07/18/2012 07:24 pm ET Updated Sep 17, 2012

Lost in Translation

Twice in recent days I've been made to feel as if someone threw a spectacular party to which I was not invited.

The first time was while reading "Fixing College," Jeff Selingo's provocative op-ed in The New York Times. The foundational premise of the piece is that higher education must now "make up for the mistakes it made in what I call the industry's 'lost decade,' from 1999 to 2009. Those years saw a surge in students pursuing higher education, driven partly by the colleges, which advertised heavily and created enticing new academic programs, services and fancy facilities." If I understand this argument correctly, it is that colleges missed the opportunity to use this boom period as a time for creative innovation and enhanced efficiency and instead charged more and more for a highly coveted product for which, through extravagant spending, they were themselves manufacturing additional demand.

Because this decade corresponds more or less exactly to my own first decade in academic administration, first as dean of faculty at Lawrence University and then, since 2003, as president of Macalester College, the author's contention provoked a good deal of soul-searching, which quickly moved to a good deal of head-scratching, since my experience of those years had felt so unlike the description offered in the op-ed.

The second head-scratcher came while reading a letter sent by the innocuously named, but politically charged, American Council of Trustees and Alumni to all members of the Macalester board -- though not to me as president; the ACTA almost never sends its unsolicited but often very pretty and expensive mailings to administrators or faculty members. The signers of this letter, Clayton Christensen and Henry Eyring, describe the "flush years" prior to the end of 2008 when "the agenda tended to focus on growth and on ways to fund it. Administrators routinely enlisted you in fundraising campaigns and -- if you served on the board of a public institution -- might have asked you to lobby legislators to support new building projects, curricular programs, salary enhancements, and student aid."

My reaction? Less soul-searching this time, since the ACTA letter is an over-simplified caricature of institutional behavior, but enough annoyance to inspire some investigation into why the so-called "lost decade" or the "flush years" seemed so different to me than to the authors of these analyses.

Let me offer an alternative take, from the perspective of someone who has actually sat in board meetings and had to manage an institution.

Colleges and universities have three main sources of revenue aside from the tuition and fees paid by students: governmental subsidies, which are most important to public institutions; endowments, which are most important to that relatively small sub-set of private institutions that are fortunate enough to have ones that are sizable; and fund raising, which makes up only a tiny percentage of the operating budget at any institution.

What happened to these sources of revenue during the lost decade of opportunity?

In my own state of Minnesota, using constant 2010 dollars, public appropriations for higher education per FTE stood at $9,208 in the year 2000. In 2009 they stood at $6,516. Nationally the decline among states was less steep but still dramatic: from $8,035 in 2000 to $6,951 in 2009. In other words, for those institutions that rely heavily on state support, there was much less money to go around at the end than at the beginning of that period.

As for endowments: in June of 1999, the value of the Macalester College endowment stood at $519 million; a decade later, it stood at $546 million. That is, even before adjusting for inflation, this source of about one-third of the college's operating budget saw almost no growth over the course of ten years. In between, of course, sit two recessions -- the second of historic proportions -- and wild swings in the financial markets that have made budgetary predictions feel like spinning a roulette wheel.

What was chiefly lost during the "lost decade" was growth in revenues from sources other than tuition.

At the same time as public funding declined and investment returns stagnated, the cost of hiring the educated workers that comprise the vast majority of college employees (and the largest portion of college budgets) increased at a rate much faster than inflation, the cost-of-living index, or the cost of hiring workers without post-secondary degrees. So too did the cost of such goods and services as energy, library books, and health care.

Given the lack of growth in two major sources of revenue -- public subsidies and investment returns -- colleges and universities turned to two others to fund their increase in expenses: posted tuition and fees, which rose rapidly, and fund raising, which also grew rapidly until the financial collapse of 2008. I share the view of Mr. Selingo and others that this rate of growth in price is unsustainable, and in fact, at private institutions, it has begun to slow. Where we disagree is over the diagnosis of its causes, and I believe my diagnosis to be more firmly supported by the data. As for the ACTA letter, I'm not sure that references to the data are relevant.

It has been well documented that the first decade of this century was one of flat or declining net worth for those in the middle and working classes. As a consequence, colleges, a large number of which provide a good deal of need-based financial aid, have seen their aid budgets increase at a much faster rate than their posted prices. At Macalester, expenditures on financial aid have grown at roughly three times the rate of our posted price since the onset of the current economic downturn. In a world where both government support and family worth are declining, colleges have had to step in with subsidies that have cut deeply into revenue.

Changes to American higher education are both important and necessary. But unless they are based on an accurate understanding of both the present and the past, they are likely to be changes for the worse. The years prior to September 2008 were certainly ones during which colleges and universities made mistakes, something that is of course always easiest to see retrospectively. But they were also years of uncertainty and economic pressure, and can be described as "flush" only in comparison to the even more difficult years that have followed.