Accounting 101

[July 16th, 2008]

If a parent invested his child’s college savings in his own account, paid the tuition but kept the interest on the savings, that kid could have a good case for calling his old man a crook or a cheat.

And if the same parent followed the same financial path, but invested badly—earning far less interest on the principal than possible—that kid could probably get away with calling pops a dumb crook or a lazy cheat.

Oregon college students could be forgiven if those insults come to mind when they consider how state lawmakers have treated the tuition and fees they pay each year to the state’s seven public universities.

As a result of a decades-old formula that lawmakers have long refused to change, students who together pay about $500 million a year in Oregon tuition and fees unknowingly send their money to the state’s general fund. There, the interest earned on their tuition isn’t automatically returned to the state’s higher-education budget.

And instead of being used to make college more affordable, with lower student fees and additional services, the interest earned is available for everything from pay raises for state employees to corrections department expenditures.

Now students and their advocates say they’re optimistic there’s finally enough pressure to change that, even though a similar proposal failed to make it to a vote in the 2007 Legislature. Last Friday, the Oregon State Board of Higher Education gave new momentum to the push to keep the interest on students’ tuition by including the policy change in its legislative agenda when it approved its proposed budget for the 2009-2011 biennium.

“Students make these huge investments in higher education,” says Courtney Sproule, spokeswoman for the Oregon Student Association. “It only makes sense that the money that the state earns off their dollars goes toward ensuring that they have the services and course selections they need to graduate.”

Higher education officials agree, but say it’s out of their control unless the Legislature changes the rules.

Tuition now generates about $7 million in annual interest compared with an estimated $10 million to $12 million if the tuition were invested by the Oregon University System separately, says Jay Kenton, vice chancellor for finance and administration for the system.

Support for the change also comes from unlikely sources, some of whom use non-academic—and frank—terms to blast the state’s current accounting methods.

“It’s a horrible policy,” says Carl Vance, chief financial officer for Portland’s private Lewis & Clark College, which competes for students with Oregon’s public colleges. “I don’t know of any other state that does that.”

In Salem, the principal proponent for making the change is Rep. Phil Barnhart, (D- Eugene), whose district includes small parts of the University of Oregon. Barnhart says letting higher education officials keep the interest would more accurately represent student and taxpayer contributions to the state’s higher-education budget.

“The actual contribution of the taxpayer would be revealed to be lower than it appears to be,” Barnhart says. “The more accurately the state represents its finances, the clearer the choices are we have to make.”

So far some lawmakers have resisted making the change because doing so would require giving up some control over the higher-education budget, says Rep. Vicki Berger (R-Salem).

But Kenton says the 2009 session may give the university system what it wants. “I think we’re closer now to getting it than we’ve ever been,” Kenton says. “Typically you have to knock on the door a couple of times before anyone answers.”