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 (currently about $224/credit-hour at ACC). One of the main questions that a tuition policy should answer is how these tax-derived subsidies should be distributed.
Some recent figures relevant to
ACC finances (from 2005-06 fiscal year):
Revenues ($143 million/year): tuition/fees 29%, local taxes 37%, state funds 26%, other 8%
Enrollment: district
resident 73%, out-of-district Texan 19%, non-Texan 3, waived 5%
Tuition/fees per
credit-hour: tax-district Texan $53, out-of-district Texan $116,
non-Texan $203
ACC policy directs that the impact of tax-generated funds on student tuition be based 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 27% 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 target for tuition/fee charges to out-of-district students that is about 73% of average cost. (Because the policy provides for a phase-out period that is still in progress for the use of local funds for these students, the current out-of-district tuition/fee level is 52% 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
Summary of
current and planned distribution of per credit-hour subsidies, as provided by
ACC policy
[“target” values marked * are those which
would result if local taxes were used only for in-district students] |
|||||
Residence status under
|
State-funds subsidy |
Local-taxes subsidy |
Total Subsidies |
Tuition/fee total |
% of total cost paid |
Non-residents of
|
- none - |
- none - |
- none - |
$224/hr |
100% |
|
Texans
outside ACC tax district |
$61/hr |
now: $47/hr target:
none |
now:
$108/hr target:
$61/hr |
$116/hr $163/hr* |
52% 73%* |
|
Residents
of ACC tax district |
$61/hr |
now: $110/hr target:$120/hr |
now: $171/hr target: $181/hr |
$53/hr $43/hr* |
24% 19%* |
*assuming FY06 expenses and tax funding levels
with 19% out-of-district enrollment; actual future values may differ
Current ACC policy wording, implementing the
principles explained above:
A-4.
TUITION RATES (The Austin Community College Board
of Trustees adopted this policy 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, and 5/2/05.)
[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. It shall thus be the ratio of annual property-tax revenues to annual
in-district credit hours. If out-of-district
tuition must be raised to reach this level, the Board may phase in the increase
over time to avoid an unduly harsh impact on out-of-district students.
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 below-cost sectors have been approved by Board vote.
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 recent financial reports show to be about $224 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% [$135 to $200 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. At ACC, such “economy of scale” benefits are passed on to all students on an equal basis, regardless of residence status, and thus do not enter directly into the terms of the tuition policy.
But notice that 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 39% of ACC’s revenues, growth may be an economic drain. However, the economic effect of enrollment growth strongly depends on which programs are expanded, since programs vary substantially in cost. Further, although the level of local property-tax support is not directly related to enrollment, increased enrollment (especially in needed areas) would greatly assist the college in making a case for a higher tax rate.
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 rates 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.
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 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 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
Spring 2006 total costs (tuition plus required fees) for undergraduate
|
|
3 hours |
6 hours |
9 hours |
12 hours |
15 hours |
|
|
|
|
|
|
|
|
ACC
out-of-district (current) |
$348 |
$696 |
$1,044 |
$1,392 |
$1,740 |
|
ACC
out-of-district (target) |
$489 |
$978 |
$1,467 |
$1,956 |
$2,445 |
|
|
|
|
|
|
|
|
|
$752 |
$1,241 |
$1,730 |
$2,185 |
$2,626 |
|
UT-Austin
(liberal arts) |
$1,534 |
$2,301 |
$2,789 |
$3,486 |
$3,486 |
As the table shows, even the target
values for ACC’s out-of-district tuition/fee totals (the values at which all
subsidy from local taxes will have been phased out) are 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, especially when
population growth is taken into account.
Response: The fact asserted in this reason, that ACC’s tuition policy has resulted in some shift in enrollment toward a higher proportion of in-district students, is quite likely correct, even after allowances are made for annexations and possible other effects such as lax enforcement of residence rules, the greatly-expanded use of tuition exemptions, and the addition of central-city campuses such as Eastview.
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 Manor joined the taxing district show little sensitivity to price. For the 1999-2000 school year (with an average differential of $40/credit-hour), 20.3% of paid credit-hours were at out-of-district rates. But the percentages for the two following years (each with an average differential of $49/credit-hour) were 20.8% and 21.3%, an out-of-district proportion averaging 0.8% higher despite the larger tuition differential.
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
This
public-school model of financing has many imperfections, but it is not without
a rough justice in many cases. A
substantial proportion of ACC courses are taken by students who are living at
home with their parents (and thus are not so mobile after all). These families either have (if
in-district) or have not (if out-of-district) been paying ACC taxes for
many years. It will not improve the
justice of the situation to make the taxpayers also shoulder the costs for the
members of the tax-avoiding communities.
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 less than 10% of ACC enrollment is sensitive to the higher out-of-district tuition; this is generally 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 a 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 last revised 4/5/06 — authored by Hunter Ellinger