Summary: Austin Community College has a policy that students residing outside the College’s taxing district should be charged prices close to the average net cost of instruction (including overheads, but after subtracting state reimbursements), even though this results in ACC out-of-district tuition/fee levels more than twice as high as those for other students. This policy reflects a desire to focus the tuition subsidies enabled by property-tax receipts on students residing within the taxing district. There are arguments for and against this approach, but ACC has been successful in four annexation elections and a major tax-rate election since it adopted this policy in 1996.
In addition to the tuition received from students or their parents, Texas community colleges receive substantial revenue from two tax-supported sources: the state government and the “taxing district” portion of their local service area, which communities can voluntarily vote to join in order for their students to pay lower tuition. These state and local tax funds are used to subsidize student tuition, which would otherwise, on the average, have to match the average cost of instruction (about $266/credit-hour at ACC for FY08). One question that a college’s tuition policy should answer is how these tax-derived subsidies will be distributed. According to the “policy governance” principles advocated by John Carter, making such decisions is one of the main tasks that a college’s Board of Trustees should address.
Some recent figures relevant
to ACC finances (from the 2007-08 fiscal year):
Revenues $181 million/year:
local taxes 42%, tuition/fees 26%, state funds 26%, other 8%
Enrollment 22,680 FTE: in-district residents 70%,
out-of-district Texans 26%, non-Texans 4%
Tuition/fees per
credit-hour: in-district Texan $54, out-of-district Texan $133,
non-Texan $285
ACC policy directs that the impact of tax-generated funds on a student’s tuition be based mainly on the source of the tax funds and on the relation of that source to the student’s residence status:
[a]
By ACC policy, neither state nor local tax-generated funds are to be used to
subsidize students who do not qualify as
[b] State funds (the “reimbursement” payments based on enrollment levels that currently cover about 26% of ACC’s average cost) are used by ACC to subsidize the tuition of all students who qualify as Texas residents, whether they reside in the college’s taxing district or not. This results in a “fair-share” target for tuition/fee charges to out-of-district students of about 74% of average cost, which current policy reduces to about 63% to allow for marginal-cost efficiencies. Because a transition period that is still in progress, its FY08 out-of-district tuition/fee level was about 50% of average cost.
[c] Local
property-tax funds are directed by ACC policy to be used to subsidize the
tuition only of students who qualify under state law as residents of the taxing
district. The resulting tuition/fee
level for in-district students, who are of course also
*Based on FY08 expenses, tax funding levels, and
out-of-district enrollment; actual future values will differ since college
expenditures per student are increasing, due in part to expansion of expensive but
needed programs such as nursing.
The May 2008 annexation of Round Rock ISD adds about $8 million/year in
tax revenue and switches the residence status of about 2,000 students from out-of-district
to in-district, reducing out-of-district enrollments to less than 20%..
Current ACC tuition-policy,
implementing the principles explained above:
G-9. TUITION RATES (The Austin Community College Board of Trustees
adopted this policy [then numbered A-4] on April 23, 1996 and amended it on
9/9/96, 10/6/97, 4/6/98, 9/14/98, 5/1/00, 10/2/00, 8/5/02, 5/2/05, and 7/9/07.)
[1] The tuition rates for in-district college-credit students shall be
set by the Board. Except when the Board explicitly directs otherwise, tuition
rates for other students shall be set by the President in accordance with this
policy. To the extent feasible, general charges shall be assessed as tuition.
[2] To maintain a tuition differential that is fair both to ACC
taxpayers and to Texas-resident ACC students who live outside the taxing
district, the credit-hour differential for such students shall reflect the
local tax effort in support of in-district students, adjusted to partially
reflect the estimated marginal cost of serving all students in order to balance
taxpayer fairness with accessibility for out-of-district students. It shall thus be, to the nearest dollar, 80%
of the ratio of annual property-tax revenues to annual in-district credit
hours, except that any year-to-year increase in the differential shall be no
more than 8% of out-of-district tuition. While
financial circumstances may necessitate consideration of tuition increases, the
College will assist students in anticipating increases by generally approving
them only once per year as part of development/approval of the next year’s
annual operating budget. The President is authorized and encouraged to use any
available method to lessen the impact of this tuition differential on
economically-disadvantaged students.
[3] The further per-credit-hour differential in tuition rates for
students who do not qualify as
[4] The President may adopt rules waiving all or part of the tuition
and/or other charges for senior citizens or students enrolled under a
joint-credit agreement with a school district, with an annual report to the
Board on the nature and extent of such waivers.
[5] The President shall set charges for non-credit and
continuing-education classes that at least cover operational, indirect, and
overhead costs, except where specific programs have been exempted from these
criteria by Board approval.
Marginal and average costs:
All organizations must over the long term receive revenue sufficient to fully cover their costs of operation. This implies that ACC’s average revenue per student must meet or exceed its average cost per student, which FY08 financial reports show to be about $266 per credit-hour. If revenue is lower than the average cost for some people, it must be higher for others.
The cost of serving additional students (i.e., the “marginal” cost, estimated as from 60% to 90% [$160 to $240 per credit-hour] by various methodologies) is somewhat less than the average cost. For example, a college with annual fixed costs of $25 million and marginal costs of $3,000/student would have total costs of $40 million/year at 5,000 students, an average of $8,000/year/student. However, for 25,000 students the average drops to $4,000/year per student, since the fixed-cost overheads are spread over five times as many students.
But if the revenue per student at the 25,000-student college is set at the breakeven $4,000/year value, the profit per additional student is only $1,000, since 3/4 of the additional revenue is absorbed by additional costs. This is typical, and explains why growth does not confer as much economic benefit as might be supposed at first glance even if all sources of revenue are proportional to enrollment.
When some large revenue sources are not based on enrollment, as is the case for the local property taxes that form 42% of ACC’s revenues, growth may be an economic drain, diluting the subsidies that can be supplied to each student. However, the economic effect of enrollment growth strongly depends on which programs are expanded, since programs vary substantially in cost per student. Further, although the level of local property-tax support is not directly related to enrollment, increased enrollment (especially in areas of study for which the community sees an urgent need) would greatly assist the college in making a case for a higher tax rate.
ACC passes on such “economy of scale” marginal-cost benefits to all students on an equal basis, regardless of residence status, and they thus do not enter directly into the terms of the tuition policy. However, the potential existence of such marginal effects led the ACC Board to limit its target for out-of-district tuition to slightly below the full “fair share” level. The gradual transition toward the fair-share level that is currently under way (in which the out-of-district tuition differential is increased by about $10 each year) will not reach even this lower limit until about 2015, at which time the question of the appropriate limit may be reviewed.
Motivations for the ACC tuition policy:
The reasons for the adoption of ACC’s approach to out-of-district tuition were both financial and political. Of course the Board feels a special obligation to the residents of communities that are willing to provide tax support for college operations. However, the intent of the policy is to treat everyone involved fairly – for example, the policy provides that out-of-district tuition goes no higher than can be justified by principles of fairness, even if the college could make more money by charging an even higher price to nonresidents of the taxing district, as is in fact the case.
As important as the principle of tax accountability is felt to be, it is not the only issue of concern. ACC policy makes some exceptions for economically-disadvantaged students and high-school students in areas outside the taxing district.
The following paragraphs examine a variety of particular issues that have been brought up in discussions on this topic. They of course mainly present the viewpoint that led to the adoption of the ACC policy, but they may serve to clarify, for people newly considering this topic, what issues need to be addressed in some fashion for any proposed changes to be seen as being adequately supported. First, the main arguments against use of local tax funds to subsidize out-of-district tuition are given. Then the other side of the argument is examined.
Since ACC’s tax rate can only be raised with voter approval, student tuition is the only significant source of income that the college can change at its own discretion. All subsidies and expenses that do not produce a compensating economic benefit to the college thus have to be covered by correspondingly higher general tuition/fee levels.
In addition to elementary fairness, such reassurance is particularly important when the college is planning to ask local taxpayers to increase their level of support (e.g., a bond issue).
Communities have little reason to join the taxing district if their students are already being subsidized by other communities’ taxes. This is especially true for those immediate neighbors who, because it was cheaper for ACC to build on the edge of the district, already have ACC campuses as close to them as a campus is to most of the district’s inhabitants. ACC’s high out-of-district tuition played an important part in convincing Manor ISD and Del Valle ISD to join the ACC district, and helped inspire support from a majority of the voters annexed in the May 2005 election. In all these cases, no new campus was promised as part of the annexation. The May 2008 annexation of Round Rock ISD promised a campus (clearly justified by enrollments), but the prospect of cutting tuition by over 60% was also a strong motivating force.
In addition to ensuring that communities pay their fair share of the college’s costs, membership in the taxing district ensures that students and their families get economic help at the stage in life when they need it most. In the long run, it is no favor to out-of-district students to encourage their communities to remain without local tax support for higher education.
One
way to assess ACC costs for out-of-district students is to compare them to the costs
at state colleges and universities, which are not supported by local taxing
districts. Here is a table showing Fall
2008 total costs (tuition plus required fees) for undergraduate
|
TUITIONS
FOR FY09 |
3 hours |
6 hours |
9 hours |
12 hours |
15 hours |
18 hours |
|
|
|
|
|
|
|
|
|
ACC
out-of-district (FY09) |
$426 |
$852 |
$1,278 |
$1,704 |
$2,130 |
$2,556 |
|
ACC
out-of-district (target) |
$504 |
$1,008 |
$1,512 |
$2,016 |
$2,520 |
$3,024 |
|
|
|
|
|
|
|
|
|
|
$998 |
$1,634 |
$2,270 |
$2,888 |
$3,497 |
$4,106 |
|
UT-Austin
(liberal arts) |
$1,780 |
$2,629 |
$3,236 |
$4,045 |
$4,045 |
$4,045 |
As the table shows, even the target
values for ACC’s out-of-district tuition/fee totals (the values at which most subsidy
from local taxes will have been phased out) are many hundreds of dollars lower
than corresponding totals for
On
the other hand: potential arguments FOR some subsidization of
out-of-district tuition
Although ACC’s policy has a clear rationale and seems a natural response to the interests of local taxpayers, it is very unusual among Texas community colleges, most of which provide a much lower additional discount for in-district students (compared to out-of-district ones) than their tax receipts would imply under the principle of reserving local taxes for the benefit of local students. While it may sometimes be that the interests of taxpayers are being ignored, in many cases the differences in approach between colleges just reflect differences in circumstances. Several cases are examined below (roughly in declining order of perceived merit), with accompanying explanations of why the argument was found to be not applicable to ACC, or was felt to be better addressed in some other way.
Even if an
adjoining community is not interested in providing public tax support for its
community-college students, there are humanitarian reasons to be concerned
about the impact of higher tuition on that community’s low-income families, who
particularly need education and who generally lack the political power to get
the community to join the taxing district.
Response: This area is
a good candidate for some well-focused subsidy from local taxes, which at
modest levels can be justified to local taxpayers as helping to lower burdens
on other local institutions (such as Brackenridge hospital). ACC policy authorizes and encourages the
college president to lower tuition or provide scholarships for such students,
as well as to offer no-tuition dual-credit courses in out-of-district high
schools anywhere in the service area.
However, a general subsidy is not appropriate, because most
out-of-district suburbanites are at least as prosperous as the taxpayers of the
ACC district.
Raising
out-of-district tuition has decreased demand (relative to in-district
students), as is shown by the relative movement of the out-of-district tuition
differential and enrollment proportion over the last ten years when population
growth patterns are taken into account.
Response: The fact asserted in this reason, that ACC’s tuition policy has resulted in some shift in enrollment toward a lower proportion of out-of-district students than would otherwise be the case, is quite likely correct, even after allowances are made for annexations and other effects. (Even so, the proportion of out-of-district students has been rising because most new residential development in the region has been outside the ACC taxing district.)
However, the implication that this decrease in out-of-district enrollment has been a financial burden to the college is wrong. Even if the possibility of coaxing other communities to join the taxing district is ignored and a generous estimate is made for the sensitivity of out-of-district enrollment to tuition level, it is clear that the enrollment decreases so far have been more than balanced by the increased revenue per student and the decreased expenses required to serve the fewer out-of-district students. A secondary effect has been to free some space in crowded programs for in-district students.
In any case, the data for the years since approached was adopted show little sensitivity to price. In years where out-of-district tuition was raised substantially, out-of-district enrollment still increased. Years when out-of-district tuition was not raised were very similar to other years. Thus the increase in out-of-district tuition differential from 25% of in-district tuition/fees (FY94) to the 135% of in-district tuition/fees (FY08) seems to have had little impact on out-of-district enrollment levels.
It can be argued that in a mobile
society the legal residence of students for educational purposes isn’t an
appropriate basis for college tuition charges, since there is no way of telling
which communities will benefit from the education provided.
Response: This is an excellent argument for why it would be good public policy for the Legislature (and Congress) to provide a larger fraction of the support for community colleges, with much less reliance on local taxes. Several states either require all communities to be part of a community-college taxing district or provide almost all their governmental funding for community colleges from statewide funds. Through their professional associations, ACC and its trustees regularly work for such policy changes at the state and national levels.
But
at any given time, ACC must accept whatever amounts of general funding and
mechanisms for extending them that the higher levels of government see fit to
grant. In
In
addition to financial economies of scale, larger enrollment can make it
feasible to offer more educational programs.
Such effects are very important for small colleges, which could thus reasonably
decide that additional students from the surrounding area are conferring a
benefit on local students, and therefore merit some tuition subsidy from local
taxes if this is necessary to promote their enrollment.
Response: ACC, one of the largest community colleges in the country, does not need additional students. Also, history has shown that well under 10% of ACC enrollment is sensitive to the higher out-of-district tuition; this is not enough to affect program feasibility.
For small
towns, the presence of a community college may make a substantial economic
impact via both the direct local expenditures of the students it attracts from
outside the taxing district and from the indirect effects of the portion of the
college’s local expenditures that is supported by out-of-district
students. An out-of-district tuition
subsidy from local tax funds may be a net benefit to the community’s finances
if such development causes sufficient additional sales and property taxes (to
the community as a whole, not just directly to the college).
Response:
Most of
the larger
Response: ACC is relatively isolated from other community-college districts, eliminating the need for such a mechanism, which would be better handled by inter-district agreements in any case.
Areas in
Texas that are not within a community-college taxing district are divided into
non-overlapping “service areas” assigned to colleges, which typically offer
some services such as core-course evening classes in high-school facilities,
when there is sufficient demand. When a
community in one college’s service area borders the service area of another
college that has substantially lower out-of-district tuition, it will have a
natural temptation to request that it be transferred to that service area if it
feels that it would get equivalent services at lower cost.
Response: There is no reason (except perhaps misplaced possessiveness) for ACC to object if such a community wishes to work with a different college, which may well have legitimate reasons (such as those listed above) for being willing to subsidize out-of-district students. But ACC has already reached the size at which expansion of the region it serves provides little if any benefit to the people within its district. While ACC should be willing to provide services to neighboring communities so that they can avoid the high costs of starting their own colleges, there is no reason to strive to retain communities whose residents are unwilling to pay, one way or another, their fair share of the costs.
Most of
the classes offered at outlying sites are basic, lecture-only classes taught by
adjuncts, who are paid less than full-time faculty, and the level of on-site
support services supplied is not as extensive as that on the main campuses.
Response: The fundamental flaw in this argument is that the great majority of classes taken by out-of district students (more than 80%) are taken on regular ACC campuses, at which the out-of-district students are treated just like everyone else, and have access to exactly the same services. Thus off-campus costs are irrelevant to the question of the appropriate tuition for such students.
But the off-campus sites are not particularly cheap to operate in any case. ACC must pay operating expenses to the school district and to an on-site administrative staff. Average class sizes are significantly smaller than those of similar on-campus classes, so the overhead and instruction expenses are averaged over fewer people. Many support services, including curriculum development and instructional supervision, are supplied from afar, often requiring more communications labor and travel than for campus-based students and faculty.
So by any
reasonable measure, off-campus courses are less efficient than the comparable
on-campus evening courses (almost all also taught by adjuncts, but in fuller
classes). Offering courses at remote
locations is a useful public service, but such courses do not have a valid
economic argument for lower tuition as well.
Leaders of
neighboring communities are unhappy that students from their community are
being charged substantially more than in-district students. This reduces their support for ACC.
Response: It is unlikely that any community will take the painful step of imposing another tax on itself unless it is even more unhappy with the higher out-of-district tuition that joining the college district will avoid. So there is going to be some discontent in any case – but the ACC Board was unwilling to try to win the approval of other communities at the expense of the taxpayers who have already joined its district.
This document was last revised 8/5/2008 — authored by Hunter Ellinger