The Future of Higher Education in Texas

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Testimony to the

Select Commission on Higher Education and Global Competitiveness

Austin, Texas October 28, 2008 Larry R. Faulkner

President, Houston Endowment Inc. President Emeritus, The University of Texas

Chairman Hunt, members of the Select Commission, it is a privilege to have time before you today to talk about the future of higher education in Texas. None of you will be surprised by my view that very few matters are of equal importance to the future of our state and its people.

A very large portion of economic wealth and social well-being in America is rooted in what people learn and can do because of their contact with institutions of higher education, or because of materials and processes built on discoveries and inventions that happen in these places.

In the years ahead, the competitive edge ahead will be found in even greater measure in people -- and in what they know. The new Texas workforce must know more than the current one, and more than others in America. Also, more of the inventions that will bring new energy to the economy must be born in Texas.

Our community colleges, regional universities, and research universities can give us these things, if we are smart about developing them and holding them accountable. Different kinds of institutions provide different products, so we need to cover several bases at the same time. With smart investment, we can be both economical and effective.

• Community colleges develop a broad range of skills important to the economy and also provide ready, elastic capacity for much of the future workforce to enter higher education. We need to develop the capacity of the community colleges, and we need to insist on improved success in moving students toward productive outcomes. • Regional universities produce tens of thousands of new graduates every year in

Texas. We need this developed talent, and we must enable these universities to handle a growing demand, with improved success rates toward graduation.

• Major nationally competitive universities produce our most advanced graduates and generate research with real business and social impact. We need these universities to achieve even better levels of success with their students, and we need to equip them to compete and win in the battle for talent and research dollars nationally. We even need a two to four regional universities to rise into this group over the next three to five decades.

In my testimony today, I have been asked particularly to address this last matter – the need for nationally competitive universities in Texas.


As I begin, note that I will not use terms like “flagship” or “top-tier” or “tier I,” because they are not descriptive labels. What we mean -- if we are talking about the genuine article – is a university that is seriously competitive at the national level -- competitive for faculty, competitive for students, competitive for national funding, competitive for ideas. Here are the marks of such an institution:

• It recruits a faculty on a national basis in competition with other nationally recognized universities.

• Its faculty is commonly pursued by the most highly regarded institutions in the land, but it can hold many of those members even in the face of such outside offers. • In other words, it can attract and hold top-level talent in national competition. • Students actively seek admission to the institution on a national and international

basis, at both undergraduate and graduate levels.

• The institution is able to draw significant federal funding for research in the most competitive federal programs. The word “significant” here means something like 10% or more of the whole university budget.

• There is clear evidence that ideas, discoveries, and advances made at the institution have a substantial influence on the evolution of major fields of knowledge, as they develop globally.

If it looks, walks, and quacks like this, it’s a nationally competitive university. If not, it’s not. A state or community cannot make one by enacting a law, or passing a resolution, or printing new banners, or winning a sports championship, or pouring a lot of money into a place. The job is done by having leadership with an eye for talent, patient investment, and a strong habit of continuous improvement. Luck helps, too.

National competitiveness is a hard standard to meet, and it takes a long time to get there. Most people in this business would agree that the fastest trip on record is that of the University of California at San Diego, which went from its founding to genuine national competitiveness in about 30 years. Maybe a new one could rise faster, but no leader would be either wise or realistic to count on that.

About a hundred of these universities exist in the United States, and Texas is generally acknowledged to have three: The University of Texas at Austin, Texas A&M University, and Rice University. Texas, with about 8% of the American population, has 3% of the nationally competitive universities. California has nine such institutions, six of which are public. It has 12% of the nation’s people and 9% of the top universities. There is more to the Texas picture than just these numbers, because of the size of our public universities and because of the exquisite free-standing medical institutions in Texas, which contribute powerfully to our overall research strength.

Does it matter if Texas has any of these institutions at all? You bet it does.


take my word for it. Just look nationally at where the growth is and see how many places with future-oriented growth are built up around nationally competitive universities – San Diego, Silicon Valley, Seattle, Boulder, Salt Lake City, the Twin Cities, Madison, Columbus, Albany, Boston, the Research Triangle, Atlanta, Gainesville, Austin. And this is not even speaking about what USC, UCLA, and Caltech do for L. A., or Berkeley and UCSF for the Bay Area, or what Northwestern and the University of Chicago do for Chicago, or NYU and Columbia for New York.

• These universities are magnets that draw young people of talent from a large area, even a whole nation, and concentrate them into an interactive, creative community. Much of this talent is retained in the home area of the university.

• These universities develop knowledge and skills in their students, sometimes rare skills that can be established in few places, so that their graduates are capable of making much more valuable contributions to their families and their society.

• These universities recruit and sustain an extraordinary faculty, who contribute to the creation of a vibrant community outside the university itself and can bring expertise to the solution of public problems or – as inventors and consultants – to the service of commerce and industry.

• Such a university has great power to influence the attractiveness of its region as a place to live and work, through the ability, leadership, and creativity of its graduates, through its effect on the intellectual life of its community, through cultural and artistic events that it sponsors, and through its ability to build identity.

• They also have convening power. They can bring people together from all sectors of society to address the issues of the present and future. In this way, and in others, universities become seen publicly as places where the future is created. The reputation and the reality are both valuable the region that hosts the university. First of all, Texas needs to hold on to the nationally competitive universities that it has. They have been built at high cost over many decades. They have proven their worth to Texas at large. Every dollar spent on them has brought many more dollars of public benefit and many benefits beyond dollars. They can be easily disassembled. All that is required is for the most mobile talent to decide that the future is somewhere else, that the tools they need are

somewhere else, that the well-being of their families is significantly better somewhere else. “Nationally competitive” is not just a label for one sector of higher education. It points to a tough, high-stakes game that never ends.

What about the talk that Texas might need more than three nationally competitive

institutions? I am a believer that it does – partly as a matter of capacity and partly to reinforce the strength of its greatest cities.

First, let me talk about the capacity:

We have a growing population, and we will need that capacity, certainly by the time we can actually generate it.


Also, Texas will need that capacity to secure an identity in the mind of the nation and the world that this is a major destination in the world of research and invention – that this is a prime home for the world’s best teaching and research talent – that this is a place where the future is created. California and Massachusetts have that identity now. Texas has made tremendous inroads on these dimensions, but we are not yet seen as a distinctive leader. We can get there, but not without two to four more nationally competitive universities.

Now let me turn to the cities:

In my lifetime, the big Texas cities have grown from “wannabes” to genuinely powerful centers of global influence. Both Dallas-Ft. Worth and Greater Houston have more than 5 million residents and huge economies. But neither has a nationally competitive public university. Neither has access to the manifold benefits that such institutions could bring to their future development. Houston does benefit mightily from Rice’s presence, for Rice is an exquisite university; however it lacks the scale needed to meet high-level educational and research needs in the area. The Metroplex and Greater Houston, together with Metropolitan Miami, are the largest cities in America without adequate scale in nationally competitive universities.

I believe that this is a problem for Texas that needs to be addressed with a serious, wise, well-focused effort. The most important targets for development of new institutions ought to be Houston and Dallas-Ft. Worth.

In a practical, business-like world, Texas would, through public mechanisms, choose sites for the institutions to be driven toward nationally competitive status, select leadership capable of guiding the chosen universities down the long road, and steadily provide the special capital that will be necessary to achieve positive results. With good choices of siting, leadership, recruited talent, and program development, there is a high probability of success.

Unfortunately, the public mechanisms that bear on this goal for Texas are neither practical nor business-like. After more than a decade of watching closely, I doubt that we have a constitutional structure or political processes that could allow us to choose a few sites, to stay with those choices over decades, and to feed them the required special capital.

Even so, I urge you not to be deterred. A very important goal for the Select Commission is to find a clear, workable path for Texas to follow in establishing at least a couple of new

national competitors. Use my pessimism, if you will, to test the realism of your recommendations.

Let us recall that Texas has succeeded twice in bringing public universities to national prominence. This was possible literally because the framers of the Texas Constitution of 1876 chose the sites, embedded them in the Constitution, and also embedded there a mechanism for feeding the special capital over decades and decades. It took eight to ten of those decades – nearly a century.

As you examine the task, it will take similar wisdom in public decision-making plus some mechanism to insulate the choices from the ebbs and flows of politics once they are made. These are not quickie public works projects. Success will be found only if public hopes for the future of Texas are effectively wrapped around these institutions and the goals for them,


Can you do it? I fervently hope so.

If, on the other hand, you judge that we somehow do not have the tools or the stuff in our public life to work this way, then the best I can offer is to suggest that you consider a revision to the formula funding system that would allow strong competitors to build on their success, so that one, two, or three can emerge onto the national stage. This will take longer and probably will cost more in the end, but it has a chance to work.

In an appendix to my written testimony, I make some specific suggestions about how such a system might look. In fact, those suggestions are meant to encompass not just special capital funding for the evolution of new nationally competitive institutions, but instead to represent a comprehensive approach to the improvement of Texas higher education in all types of

institutions. The package goes beyond revision of the formula-funding system to include a substantially revised concept of the role of the Texas Higher Education Coordinating Board and a call for periodic assessments of cost performance by a high-level body. There is not time here for me to present all of this. Also, the package goes well beyond what I was asked to cover, so I will leave it for you and your staff to examine in a quieter time.

Please let me close by thanking all of you for your attention to the future of Texas higher education. Nearly all of you have been colleagues of mine for a long time. I know your wisdom and commitment to our state and its people, and I wish you special wisdom and strength as you undertake your work.



Suggested Plan for Strengthening the Performance of Texas Higher Education

The suggested changes are in three parts: • incentive-based formula funding • a restructured Coordinating Board

• a joint biennial review of cost of delivery

Incentive-based formula funding. A consistent principle of Build Texas should be to reinforce institutions that succeed in improving their performance. That can be done with a continued reliance on formula funding, but we need to reform the formula system so that it recognizes -- with clear incentives -- success toward key goals. However, the goals are distinct, and different goals apply to different institutions, so the formula system should be both enlarged and divided into separate pools. Five are needed:

• Sustained Delivery: The largest pool should be like today’s, and should support community colleges and universities, on a trailing basis, for credit-hours actually delivered. Dollars could be distributed through established principles. Currently there are separate pools for community colleges and universities. They could be combined or left separate.

• Growth: Some community colleges and universities are growing fast and need special support for growth, because core formula support is furnished only after the credit-hours are delivered. This pool would provide credit-hour support at expanding institutions, but on a prospective basis developed through realistic planning, so that the institutions could acquire staff and materials in time to meet growing demand.

• Student Success: A significant fraction, something like 20%, of total credit-hour support should be distributed on the basis of each institution’s success at retaining first-year students and at graduating or successfully transferring students in a timely manner. This principle is important, and the needed incentive would be built most effectively by using it as the basis for a separate funding pool. Total credit-hour support (the total of these first three pools) should be funded at a more realistic percentage of statewide average accountable delivery costs to take

pressure off of tuition and fees.

• Research: To compete and win on the national stage, Texas needs greater investment in research capacity, but that capacity should be built mainly in institutions that have shown themselves able to succeed. A sound way to invest would be to set aside a formula pool for strengthening research capacity and allocating it on a basis that reflects clear success in research. Examples would be


the preceding biennium. These funds should be used to build capacity, not to support individual research projects. Proper targets would be to hire talent, to start up new programs, or to acquire facilities. This pool should be sized as a fraction, something like 10%, of total federal funding of research in Texas universities. • Capital: Texas must also have a more systematic way to address capital needs of

higher education, because the capacity we will require cannot be achieved through current processes. The current system of funding Tuition Revenue Bonds is too unpredictable and does not flow toward the most important priorities. A better system would be to fold that capacity into a Capital Pool that would be allocated by a formula based on space required for expansion and renewal of decaying facilities. Individual institutional allocations should be used for projects that are individually reviewed and approved. An institution should be allowed to

accumulate its allocation over several years so that it has maximum ability to address its most important needs.

Build Texas must deliver new resources to higher education in Texas, because we need to invest. We need to be stronger, and we are growing. Our first focus needs to be on getting our large, youthful population ready to be America’s most valuable, most adaptive

workforce. Our second must be on holding an advantaged position in the world of knowledge. We can do neither without a better financed system of higher education. Restructured Coordinating Board. The Texas Higher Education Coordinating Board (THECB) currently has a role of general oversight, but it is not as effective as it could be. Better results could be obtained if the Board’s responsibilities were shifted toward

accountability and away from review of individual degree programs and details of institutional organization.

The Board’s main responsibility should be that of performance auditor in higher education for the people of Texas. Its staff should be focused on collecting and certifying useful information on performance with the top standard nationally of relevance and accuracy. Institutions are responsible for gathering and reporting the primary information. The

Coordinating Board should define the format and should aggressively audit the quality of the data. Current standards of data quality in higher education are not adequate to support sound statewide decision-making. Information developed at the right standard of quality would be invaluable to the institutions, to the Legislature, to the principal state officers, and to the public.

The THECB should also oversee a critical continuous planning effort, seeking the highest standards of performance in forecasting future needs and demand.

It should set a priority on cost accounting for delivery of credit-hours in all public institutions, so that the factors leading to variations among institutions with different missions can be understood and so that there is a basis for pursuing economies.


Using this information, the THECB should certify the information used in the formula system.

The Coordinating Board should be advised on key issues of policy by a prominent council with experts drawn from across the nation. Such a membership can provide the best assurance that the advice is focused on long-term performance for our whole state, rather than Texas regional politics.

Joint biennial review of delivery costs. A properly restructured and effective Coordinating Board would have sound data, institution by institution, on the cost of delivering instruction. A needed next step is to convene a discussion of key players every two years on the method that will be used to address the costs. Some fraction will be borne by formula funding, some inevitably by tuition and fees, some through financial aid, and some by economies. It is up to the Legislature, the Governor, the Boards of Regents, and the institutional leadership,

through their various actions, to determine the mix. It would be a great improvement on the current “system” if the largest part of the decision-making flowed more consistently from deliberate, focused, high-level communication. The best chance for success is to establish a formal requirement for it in law. The ideal forum would involve the Governor, the

Legislative Budget Board, and key representatives from the Coordinating Board, the University systems, and perhaps individual institutions. Ideally conclusions from this process would emerge in the fall before each new Legislative Session.