COF doesn’t circumvent TABOR

During my research for COF, I found several participants argued that because the principal purpose behind the COF policy was to circumvent Taxpayers Bill of Rights (TABOR).

As the funding crisis in Colorado’s higher education system emerged in the early part of this decade elected officials began to search for alternative ways to fund higher education. In 2004 the legislature enacted the College Opportunity Fund (COF). This Fund created a voucher system to replace some direct funding to public higher education institutions. The vouchers, referred to as stipends, were set at $2,400 per year per full-time student to be used to offset tuition. Vouchers were to be portable among Colorado’s public higher education institutions and some private institutions.

Why Has the COF Plan Not Fulfilled Expectations?

The WICHE report explains that vouchers were combined with service contract funding so as to protect the revenue and budgets of higher education institutions. Service contract funding undermines incentive effects of the voucher plan. DHE provides estimates of enrollments that then are used to determine voucher funding each year. When these projections underestimate the use of vouchers, the state covers any shortfall from fee-for-service fund. Money is redistributed from service contract funding to voucher funding so as to leave total state funding to that institution unchanged. Thus, enrollment growth is not actually funded by the state, and institutions have no incentive to increase enrollment. There is no incentive in this funding policy to induce institutions to compete for any students, let alone in-state students or underrepresented populations. WICHE found that even though the state designed performance contracts for each institution, there were no penalties or rewards for performance. There were no rewards for attracting more students, or for attracting in-state students, or for targeting underrepresented populations. There were no penalties if students failed to progress or graduate in a timely manner. The performance contracts became another bureaucratic requirement, without impacting decision making; the result was business as usual in higher education institutions. Universities also correctly anticipated that service contract combined with the voucher plan would leave their revenues and budgets unharmed. Community colleges that attracted more students did not receive the additional voucher money that was promised. Some universities that failed to attract the projected number of voucher students nonetheless received the voucher funding for those missing students. The amount of voucher revenue received by private higher education institutions was a little over $1 million, equal to a miniscule 0.3 percent of total voucher funds. It is not surprising voucher funding to private institutions has created little competition for public college and universities. Eligibility limitations on where vouchers can be cashed are too restricted. The legal monopoly held by public colleges and universities will not be broken by the small numbers of students and limited funding impacted by vouchers at two private universities. As long as these constraints are imposed we should not expect much incentive effect from vouchers through increased competition in the higher education system.

A New Stipend Plan

Funds currently allocated to higher education from the General Fund, and service contract funding, would be used to fund the stipend plan. Stipends would be extended to students attending all qualified postsecondary institutions, including for-profit as well as nonprofit institutions. The stipend plan would be phased in over five years to give higher education institutions time to adjust to the new system. A goal of the stipend plan is to create competition among all qualified postsecondary institutions. This stipend-based higher education system would create incentives for these institutions to deliver quality education at lower cost. Replacing the current system of direct state funding to higher education institutions with a stipend plan funding students and families will generate public support, and reverse the downward trend in state support for higher education. The impacts are certainly evident in current government subsidies to higher education, increased government regulation and intervention in higher education. As Friedman observed, many of the presumed benefits of higher education to a democratic society are difficult to measure, and controversial.  To the extent that college graduates capture the benefits of higher education in higher earnings, this represents a transfer of wealth from taxpayers to college graduates. If the state does subsidize higher education the funding should be in the form of student vouchers rather than direct state funding to colleges and universities. The vouchers should be extended to students attending all higher education institutions, private and public. A voucher system should create a more competitive higher education system in which institutions have an incentive to deliver quality education at a low cost.                                                                                                                                          Should Every Colorado Resident Student Be guaranteed a stipend?  A difficult public policy issue will emerge. Does the State further control costs by imposing a means test so that wealthy families are not eligible for a stipend, but lower income families are?  Does the State limit the number of credit hours that stipends will cover, or can a student enroll for many hours in addition to the minimum to earn a degree?

Two strong, opposing arguments present themselves:

1. Citizens already have paid the taxes used to fund stipends. To argue that some families who are eligible should receive smaller stipends in order to subsidize other students with higher stipends is an implicit tax. Stipends should be set at the same level for all students eligible for the stipends. The stipend plan should not be used to redistribute income from one Colorado family to another.                                                                                                                                            

2. Our nation is at risk now due to unsustainable entitlement spending. Stipends should be means-tested. Experience shows entitlements tend to grow over time, and are very difficult to cut during periods of budget pressure. Therefore, the legislature will lose even more control over the budget. Finally, some people choose never to pursue a college degree; universal stipends would redistribute income from these people to other people. For the time being, it is not necessary to resolve this debate in order to start improving Colorado’s stipend system.

Finally, I recommended that student who are out of Colorado state they can be eligible for COF, but under conditional acceptance. First, he/she should have a high GPA. Second, he/she should study in STEM which is required in marketplace. Third, he should work after his graduation in Colorado State at least 5 years.

Also, COF should find and set auto tracking system to reduce the cost of administration processes.