Chancellor Dan Klaich: are we building or destroying Nevada?

SUBMITTED OPEN LETTER

Over the past five years, memos from the chancellor have become a bit of an institution, serving as everything from a weekly bulletin to a call to arms.  When I was appointed chancellor seven months ago, I decided to focus these messages on the critical role of higher education in building the New Nevada we all desire.  I have focused on the investment that higher education is and the many ways it touches our communities for the better.  I also tried to keep these messages to no more than two pages.

I find myself departing from that focus and length now. 

Today, my message on the critical role of higher education in building the New Nevada continues, but it has become a Paul Revere warning to say that the new economy may never come if more major cuts to higher education come to pass. 

I had the opportunity this past week to update the Board of Regents and the Legislature’s Interim Finance Committee on the current budget status and I will share some of those thoughts with you now.

Using hatchets to achieve short-sighted and short-term planning

Since early December, we have received calls from Governor Gibbons for budget cut plans of 1.4, 3, 6, 8 and 10 percent.  Before we could reasonably respond to any of those calls the magnitude of the current budget deficit began to emerge. 

You know what happened in January.  As the month passed and as the meeting of the Economic Forum approached, reports of a growing deficit became more and more frequent. That meeting was held and the number was announced.  Our collective breath was taken away and any planning we had done became moot on that terrible Friday afternoon in January. 

It is important to make sure you know that if cuts of the magnitude discussed come to pass that we will be unwinding nearly a decade of significant progress in higher education and we will be asked to do it in only a few weeks. 

This is truly an absurd proposition and no one should confuse what we are discussing with the kind of carefully thought out plans that would normally accompany changes of this magnitude and their implementation in higher education, or for that matter, in any private business. 

We also need to be sure that the Legislature understands the cumulative effect of a series of significant budget cuts.  This latest and largest call for reductions is, after all, built on top of a series of other debilitating cuts, and could add cumulatively to an almost 30 percent decrease from approved 2009 state General Fund appropriations. Let’s remember that in the last session of the Legislature, the NSHE took the largest General Fund cut (24 percent) of any major state agency, while some state agencies actually received increased appropriations. 

To meet the previous cuts, NSHE campuses have already made significant operating reductions.  Services to students have been curtailed, faculty and staff have been asked to assume more and greater responsibilities as a result of vacancies, hiring freezes and furloughs, students have been turned away and turned off, and programs closed. System-wide, we have eliminated more than 700 positions constituting about 9 percent of our workforce while facing increasing enrollments.  All of these actions were in response to prior budget cuts. 

While the size of the current budget hole has surprised us, as it has surprised everyone, the campuses have been managing their institutions with one eye on the budget all along.  We don’t want anyone to think that higher education or any institution is divorced from reality and not acting accordingly.  While trying their best to protect core missions, every president has already taken actions in anticipation of further cuts like freezing hiring; canceling operations & maintenance projects; closing programs, units, centers and institutes; putting in place stronger enrollment management practices, delaying purchases; and limiting travel, etc.  However, these are activities that produce savings in single digits and not the kind of reduction that could result from the projections of the Economic Forum. 

Make no mistake, higher education in Nevada is already changing and not for the better.  There is no easy or simple way to make cuts of the magnitude being contemplated.  Nor is there any way to fully mitigate the impacts.  

What do these cuts really mean? 

If cuts of the magnitude being discussed by the governor and Legislature are made, we could have to eliminate entire institutions, colleges and professional schools in our System.  While I am not proposing such a drastic action at this time, this should give you a context for the size of cuts we are actually talking about today.  There is no reason to cry “wolf” or claim that “the sky is falling” – the reality is so ugly that what seems exaggeration merges with fact. 

A 22 percent reduction equates to $110 million for next year and $37 million for the remainder of this fiscal year. A cut of this magnitude will roll back state funding to higher education to about the 2002 level, yet we would still have to meet the needs of 20,843 additional students we have enrolled since then.

Reducing Faculty & Staff

In order to find $110 million to fill this budget hole we could reduce the state appropriated salary line by 20 percent or add five more furlough days per month…and somehow try to get a full month of education done with six fewer business days.

Taxing Students

We could lay this reduction on the students, which is the same as a selective tax on them and their parents, by increasing fees System-wide by about 50 percent on top of the 39 percent that fees have already been increased in the last five years.  This equates to an additional $2,200 per year to a full-time Nevada resident attending UNR or UNLV.  Of course, this assumes all our students would be able to remain in college at these increased levels – not a reasonable assumption, making the real increase needed to fill this hole even larger. 

Also keep in mind this puts low income and under-represented students and their families particularly at risk because Nevada’s need-based financial aid is essentially non-existent.  It also runs the risk of putting college out of the reach of many Nevadans and creating a permanent lower class in this state to whom we deny the benefits of education. 

Letting NSHE’s Eight Institutions Deal with the Cuts

If we just spread cuts of this magnitude among the campuses and direct them to deal with it, what should you expect? 

1. We could deny students access to education. Since news of these cuts broke, I have heard of many giving up hope and planning their futures elsewhere. Nevada is already 50th in the nation for the chance of a high school student completing his or her degree on time.  
2. We could damage the quality and integrity of the faculty.  Jobs will be lost adding to an already crushing unemployment burden on the state and these will be high quality and high paying jobs that add greatly to the economy.  In fact with this money taken out of the economy, we know that for every layoff we would lose about another one-half job in private sector industries that rely on public spending for their existence.   
3. We could threaten our externally funded research and its infrastructure, directly impacting not only the dollars from that research that flow into our state economy but the very missions of our research institutions.  These are dollars that the research institutions bring into the state to support and grow our economy with no burden on the Nevada taxpayer. 
4. We could lose the ability to train the workforce necessary for the very economy we wish to attract.  Nevadans, who in record numbers wish to upgrade their skills to move off the unemployment rolls, will be told “there is no room.” 
5. We could close entire schools, departments or colleges, with little initial savings because we have students in the pipeline who must be given the chance that we have promised them. 
6. We could add to the decay of our multi-billion dollar infrastructure by deferring maintenance. 
7. We could destroy a System that has taken decades to build and will take even longer to rebuild. 
8. We could be party to creating a state with the worst higher education funding in the country, a powerful disincentive to any company wanting to relocate in Nevada.   
9. We could drive Nevadans and Nevada businesses out of state.  This will have an immediate and long term effect on Nevada, economic development and ultimately our recovery. 
10. We will “own” a system of higher education that does not match our spirit, our needs or the goals of this state.  In fact, we will begin a downward spiral of the economy that will perpetuate and accelerate the budget problems of today.  As is so often the case, the easy solution, indiscriminate and never-ending budget cutting, is no solution at all.   
11. And finally, we could kill our ability to recruit top-notch faculty and students. Indeed, we are already losing some top faculty members who are being recruited actively by other institutions. The quality gap between NSHE and top-tier institutions will continue to grow. Yet we would raise our tuition to the level where, with reduced resources, we will not be able to deliver the quality students expect and deserve.

 Since too many of our elected leaders seem to be so focused on the bottom line, allow me to summarize the previous points: Nevada public higher education will no longer be competitive with any state in the U.S., let alone the Western states. Our main competition for students, faculty, and businesses needed to diversify our economy will be with Third World countries. 

Where do we go from here?

I have spent a great deal of time detailing the impacts of the budget reductions that are being discussed.  Some have criticized me for that, saying that I am rolling over and not fighting for higher education. 

Nothing could be further from the truth. 

However, when our public rhetoric is dominated by calls for no new taxes, when we hear that (as our state government dissolves before our eyes) we have a “spending problem,” and when I hear no one call for additional revenue sources to support essential services, you can understand why I have a certain level of anxious pessimism. 

But do these sound bites match reality?  I don’t think so. 

In Nevada, we have one of the smallest per capita state governments in the country.  There is no huge bloated bureaucracy in the Silver State and anyone telling you so is lying.  We also have one of the lowest per capita tax burdens in the country so visions of “Joe or Jane Nevada” buckling under the burden of big government with his and her tax dollars is also untrue. 

The 22 percent cut proposed for higher education is $110 million.  I have detailed the results above if cuts approaching 22 percent are taken.  But is there a better route for us to take as a state? 

If we raised our sales tax by one quarter of one percent we would raise about $88 million.  For the average Nevadan earning $50,000 and spending 10 percent of his or her earnings on taxable sales (remember that most food items and household maintenance expenditures are not taxable), the additional taxes would amount to $12.50 PER YEAR!  That is a couple of Happy Meals or a lunch for two at Panda Express once a year.  Can anyone really argue that this is the difference between a family making it or sinking?

If we raised the upper rate on the modified business tax from 1.17 to 1.27 percent only on those larger businesses being taxed, we would raise about $24 million in additional revenues.  A business with a payroll of $1 million would pay additional taxes of $750 per year or a little more than $2 per day.  If that is the margin of a profit in a business that size, then it has much greater problems than Nevada’s tax structure. 

By comparison, remember fee increases to university students and their parents to cover this budget hole would be $2,200 per year.  And we haven’t even talked about other industries, such as mining, that can do more for the state right now while they reap record profits from our precious, diminishing and irreplaceable natural resources. 

This budget crisis cannot be solved with new taxes alone, and certainly there are concerns with this budget other than education.  There will be cuts, and I expect cuts to education.  Everyone must share the pain to heal our state.  What I am saying is that to pretend that cuts alone should be the answer is wrong. 

If you want to continue to live in a state that consistently ranks in the bottom of every education and quality of life measure, then by all means, sit back and watch your state burn. 

However, if you dream of a Nevada where you have pride in the quality of our life, then join me in doing something about it. Nevadans need to step up to the plate and pay for what we value, and we must hold our elected leaders accountable for their actions and stand by them when they do what is right. Now, it is time to do what is right for Nevada’s future and not what is right to get re-elected in a sound-bite society. 

Write and call the governor and your legislators.  Demand a reasonable and balanced response to this crisis that not only allows us to balance our budget, but saves our future. 

Sincerely,

 Dan Klaich
Chancellor
Nevada System of Higher Education