The University of Michigan-Ann Arbor is considered one on the world's best research institutions, ranking alongside Harvard University and Stanford University.
What you might not know is that the University of Michigan is a largely privately financed public university. As of 2003, state funding constituted less than 10 percent of its general revenue, and it was the first public university to top Wall Street rankings with an Aa1 credit rating and its bonds trading at Aaa levels. Today, the University of Michigan offers an education rivaling the best private universities at about one-third the price.
Things were very different 40 years ago. In 1965, the state of Michigan provided 70 percent of the University's revenue. After peaking at this level, the state economy declined and competition among Michigan's 15 public campuses for limited public funding intensified. Over the years, Michigan went from being a top-ranked state for higher education appropriations to one of the lowest nationwide. It was clear that state appropriations would not sustain the University of Michigan as a world-class research institution.
So the University of Michigan went where most public universities feared to tread: the private sector. It began aggressively raising private funding and decentralizing management of those resources to be more financially independent.
The strategy paid off. By 1997, the University of Michigan completed one of the most ambitious private fundraising efforts by any university at that time, raising more than $1.4 billion through its five-year Campaign for Michigan. From 1992 to 1997, annual private giving to the University nearly tripled, from $60 to $165 million. Its endowment grew from $250 million to $2 billion, yielding $90 million in annual endowment income.
Through strategic planning, the University of Michigan doubled its annual revenue from $1.8 billion in 1992 to nearly $4 billion in 2001, even as state funding dropped from 15 to 10 percent of its total revenue.
University of Michigan president emeritus James J. Duderstadt explains, "Universities have long enjoyed a monopoly over advanced education because of geographical location and their monopoly [over] the awarding of degrees. However, today all of these market constraints are being challenged."
Representatives of ASU and UA have expressed an interest in becoming more financially independent. Nevertheless, as of fiscal year 2003 state support still accounted for about one-third of ASU and UA's general budgets, 39 percent and 32 percent, respectively.
Like ASU and UA, dozens of public universities nationwide aspire to be leading 21st century research institutions. However, the University of Michigan pulled ahead of the pack by becoming a privately financed public university, reducing its costs, and decentralizing resource management.
ASU and UA have the potential to become world-class research institutions by embracing an entrepreneurial approach to fundraising, efficiency, and resource allocation. Both universities have strong community support, with well over 200,000 alumni each. Their increasingly distinguished academic rankings can go up even as they reduce their reliance on state appropriations, if the University of Michigan is any guide.
Vicki Murray, Ph.D., is the director of the Goldwater Institute Center for Educational Opportunity