborhood of 30 percent, and that’s a huge hit on students and families,” said State Rep. Jim Davnie. Davnie represents the Riverside area, which adjoins the University’s West Bank Campus. “We’re running the risk of making the university system unavailable to Minnesota kids. It’s an important value in Minnesota that any kid who can do the work can get into the University of Minnesota.” Fortunately, University President Robert Bruininks has said that he will try to avoid passing the school’s current budget problem along to the students in the form of still higher tuition rates.

However, the budget trouble handed down from the governor’s office a few weeks ago is just part of an ongoing decline in state funding for the University. The school also weathered a $25 hit in the last biennium budget cycle under the Ventura administration. Members of the University’s board of regents fear that the funding problems will only escalate as the state attempts to iron out a whopping $4.2 billion deficit in the coming biennium.

Many fiscally conservative lawmakers have singled out University funding as an unnecessary expense. Jesse Ventura famously asserted during his campaign for governor that any student who has the intellect to attend college should be able to figure out how to pay for it. His comment reflects the difficulty some have in seeing how the state as a whole profits from an institution like the University. How might someone in Brainerd benefit, one might ask, from helping a South Minneapolis student get a degree in biology? If an individual benefits from an education, shouldn’t that individual bear the full weight of the cost of that education?

However, the capacity of the University to produce a highly trained workforce for the state both attracts jobs and encourages entrepreneurship. In the long run, those high-income earners deposit large sums in state coffers via the income taxes that they pay. Furthermore, there is a secondary effect on the economy from the salary that those individuals earn: A Minnesota-trained doctor makes purchases with his or her salary, paying sales taxes and putting money in the pockets of other state businesses: those businesses he or she buys from then also pay income taxes, pay their employees, who make purchases of their own, and so on. This cycle is part of a well-known concept in macroeconomics called “the money multiplier.” In time, the taxes generated by all of those business interactions will far exceed the cost of the education.

Davnie and others take issue with the governor’s short-term approach to economic recovery because of the way it undercuts this vital wealth-generating process. “The University of Minnesota is a huge economic engine for the state,” he explains. “When we damage that institution and make it harder for students to attend, we’re damaging the state, and we’re actually making it harder in the long term for the state to pull out of the current economic problem—to start generating again the revenues for the programs Minnesotans want. We’re eating our seed corn, and that doesn’t make sense.”