Abstract
Using Integrated Postsecondary Education Data System (IPEDS) figures on the 96 Research Extensive Institution in academic year 2007–2008, we employ panel data from academic year 1984–1985 to 2007–2008 to identify revenue-expenditure relationships. Although we consider a wide range of functional expenditure categories, we focus our analysis on instructional and research expenditures because these categories tie most closely to the core missions of research universities. Results suggest tight relationships between some revenue and expenditure categories for some institutions. For public universities, these relationships tend to follow expected paths. For example, a large proportion of tuition revenues tend to be spent in the functional category of instruction. Private universities evidence a somewhat different pattern, with revenues generally expended in the pursuit of merit aid and research. This suggests that private universities strategically deploy revenues from a wide variety of sources to secure particular students and to conduct research activities. However, the ways in which universities and IPEDS classify faculty work raises some questions about the transparency of various categories, and suggests that some current conceptions of how revenues are expended on research and instruction functions may be less than straightforward.
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Notes
Service, the third leg of higher education’s tripartite mission, is the least well defined, and the most difficult to quantify. Expectations about service are in flux. Historically, service was associated with public universities, particularly the land grant mission and applied research. Currently, service is being redefined to focus on economic development, on the one hand, and civic engagement, on the other (Roper and Hirth 2005; Thelin 2004). Because of the lack of clarity and data with regard to the service mission, we will not consider service in this paper.
We do not mean to imply that undergraduate tuition receipts subsidize other university operations. As Winston (1999, 2004; Winston and Zimmerman 2004) has demonstrated, almost all students pay tuition prices that are less than the cost of the educations they receive. We do suggest, however, that undergraduate students may not receive subsidies as generous as those offered to graduate students, and that this discrepancy may be tied to the link between graduate education and research. Winston acknowledges this possibility in his own research because he does not distinguish between undergraduate and graduate students when calculating general subsidies per FTE (Winston 1999; Winston and Yen 1995). We return to the relationship between instructional and research expenditures in the discussion and conclusion sections of this paper.
There is, of course, a well-developed literature on the economics of research, e.g., Nelson (1959), Jaffe (1989), Mansfield (1995, 1998), Dasagupta and David (1994), and Mirowski and Sent (2002). Journals such as Research Policy devote a great deal of attention to the topic. For the most part, this literature concentrates primarily on research and research universities, rather than on higher education as a whole, and is concerned with the problem of academic research’s contribution to economic innovation. There are some exceptions, such as Leslie et al. (1999) and Hare and Wyatt (2011) that look at joint production functions between instruction and research, but usually the data employed are somewhat limited.
This statement may under-state the federal emphasis on research. As noted in the College Board (2010) report, the figures that we cite reflect a sharp increase in both the number of students receiving Pell grants and the average award per student. Data from previous years indicates that federal funding for university-based R&D often exceeded total Pell grant spending. Further, federal stimulus dollars allocated to university-based research topped $18 billion in 2009 (National Science Foundation 2010), again elevating expenditures for university-based R&D to levels above spending for Pell grants. In most years, then, federal spending for university-based R&D exceeds spending for Pell grants.
For a critique of prioritization of excellence see Bill Readings’ (1996) book, The University in Ruins.
Ehrenberg’s Tuition Rising (2002) is more of a theory and close to Bowen’s. However, rather than focusing only prestige, he analyzes the many goods on which universities can expend funds to enhance research and education, ranging from facilities to larger staffs. Ehrenberg suggests that these numerous possible expenditures drive up educational costs.
Isomorphism has been widely applied in higher education (e.g., Gates 1997; Morphew 2002; Morphew and Baker 2004; Morphew and Huisman 2002; Rusch and Wilbur 2007) and in studies of higher education conducted in social science disciplines such as sociology (e.g., Davies and Quirke 2007; Kraatz and Zajac 1996; Tolbert 1985).
There are several other organizational theories that deal with revenues and expenditures. Marketization/resource dependency theories, in contrast to neo-institutional theory, suggest that organizations seek to maintain predictable and increasing revenue sources rather than seeking only prestige. These theories predict that universities will behave in a manner likely to maximize future revenues and focus on university efforts to intersect various external markets (Geiger 2004; Geiger and Sa 2008). Research universities attempt to expand external revenues, whether these are federal markets for research funding, industrial funding, various forms of technology transfer or gifts from a wide variety of donors. Recognition of dependence on external markets prompts organizational leaders to develop structures and processes that seem likely to secure more robust or more diverse resource streams (Pfeffer and Salancik 1978). This recognition suggests that research extensive universities will spend more on research, given the size and availability of revenues allocated through federal and industrial research markets. However, as prestige and money become more closely entwined, with many indicators of prestige (research grants, star faculty, size of endowment) becoming more tightly tied to external markets, it becomes very difficult to find data that would separate prestige and success in external markets.
In developing the concept of academic capitalism, Slaughter and Leslie (1997) drew on marketization/resource dependency theory. Academic capitalism therefore shares with marketization/resource dependency theory the conviction that organizations seek to maximize revenue sources. In a departure from marketization theory, however, Slaughter and Rhoades (2004) theorized the continuing importance of state and particularly federal funds for research universities’ participation in competitive activities, and stressed that state subsidy was central to market outcomes. Academic capitalism thereby complicates the conception of marketization. Slaughter and Rhoades also note that research universities are not firms, rather they are non-profit or state organizations. Nonprofit organizations must pursue material resources in order to carry out their missions and vigorous pursuit of external resources may distort those missions. In the worst case, nonprofits can become “false nonprofits,” indistinguishable from commercial endeavors (Weisbrod 1998). For example, for decades most nonprofit organizations relied on individual donations as a primary revenue stream. Many contemporary nonprofits have turned to “commercial activities,” or endeavors for which users pay fees. Froelich (1999) notes that these commercial activities may impose a market logic that distracts an organization from its social mission. Revenues from governmental sources also can impose their own logics on nonprofit organizations, as recipients often make extensive changes in internal processes as a response to state oversight. Governmental funds for which research universities compete constitute an important pool of resources for these organizations (Britt 2010). Theories of academic capitalism predict that research universities will spend increasing amounts of money on research since research activities are most likely to intersect external markets, but see these pursuits as resulting in mission distortion and patterns of cross-subsidy that disadvantage undergraduate students. However, it is very difficult to find large-scale data on patterns of cross-subsidy.
In sum, for different reasons, marketization/resource dependency and academic capitalism all predict, like neo-institutional theory, that research is the prioritized expenditure at research extensive universities. However, at this time, there is not data from research extensive universities that allow us to differentiate between these organizational theories.
While our results suggest that universities primarily derive their research expenditures from grants and gifts, Ehrenberg et al. (2007) demonstrate that research extensive universities, whether public or private, often utilize their own discretionary resources to fund research activities. Our study relies upon IPEDS figures while Ehrenberg and colleagues employ data from the National Science Foundation and the Council on Aid to Education alongside IPEDS data. Classification theory argues that the set of formal rules and policies governing a sector substantially shape the activities of organizations within that sector. This theoretical tradition suggests that the definitions and categories employed by NCES to classify work and resources may themselves be at the source of our findings. In other words, our results reflect both the substantive phenomenon of interest and the variable definitions developed by NCES and IPEDS. Classification theory suggests that the differences between our findings and those of Ehrenberg and his colleagues may result in part from the different variable definitions employed by our divergent data sets.
Of course, research and instruction—particularly graduate student instruction—may be produced jointly rather than in competition with one another. Insofar as this is the case, time spent in one activity is by definition time spent on the other. To account for this possibility, our “thought experiment” only reallocated instructional expenditures by figures less than 50%. In other words, these figures assume that more than half of all faculty time consists of instructional activities.
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Appendix
Tuition and fees: Revenues from all tuition and fees assessed against students (net of refunds and discounts and allowances) for educational purposes.
Appropriations: Revenues received by the institution through acts of a federal, state, or local legislative body, except grants and contracts.
Grants and contracts: Revenues from federal, state, and local government agencies that are for specific research projects or other types of programs. Examples are research projects and similar activities for which amounts are received or expenditures are reimbursable under the terms of a grant or contract.
Gifts: Revenues from private gifts, including contributions from affiliated organizations.
Sales: Revenues (net of discounts and allowances such as scholarships) generated by auxiliary enterprises that exist to furnish a service to students, faculty, or staff, and that charge a fee that is directly related to the cost of the service. Examples are residence halls, food services, student health services, intercollegiate athletics, college unions, college stores, and movie theaters.
Other: Revenues not included in previously listed sources, namely, tuition and fees, grants and contracts, and sales and services of auxiliary enterprises. Since endowment revenues were not consistently reported in IPEDS, we include endowment in this category.
Instruction: Expenses associated with the colleges, schools, departments, and other instructional divisions of the institution and for departmental research and public service that are not separately budgeted.
Research: Expenses associated with activities specifically organized to produce research outcomes and commissioned by an agency either external to the institution or separately budgeted by an organizational unit within the institution.
Public service: Expenses associated with activities established primarily to provide non-instructional services beneficial to individuals and groups external to the institution.
Academic support: Expenses associated with activities and services that support the institution’s primary missions of instruction, research, and public service.
Student services: Expenses associated with admissions, registrar activities, and activities whose primary purpose is to contribute to students’ emotional and physical well-being and to their intellectual, cultural, and social development outside the context of the formal instructional program.
Institutional support: Expenses associated with the day-to-day operational support of the institution. Includes expenses for general administrative services, central executive-level activities concerned with management and long range planning, legal and fiscal operations, space management, employee personnel and records, logistical services such as purchasing and printing, and public relations and development.
Scholarships and fellowships: Expenses associated with scholarships and fellowships treated as expenses because the institution incurs an incremental expense in the provision of a good or service. Thus, payments made to students or third parties in support of the total cost of education are expenses if those payments are made for goods and services not provided by the institution. Examples include payments for services to third parties (including students) for off-campus housing or for the cost of board provided by institutional contract meal plans. The amount of expense in this function is the total of all institutional scholarships reduced by the amount that is classified as discounts and allowances.
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Leslie, L.L., Slaughter, S., Taylor, B.J. et al. How do Revenue Variations Affect Expenditures Within U.S. Research Universities?. Res High Educ 53, 614–639 (2012). https://doi.org/10.1007/s11162-011-9248-x
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DOI: https://doi.org/10.1007/s11162-011-9248-x