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Economy Education Research Tax and Budget

Greater Efficiency in New Mexico Higher Education Could Save Taxpayers $80 Million Annually

(Albuquerque) According to a new study by the Rio Grande Foundation, New Mexico’s higher education system holds the possibility of significant, relatively painless cost savings totaling $80 million annually. The study, “Poor Performers in New Mexico Higher Ed: Budget Increases and Inefficiency,” by Adjunct Scholar Kevin Rollins, separately analyzes per-pupil expenditures of New Mexico’s four and two year universities.

According to the study, the most expensive university and community college are twice as costly as the least expensive institution in their category on a per student basis. This is true for both universities and the community colleges.

Among New Mexico’s community colleges, high-cost provider Las Vegas-based Luna Community College spends an astounding $13,515 per full-time student equivalent. The low-cost provider New Mexico State University Doña Ana spends only $6,796.

Among New Mexico’s universities, the Socorro-based New Mexico Institute of Mining and Technology spends $22,030 annually per full-time student equivalent. Portales-based Eastern New Mexico University, on the other hand, spends $10,901.

Rollins, the study’s author, acknowledges that small discrepancies among the various schools in per-student efficiency are inevitable, particularly with regard to the New Mexico Institute of Mining and Technology which predominates in specialized and highly technical schooling. However, Rollins was able to find no explanation as to why Luna Community College, for example, would cost nearly twice as much as NMSU-Doña Ana? Additionally, how is it that four of the community colleges actually cost more than two of the four-year schools?

Rollins also analyzed the six-year graduation rates and found little correspondence between costs and degree production. New Mexico Highlands University, the second most expensive in the list has a pitiful 0.2 six-year graduation rate. That means after six years at the institution only 1 in 5 students graduated.

Notably, Rio Grande Foundation analyst J. Scott Moody has previously pointed out that New Mexico’s higher education system is the single most bloated in the nation. While Rollins did not analyze employment levels among the various schools, this may explain some of the major cost differentials among the institutions. The full study is available here: https://www.riograndefoundation.org/documents/2016/05/rgf-nm-higher-ed-2010.pdf.

Categories
Education Research

Greater Efficiency in New Mexico Higher Education Could Save Taxpayers $80 Million Annually

(Albuquerque) According to a new study by the Rio Grande Foundation, New Mexico’s higher education system holds the possibility of significant, relatively painless cost savings totaling $80 million annually. The study, “Poor Performers in New Mexico Higher Ed: Budget Increases and Inefficiency,” by Adjunct Scholar Kevin Rollins, separately analyzes per-pupil expenditures of New Mexico’s four and two year universities.

According to the study, the most expensive university and community college are twice as costly as the least expensive institution in their category on a per student basis. This is true for both universities and the community colleges.

Among New Mexico’s community colleges, high-cost provider Las Vegas-based Luna Community College spends an astounding $13,515 per full-time student equivalent. The low-cost provider New Mexico State University Doña Ana spends only $6,796.

Among New Mexico’s universities, the Socorro-based New Mexico Institute of Mining and Technology spends $22,030 annually per full-time student equivalent. Portales-based Eastern New Mexico University, on the other hand, spends $10,901.

Rollins, the study’s author, acknowledges that small discrepancies among the various schools in per-student efficiency are inevitable, particularly with regard to the New Mexico Institute of Mining and Technology which predominates in specialized and highly technical schooling. However, Rollins was able to find no explanation as to why Luna Community College, for example, would cost nearly twice as much as NMSU-Doña Ana? Additionally, how is it that four of the community colleges actually cost more than two of the four-year schools?

Rollins also analyzed the six-year graduation rates and found little correspondence between costs and degree production. New Mexico Highlands University, the second most expensive in the list has a pitiful 0.2 six-year graduation rate. That means after six years at the institution only 1 in 5 students graduated.

Notably, Rio Grande Foundation analyst J. Scott Moody has previously pointed out that New Mexico’s higher education system is the single most bloated in the nation. While Rollins did not analyze employment levels among the various schools, this may explain some of the major cost differentials among the institutions. The full study is available here: https://www.riograndefoundation.org/documents/2016/05/budget-increases-and-inefficiency.pdf.

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Education Research

Poor Performers in New Mexico Higher Ed: Budget Increases and Inefficiency

Higher education accounts for $800 million of New Mexico’s General Fund spending. As Rio Grande Foundation Adjunct Fellow Kevin Rollins points out in his new paper, “Poor Performers in New Mexico Higher Ed: Budget Increases and Inefficiency,” it is hard to understand why certain universities and two year institutions do the job of teaching students for far less than others, with no apparent reduction in quality.

For a listing of schools by cost-effectiveness and in-depth analysis by Rollins, read the full study here.

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Education

Dona Ana Community College is New Mexico’s Low-Cost Leader

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In a recent ranking of state schools by the Rio Grande Foundation, Doña Ana Community College came out as the least cost per student in the state.

DACC not only beat out every other satellite campus of New Mexico State University, but every community college. In fact, it was half the cost of the most expensive community college. How did it achieve this, and can its apparent success be replicated elsewhere?

Five years ago, DACC was the third least expensive. Since then it has grown 37 percent in size, while its budget has only grown 31 percent. Counting inflation, the school’s cost per full-time enrollment dropped $346 to $6,796 per student.

As a point of comparison, the NMSU 4-year hub, also in Las Cruces, saw increased cost per student of $578 during the same period for a total cost per student of $13,012 (almost twice as much as DACC). While it is difficult to directly compare the costs of the four-year main campus with its community college affiliate, the differences in costs between the two parts of the institution give rise to many interesting questions:

What similar courses at the community college are duplicated in the university and do they cost different amounts? Is the quality of teachers and differing pay scales the issue? What role do facilities costs play? Could all duplicate programs be done in the manner of the community college at a lower cost?

To imagine the scale of savings to be realized from more closely following the DACC model, consider if NMSU’s costs had gone up by $250 less per student. With 13,435 students, that would generate total savings of $3,358,750 – enough money to pay for nearly 500 more students at the community college for a year.

Let’s say that we could move several thousand students from the university to the community college without affecting their costs per student – for every 500 students that took a year of classes at DACC rather than NMSU, an additional 457 students could attend DACC that year.

This of course raises many other difficult questions: who should be educated, should they be subsidized, should different people be subsidized at different rates and what should they be subsidized to study?

For many college graduates, the schooling process ends up not delivering positive returns, even though their educations were heavily subsidized. In economic terms, bad education investments misallocate taxpayer money, students’ tuition dollars, students’ time, as well as use up the labor of academics that might be productive in other sectors of the economy had they not been lured into the heavily subsidized academy.

Now, if we consider that NMSU costs four times as much for a degree than DACC (double the cost and twice as long) we ask if the average degree is worth four times as much as a two-year community college diploma? Perhaps it is, but since only 45 percent of NMSU students graduate after 6 years (55 percent graduate at some point after that or never graduate), we wonder if many of these students would not be better served by a two-year degree.

Clearly the complexity of these issues cannot be easily fleshed out in a short opinion piece, but this author wonders if the policy, because of the many large unknowns, can be properly managed through the political process in way that guarantees efficiencies throughout the higher education system.

That is why I’m proposing that New Mexico adopt a higher education voucher system that would enable students to shop around for the best price-quality package at different state schools. If they are thrifty, the voucher could be designed to offer cash back when the education costs less than the voucher. If it were based on current state average cost, DACC students might be able to get a significant check to that could be put towards book costs and time-intensive unpaid internships.

After all, our society – whether that means taxpayers, students, or employers – have limited resources to allocate to education. In a time of constrained or even falling budgets, policymakers must do everything possible to enhance efficiency. Understanding why one school is so much more efficient than another is worth a closer look.

Kevin Rollins is an adjunct fellow with New Mexico’s Rio Grande Foundation. The Rio Grande Foundation is an independent, non-partisan, tax-exempt research and educational organization dedicated to promoting prosperity for New Mexico based on principles of limited government, economic freedom and individual responsibility.

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Education

Economic Efficiency in Higher Ed

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I greatly appreciated NMSU-Carlsbad President Russell Hardy’s response (4/27/10) to my earlier op-ed (4/24/10) on the costs per student at Carlsbad compared to other state post-secondary institutions. While bringing up several interesting points, his use of cost figures is misleading and distracts from the larger economic questions.

First, I must admit that there is an error in my statement that “while it lost about 8 percent of its students, the college’s total budget increased over 40 percent.” Carelessly, in reading my own spreadsheet while preparing the op-ed, I reversed the full time enrollment (FTE) numbers for fall 2004 and fall 2008. Using these two data points, the FTE increased from 814 to 900. The gain of 86 students (FTE) is a 10.6 percent increase. My apologies for the error.

But in responding to this error, Mr. Hardy makes a much more significant error that continues through much of his article. He cites student headcount growth “from 1,223 to 1,998 students”. Headcounts are a bad metric because they only capture the number of students taking classes, not how many classes are being taken – many students do not take a full load. Headcount numbers are not comparable either year over year at the same institution or among different institutions.

A better measure of student population is FTE, which adjusts the student count for how many classes they are taking. According to data furnished by Mr. Hardy via email, FTE from fall 2006 to fall 2009 grew from 739 to 942 students.

When he discusses the costs per student – using headcount rather than FTE, Hardy finds a much lower cost per student – by about half since headcounts are significantly larger than FTE. Rather than each student in the 2008-2009 costing $3,677, as he finds, we know that the cost is in fact $7,799 per student.

Mr. Hardy writes, “Between 2006 and 2010, the NMSU-Carlsbad annual operational budget increased a total of 51.4 percent…It is important to note that the college’s enrollment has grown…for a total increase of 64 percent over the four-year period.”

So, in this comparison, Mr. Hardy makes it seem as though the budget has grown less than the student population (51.4 < 64). But, he only gets 64 percent growth using head counts. When we use FTE, we find that the student population only grew 27.5 percent. Using his budget calculation and the FTE number, we see that the budget has grown faster than the student enrollment (51.4 > 27.5).

Regardless of what the numbers say, it would be mistaken to conclude that the per student cost numbers are completely adequate indicators of how well schools such as NMSU-Carlsbad are doing in an “economic” sense. We want to know if the benefits are greater than costs. The growth of budgets and student enrollment could represent a wise investment of the state’s financial and human resources, but it could also represent an increasingly wasteful state of affairs if the educations New Mexico is paying for are worth less than they cost.

Mr. Hardy claims, “NMSU-Carlsbad has managed to offset the legislatively mandated reductions by operating as efficiently as possible without cutting any instructional programs.”

Even if this statement is true, and Mr. Hardy’s institution is efficient from a managerial standpoint, it may still be unproductive for the state’s economy. The money could have been invested in alternative projects and the students could have been working rather than studying. These are the puzzles that must be solved, particularly with lawmakers facing a massive budget shortfall and a potential special legislative session to shore up the FY 2010 (not to mention the upcoming FY 2011) budget.

The marketplace provides a solution which is done implicitly and without the need for this kind of debate. The answer is market-determined price signals. One way to generate more market-like information is higher education vouchers. The money follows the students, which creates accounting discipline, but also improves the economic efficiency because it more closely matches means to ends, making for better educational investments. I would greatly appreciate Mr. Hardy’s (and others’) thoughts on these matters as it might be a major step on the road to a balanced budget and improvements in the effectiveness of New Mexico’s institutions of higher education.

Kevin Rollins is an adjunct fellow with New Mexico’s Rio Grande Foundation. The Rio Grande Foundation is an independent, non-partisan, tax-exempt research and educational organization dedicated to promoting prosperity for New Mexico based on principles of limited government, economic freedom and individual responsibility.

Categories
Education

Does NMSU-Carlsbad Support Innovation, Economic Growth?

New Mexico’s ongoing budget crisis requires wisdom and fortitude in making hard decisions about where to cut the budget to ensure the best possibilities for the public’s welfare now and in the future. Higher education must be part of the budget conversation since it represents a sizable portion of the state budget and wasteful expenditures have negative derivative effects on the state’s economy when New Mexicans invest in educations that have low or negative returns. In the last five years, postsecondary expenditures have increased by more than $200 million; we ask if there is a corresponding increase in value to students and taxpayers.

The Rio Grande Foundation has produced a study that shows highly differential costs between different institutions, with high cost institutions almost double the expense of the low cost institutions. The obvious question is why these large differences exist, and then how to reduce costs in favor of programs and policies that generate the highest returns to public per dollar expended.

New Mexico State University at Carlsbad has some of the largest per student increases of any state postsecondary institution. In a ranking of 24 universities and colleges, it had the third highest increase, over $2,000 per student. While it lost about 8 percent of its students, the college’s total budget increased over 40 percent (accounting for 10 percent inflation).

Of the four community colleges affiliated with NMSU, the Carlsbad campus has both the highest increase and the highest per student costs. It costs $2,500 more than NMSU-Doña Ana, which is the state’s low-cost leader in terms of per student costs. In fact, Doña Ana went in the opposite direction, reducing costs by $346 per student.

There are a host of potential explanations for why Carlsbad appears to be doing so badly. It may simply be that budget allocations are sticky and Carlsbad administrators spend what they are given. But, from a public interest perspective, this is not really how we want government to work. It is imperative to explore how much the school expends on its physical facilities, faculty, and administrative staff and to evaluate the value of particular programs. But, first, it is important for us to remember the purpose of education.

Rather than thinking of education in the aggregate sense, as if there is a large block of uniform students who will be pushed through the system en masse, we should consider it from a market perspective. There are many individuals, each with particular skills, financial concerns, and future dreams.

There is simultaneously a group of entrepreneurs who are prospecting for potential employees and making investment decisions based upon the returns they can expect to receive based on their comparative ability to supply what is demanded. We should think about the many educations (education with an ‘s’) and how these educations will connect the aspiring student with potential entrepreneurs.

While the per student costs are individually only a couple thousand of dollars, these dollars add up to a great amount in terms of public expenditure (both tuition and state subsidy). The disparities between various institutions in terms of per-student expenditures are a signal that inefficiencies may exist.

Just as the state legislature must look at higher education as a whole, the residents of Eddy County should look at what kind of education services (and at what cost) they would like from their local community college. In order for the state legislature to get the overall picture right, the policy makers must hear from concerned citizens, students, and college employees who are knowledgeable of the local challenges and opportunities.

Kevin Rollins is an adjunct fellow with New Mexico’s Rio Grande Foundation. The Rio Grande Foundation is an independent, non-partisan, tax-exempt research and educational organization dedicated to promoting prosperity for New Mexico based on principles of limited government, economic freedom and individual responsibility.

Categories
Education

Target Higher Ed Inefficiency

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It is no secret that, despite significant tax hikes passed during this year’s special legislative session, New Mexico’s budget picture remains bleak. The good news is that through greater efficiency and modest spending cuts, policy-makers can avoid further tax hikes.

One area that must be in focus is higher education, an area the Rio Grande Foundation research has found to be the most bloated in terms of employment in the nation.

In the last five years, the cost of running New Mexico’s colleges and universities has increased almost $200 million, with total budgets for postsecondary institutions rising from $850 million to over $1 billion. An analysis of budgets from 2004 and 2009 shows that per student cost increases account for at least $60 million of the total increase. This total increase was slightly mitigated (about $14 million) by per student cost decreases at some schools.

In Albuquerque, home to the two largest public institutions of higher learning in New Mexico, we have representatives of both the profligate and the thrifty. At the University of New Mexico, the state’s largest institution, the total costs per full-time student has increased $1,397 over the last five years, at a rate double inflation. On the other hand, the state’s second largest institution, Central New Mexico Community College has moved in the opposite direction, reducing costs by $531 per student.

Out of 23 institutions, UNM had the sixth highest increase while CNM had the fifth highest decrease. UNM’s per student cost increases add up to $29 million, while CNM’s reductions save $7 million.

CNM doesn’t just beat out UNM, a four-year research university. It also does well when compared to its peers. CNM is the fifth least expensive community college in the state, only $700 more per student than least-cost NMSU-Doña Ana, whereas the worst-performing community college has per student costs twice as high.

The wide differences suggest that New Mexico is getting less for its education dollars than it could if higher education budgets were more like CNM’s and less like UNM’s. Inefficient schools don’t just waste taxpayer dollars, they use those dollars to lure students who otherwise might enter the workforce or shop around for cheaper tuition. Too many students find out after graduation that even with their heavily subsidized educations, supplemented by student loans and money from parents, that they cannot find a job commensurate with their investment. This is directly tied to the problem of inefficient higher ed.

In a normal market, customers look for combinations of price and quality that are affordable and offer a positive return — benefits are greater than costs. Different institutions offer competitive packages, either more quality for the same price, or a lower price, with a different quality, but greater return per dollar. This market process reduces costs while at the same time helping match needs to abilities, using prices to bring these into coherence. In a free market in higher education, the schools would provide educations that would simultaneously serve students and potential employers.

But schools often use state money to pursue an increasingly long list of “goods” that they say they cannot do without and then wind up in budget crises. This problem is the direct result of a failure to properly prioritize spending projects.

One possible way to make higher education more market-like is to offer vouchers that students could use at New Mexico higher education institutions. The dollar amount of the vouchers would be fixed, and tuition would make up the rest of the cost. If the voucher was more than the tuition, some of the money could be paid back to the students upon completing their educations. This would incentivize the students to be better shoppers and the schools to think carefully about their price-quality mix.

Some might argue that more spending is justified to maintain educational standards, provide competitive pay for faculty, or to support exciting new programs. This could be true. Are these costs worth it? We put the burden of proof on those schools, like UNM that have generated large per student cost increases. It seems more likely that because higher education funding is not tied to performance, New Mexico schools have simply heedlessly continued to spend despite ongoing trouble in the economy. We want to encourage schools to be like CNM in their forward-looking management, not continue to bail out inefficient institutions.

Kevin Rollins is an adjunct fellow with New Mexico’s Rio Grande Foundation. The Rio Grande Foundation is an independent, non-partisan, tax-exempt research and educational organization dedicated to promoting prosperity for New Mexico based on principles of limited government, economic freedom and individual responsibility.

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Education

Smaller Schools Make Fiscal, Education Sense

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The 2010 legislative session is right around the corner and, while solving New Mexico’s difficult budget problems — hopefully without raising taxes — will likely be the Legislature’s primary task, reforming K-12 education demands attention as well. First and foremost, those who have supported higher taxes for education will need to understand that the economy simply can’t handle it.

However, there are reforms that can be enacted at no additional cost to taxpayers that will address the serious shortcomings in a system that is failing too many children. Last year, the respected “Diplomas Count” report found that only 54 percent of New Mexico kids graduated in four years, although the state reports a slightly higher number. The bottom line is that New Mexico’s K-12 education system is in need of serious reform.

One important reform is to shrink the size of the schools our children attend. Although it is unusual for us here at the Rio Grande Foundation to agree with Think New Mexico, there is one point on which they are right: Smaller schools make economic as well as educational sense.

The conventional wisdom is that the bigger you build a school, the less expensive it is per student.

Yet the data do not support that assumption. An analysis of the construction costs of all new schools built in New Mexico since 2003 (the year the New Mexico Public School Facilities Authority began systematically collecting this data) shows that school construction cost per student has no consistent correlation with school size.

In other words, it costs no more per student to build a school for 500 students than it does to build a school for 2,500.

The data shows that most schools built recently in New Mexico cost $20,000 to $50,000 per student to construct. The most expensive schools have tended to be the very largest or the very smallest schools, with the less expensive schools ranging from about 300 to 800 students.

This analysis demonstrates that both large and small schools can be built very expensively or very inexpensively. One 482-student school in Gadsden cost only $25,975 per student, while a 2,200-student school in Albuquerque cost $47,705 per student.

The numbers on school construction cost have been vetted by a team of graduate students at UNM’s Anderson School of Business. Their statistical analysis found, with 95 percent certainty, that there is no correlation between a school’s size and the cost per student to construct it. They concluded that, contrary to the conventional wisdom, larger schools are not always less expensive to construct — indeed, they are just as likely to be more expensive on a per-student basis.

In addition to costing no more to construct, smaller schools cost less to operate than larger schools. The research demonstrates that schools larger than about 900 students incur higher costs in administration (because they require more levels of bureaucracy to run them), transportation (because they must transport students from far beyond the immediate neighborhood), and security (because the number of violent incidents per student goes up sharply as school size increases).

Building smaller schools will not (and we would not support if it did) require an extra penny in new spending. Instead, legislation to be introduced in 2010 would amend the existing Public School Capital Outlay Fund so that the school construction dollars New Mexico spends every year are spent more wisely on smaller schools.

The best news about smaller schools is that they represent a “choice” mechanism. Smaller schools mean more options for children and parents. Thus, it is no surprise that smaller schools have been correlated with both higher academic performance and a reduction in criminal behavior in the schools as well.

The benefits of educational choice are why the Rio Grande Foundation has and continues to support education tax credits, which would allow individuals and businesses to take a credit against their New Mexico taxes and donate that money to a scholarship organization that would help the state’s poor children by giving them choices as to where they want to go to school. This can be done without hurting the existing government-run schools.

More money has not been the solution for New Mexico’s education woes in the past, and money alone — even if we had it right now — will not solve the problems in the near future. It’s time for the Legislature to get creative by embracing education tax credits and smaller schools.

Paul Gessing is the President of New Mexico’s Rio Grande Foundation. The Rio Grande Foundation is an independent, non-partisan, tax-exempt research and educational organization dedicated to promoting prosperity for New Mexico based on principles of limited government, economic freedom and individual responsibility.

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Education RGF Events

Dr. Matthew Ladner Presentation on “The Florida Model for Education Reform”

Dr. Matthew Ladner of the Arizona-based Goldwater Institute presented on “The Florida Model for Education Reform” at the 2009 New Mexico Turnaround Conference last week. His powerpoint presentation provides a clear path forward for New Mexico. The answer: implementation of reforms undertaken in Florida including vouchers, tax credits, clear and firm state standards, a ban on social promotion, and alternative teacher certification (among others).

The results in terms of achievement have been astonishing and should provide a blueprint for New Mexico policymakers.

Categories
Education Tax and Budget

The Governor’s Unconstitutional Spending of Public Funds

Since 2003, Governor Bill Richardson has been spending tens of millions of dollars of public funds without Legislative authorization. These funds have been received into the state treasury under Federal economic relief and stimulus bills. Richardson has unilaterally been deciding how these funds should be spend, in violation of the state constitution which rests the power to appropriate public money solely with the Legislature. Rio Grande Foundation investigative journalist Jim Scarantino looks into these expenditures and compares reality with constitutional prescription.

Full text of Scarantino’s report can be found here.