Time to review Wisconsin's tuition reciprocity agreements

The number of Minnesotans migrating east for Wisconsin universities is now nearly double the number of Wisconsinites traveling west for Minnesota schools.

By MICHAEL FLAHERTY | June 24, 2015

It’s time for Wisconsin lawmakers and education policy leaders to review Wisconsin’s tuition reciprocity agreements with Minnesota and other Midwestern states.  The agreements increasingly appear to be questionable deals for Wisconsin taxpayers.

By at least one measure, the tuition reciprocity agreement with Minnesota benefited Wisconsin by nearly $6 million last year. By another measure, it cost Wisconsin taxpayers $6.7 million. By a third measure, the cost could be double that amount.

The problem? No one really knows.

In fact, Wisconsin has three reciprocal tuition agreements, the most popular being the half-century-old agreement with Minnesota that allows students from the two states to pay resident tuition at each other’s public universities. Lesser known is a unique one-campus agreement the University of Wisconsin-Platteville signed with Iowa and Illinois. A third is an agreement that allows students from seven Midwestern states to attend each other’s public universities and pay no more than 150% of each state’s resident tuition.

Together, they allow more than 18,000 students from other states – 10% of the UW System student population – to attend Wisconsin’s public universities at a discount. By contrast, only about half that number of Wisconsin students attend other states’ universities under these agreements.

The agreements produce substantial benefits for Wisconsin, which make them politically popular. But they come at a cost – and potentially a huge cost, critics say, and there is little or no strong analysis of what they actually cost taxpayers.

“It all depends on how you calculate the cost of educating a university student,’’ explained John Reinemann, executive director of the Wisconsin Higher Education Aids Board, a small state agency charged with overseeing the state’s financial aid programs as well as overseeing the Minnesota agreement. “They’re a good deal for Wisconsin in my view, but one could easily make the argument either way,” he said.

Also fundamental to the discussion is how taxpayers view the purpose of the massive 26-campus UW System, said Tom Hefty, a former business executive who served on many UW committees over the years and a critic of the current reciprocity agreements. He asked rhetorically: Do these agreements exist simply to keep UW campuses full now that they’re built? Are they regional economic development programs to help a few rural Wisconsin communities survive at a huge cost to the rest of the state’s taxpayers?

The answer is, well, mixed.

The Minnesota agreement, signed 46 years ago, is the most visible, most popular and today the most problematic. Under the current agreement, students pay resident tuition to attend each other’s state universities – a discount last year for Minnesota students of $7,193 at UW-River Falls and of $13,463 at UW-Madison.

For years, it’s been a roughly equitable deal, but that has changed.

The number of Minnesotans migrating east for Wisconsin universities is now nearly double the number of Wisconsinites traveling west for Minnesota schools. Since 2004, Minnesota students in Wisconsin grew by about 1,000 to 14,186 last year, while the number of Wisconsin students in Minnesota dropped by 2,615 to 8,794, according to a report this spring by the Legislative Fiscal Bureau, the Legislature’s economic analysis agency.

On its face, it’s not a bad deal, according to the Fiscal Bureau. Simply counting tuition dollars, Minnesota students paid $115.3 million to attend UW schools, while Wisconsin students paid $85.5 million to attend Minnesota’s – a huge influx of Minnesota dollars into Wisconsin coffers.

By then subtracting the “marginal cost” of educating those students in the two states, however, Wisconsin actually paid Minnesota $6.4 million last year to make up for the difference in the two states’ “education costs.’’ And it made a $1.9 million “supplemental payment’’ to Minnesota to cover the added cost of Wisconsin students attending the higher-priced University of Minnesota-Twin Cities campus. But even then, Wisconsin received a net “profit’’ of $5.8 million for 2013-’14, according to the Fiscal Bureau.   

But is it a good deal for Wisconsin taxpayers? The “marginal cost’’ used in the reciprocity calculation is only one measure of the value of reciprocity.

The “marginal cost’’ assumes the expense of adding one student to an already existing classroom taught by an already hired professor. The “full cost’’ of educating a student is actually a third higher, and by that measure Wisconsin last year would have come up $6.7 million short in its agreement with Minnesota, according to the Fiscal Bureau.  

Another study suggests even that “full cost’’ measure badly underestimates the total cost of educating a student, according to research by the American Institutes for Research’s Delta Cost Project, which compared total education costs at 2,000 public and private universities and colleges around the country.

Using data collected by the U.S. Department of Education, the project examined all costs related to educating a student. At UW-Superior, which sits on the Minnesota border and receives about a third of its students from Minnesota, the total cost of educating a student – education and related spending – was $15,491 in 2011, for example. Total operating costs, including construction and debt service, was $22,765, the Delta project shows.

That $15,491 is more than double the $6,798 Minnesota students paid to attend UW-Superior last year. And it’s a third of what it actually costs on a per-student basis to the “total operating costs’’ of building, maintaining and operating the UW-Superior campus.

Under either calculation of “full cost,’’ Wisconsin is losing serious money educating other states’ students in the reciprocity agreements – and it doesn’t stop with Minnesota.

Wisconsin drew 2,072 students from other states under the Midwest Student Exchange Program, based in Minneapolis, which was part of a multistate compact that allows students from seven Midwestern states to attend 100 colleges and universities and pay no more than 150% of each state’s resident tuition for public universities (or their private colleges at a 10% discount). But only 445 Wisconsin students attended schools in other states under the program, according to an October 2014 report on MSEP’s website.  

The report calculates tuition “savings” averaging about $5,500 per student under the program. That means students from other states received around $11 million in tuition discounts in Wisconsin, while Wisconsin students saved roughly $2.5 million in discounts from other states. Other than the MSEP report, there appears to be little analysis of whether this has been beneficial for Wisconsin.

“I have no knowledge of this program,’’ Reinemann said, noting that his agency was not a party to the agreement and does not oversee it.  

Nor does HEAB oversee UW-Platteville’s Tri-State Initiative, a unique reciprocal tuition agreement Platteville signed with Illinois and Iowa in 2005 to attract more students to its rural southwestern Wisconsin campus. By that measure, it’s been successful, with enrollment jumping 42% since it started.  

The initiative allows Iowa and Illinois students to pay Wisconsin resident tuition plus $4,000. The agreement, which gives those students a $3,500 annual tuition discount, has resulted in the addition of nearly 1,500 students to the Platteville campus, now a fifth of its enrollment. Platteville has been able to use that flood of dollars to add 180 new faculty and staff, fund debt service on several new buildings, expand programing and raise additional private funds for construction projects.  It has been “a win-win,’’ Chancellor Dennis Shields told the Milwaukee Journal Sentinel in a 2013 article.

By many measures, that may be true. The Delta project shows UW-Platteville’s total “education and related’’ costs at $10,986 per student, while the campus is charging Iowa and Illinois students $11,492 in tuition and fees.  But even that price is less than the $15,274 per student in UW-Platteville’s total operating costs per student in 2011, according to the Delta project.

The Delta project warns that the per-student cost numbers are easy to misinterpret because they can include “non education-related spending,’’ such as research, which is mostly federally or privately funded – and many times not related to classroom education; “public service,’’ which universities are obligated to provide; dormitories and student services, most of which are funded by student housing and service fees and not a burden to taxpayers or a factor in tuition calculations. Some universities also operate hospitals, clinics, physical spaces for public meetings, etc., that are important to the mission of a university and part of its operating costs but are not related to education.

A glaring example is UW-Madison’s “general spending,’’ which was $51,528 per student in 2011. But about half that cost ($26,488) was the pro-rated, per-student cost of its multibillion-dollar work as one of the world’s top research universities, which received $1.2 billion in federal and private research funding last year.

Debate over reciprocity was sparked earlier this year when Gov. Scott Walker proposed to place the UW System under a public authority that would have allowed the authority to negotiate its own reciprocity deals as well as allow it to keep out-of-state tuition dollars instead of turning them over to Wisconsin’s Department of Administration (which currently collects and redistributes the money back to UW campuses).

The Joint Finance Committee quickly squelched the idea of a public authority along with any discussion of revisiting the reciprocity agreements. Still, the agreements should be reviewed.

Minnesota’s agreement will be revisited later this year as it’s an annual agreement that has been tweaked many times since 1969 as enrollments, programs, tuition levels and economics change – and it will be tweaked again in the future, Reinemann said. In fact, the $1.9 million supplemental tuition payment Wisconsin made to Minnesota is already scheduled to end this year. And the structure of the deal that last year required Wisconsin to pay Minnesota more than $6 million is something the two states can address, alter or eliminate, he added.

That’s likely the best bet for making the Minnesota deal fairer to Wisconsin taxpayers, he said. The reciprocity programs are popular, especially in regions along the Minnesota border, where four UW System campuses rely heavily on Minnesota students to stay strong and viable.

At UW-River Falls, a half-hour drive from downtown St. Paul, Minnesotans make up 47% of the student enrollment. At Stout, it’s 27%; at Superior, it’s 38%; and at Eau Claire, it’s 22%, according to the Fiscal Bureau. 

Supporters of reciprocity note there are added benefits to the “cost-benefit ratio” of educating students from Minnesota. Those Wisconsin campuses have enormous economic impacts on their communities and regions in terms of jobs, purchases, spending by students and visiting families, and the economic development associated with concentrations of world experts in various fields.

UW-Superior, for example, conducted an economic analysis of its impact on its small community in 2008, which concluded the university generated $31.7 million in added economic activity for the Superior area, not counting another $8.1 million in personal spending by students and $1.5 million spent by visitors such as families. UW-Stout, 40 miles from the Minnesota border, calculated that the work it does to provide expertise and talent to regional businesses has generated $132.3 million in private-sector economic activity.

Hefty admitted that those border campuses rely so heavily on Minnesota students that without reciprocity some would have to close their doors, which would pose an economic blow to their communities, especially those in rural, struggling areas. But, he repeated rhetorically, should all Wisconsin taxpayers pay to support a program that benefits a relatively small part of the state? Are these agreements economic development and tourism programs?

The issue becomes even more problematic because many of those Wisconsin-trained graduates from the UW border campuses in western Wisconsin return to Minnesota to pursue their careers, adding little value to Wisconsin’s professional economic development. It is clear that the Twin Cities area is a magnet for UW graduates as it has added 234,000 jobs since January 2010, according to the Minnesota Department of Employment and Economic Development. At the same time, regions around Eau Claire, La Crosse and Duluth/Superior lost jobs over the last two years, according to the U.S. Bureau of Labor Statistics.

The migration of UW graduates to other states is a broader brain drain problem than the reciprocity issue, Hefty noted. Statewide, 60,000 of UW’s graduates aged 21 to 29 left Wisconsin for other states between 2008 and 2012. Does it make sense to build these campuses to educate students from other states simply to keep UW classrooms full? he asked.

Educating other states’ students is an expensive transaction for Wisconsin taxpayers, Hefty said. Could Minnesota and other states be paying more under these agreements? Would their students still attend UW campuses along the border if Wisconsin raised its prices? What would the impact be on UW System schools and their communities? On taxpayers? Are the agreements masking a more fundamental problem – or solution: less need for so many campuses in Wisconsin?

No one really knows, but the cost-benefits of these agreements deserve a closer look.

Michael Flaherty is president of Flaherty & Associates, a public policy strategic communications firm in Madison. He teaches a journalism class at UW-Madison’s College of Agricultural and Life Sciences