A league of its own
University of Virginia plans to use new freedoms, $3 billion campaign to blur the line between public and private universities

by Jack Milligan
for Virginia Business
December 2006

In 1819, Thomas Jefferson realized a cherished dream with the founding of the University of Virginia in Charlottesville. Not only did Jefferson conceive the idea of a great university "based on the illimitable freedom of the mind," he designed its buildings - including the iconic Rotunda - and hired the faculty. When the university finally opened in 1825, Jefferson invited students to dine with him every Sunday at his home at Monticello, a practice that continued until his death in 1826.

Jefferson envisioned U.Va. as a public institution with a mandate to contribute to the betterment of life in the new republic. A child of the Enlightenment, Jefferson saw education as a way to open the mind through the lever of reason. "[H]ere we are not afraid to follow truth whenever it may lead, nor to tolerate any error so long as reason is left free to combat it," he once wrote.

What would Mr. Jefferson think of his beloved creation today? One hundred and eighty-seven years later, U.Va. has emerged as one of the most prestigious universities in the country. It tied the University of Michigan at Ann Arbor for 24th on U.S. News & World Report's most recent list of top schools. Among public institutions, only the 21st-ranked University of California at Berkley placed higher. And if money is a sign of success, U.Va. has a larger endowment - at $3.5 billion and growing - than any other single public university in the country.

Yet the inheritors of Jefferson's legacy are ambitious, and they have set their sights high. Using freedoms granted by the state legislature last year, and with a $3 billion fund-raising campaign well under way, the university's leaders want to elevate it to the top 15 universities in the country, using the U.S. News ranking as a rough measuring stick. To get there, the university may take on more of a private persona in what is a grand experiment of sorts: redefining the model of a "public" university.

Casteen's legacy
John T. Casteen III, U.Va.'s president for nearly 17 years, has his own dream of what the school can become. A native of Portsmouth, Casteen received his bachelor's degree and a doctorate in English literature from U.Va. and has spent a significant portion of his adult life there as a teacher or administrator. Soft-spoken and reserved, he demonstrates an agile mind that skips effortlessly from one complicated subject to another. "John is a brilliant man," says Thomas F. Farrell II, the chairman and CEO of Dominion Resources, who is rector of U.Va.'s 18-member board of visitors. "You could talk to him for days and not come even close to exhausting the list of topics [in which he has extensive knowledge]."

Casteen took over as president in 1990 just as the state's worsening finances resulted in sharp cuts in funding for public colleges. He has worked to improve the university's standing even as it was forced to assume more responsibility for its upkeep. But Casteen isn't finished. He imagines "a public university with a link at the umbilical cord to its state, [but] with the academic caliber to compete with anybody." Casteen also believes that a public university should have the ability "to define priorities that are something other than reactions to last year's state crisis."

If Casteen and the board of visitors succeed, they will have redefined what it means to be a public institution in an era when taxpayer dollars provide only a small part of its funding. U.Va. received $166.9 million from the state this academic year, 8.5 percent of the university's operating budget. By comparison, the university got $177.8 million from the state in the 1989-90 school year, 26.2 percent of the budget. Ever since the state's fiscal crisis in the early 1990s, U.Va. has developed along a "public-private" model - a university that finances its public mandate largely through private means.

To the extent that "public" has been synonymous with second best, Casteen and the board want to eliminate the distinction between public and private by strengthening many university programs and pushing its academic standards higher. "The notion that the university has to be in some way of low quality in order to be public always seemed crazy," says Casteen.

Landmark law
Such high aspirations would be impossible without the Restructured Higher Education Financial and Administrative Operations Act of 2005, a landmark law that gave Virginia's public universities more flexibility in managing their affairs. Three schools - U.Va., Virginia Tech and the College of William & Mary - negotiated a higher level of autonomy with the state. They now have the authority to set their tuition, fees, and room and board charges, and also have considerable freedom in such areas as financial management, capital projects, lease agreements and human resources.

The restructuring legislation placed Virginia at the vanguard of a nationwide trend where state-supported colleges and universities are re-examining what it means to be public in an era of declining public support. "Without a doubt, college presidents around the country are making the argument that public support is on the decline and they feel that they are justified in asking for a new relationship with their states," says Lara K. Couturier, an educational consultant who wrote an extensive report on the Virginia initiative for the National Center for Public Policy and Higher Education in San Jose, Calif. Other states are watching the Virginia experiment closely, adds Couturier.

While this may sound a lot like privatization, the state still retains a significant amount of control. University workers remain state employees, and the state still owns U.Va.'s land and buildings. The governor appoints members to the board of visitors, and the state retains the right to revoke the management agreements with the three schools. "There has never been a plan to become private," says Leonard W. Sandridge, U.Va.'s chief operating officer. "That is simply not something that we seek."

What U.Va. has gained is the ability to manage its affairs with much of the same latitude that private universities enjoy. Sandridge is responsible for a vast operation with nearly 13,500 undergraduates, another 6,400 or so graduate students, about 13,000 full- and permanent part-time employees and a real estate empire spread over 1,682 acres. University properties include a teaching hospital, four major sports stadiums and an 18-hole golf course. With an operating budget this year of $2 billion, the university is a large and complex business enterprise.

Sandridge offers several examples of how the new arrangement with the state will allow U.Va. to operate more efficiently, beginning with capital projects such as the construction of a building. Previously the university had to go through a lengthy approval process that included authorization by the General Assembly for all construction projects - even when no state money was involved. Now the university is able to develop projects on an accelerated time table, which will save millions of dollars on the construction of a research facility.

The university is also free to develop its own human resources system, an arrangement that allows for personnel policies that better fit its operations, including a large health-care business with highly specialized job functions and an around-the-clock work cycle. And it can raise in-state tuition without seeking state approval. Or as Sandridge puts it, "We gain the ability to price our product."

Competing globally for talent
The latter will help provide the means to compete globally for talent, which is crucial if U.Va. is to rise further in the ranks of top universities. "With regard to faculty members, and increasingly to all employees, it's letting us come closer to meeting market value in the compensation," says Casteen. "It has been a special problem with regard to faculty because the hiring market is national and increasingly global because of the way in which faculty members in certain specialties like the sciences, engineering or medicine move globally."

To make his point, Casteen cites the case of Dr. Barry Marshall, a research professor in U.Va.'s School of Medicine who was awarded the 2005 Nobel Prize in medicine for his work on the causes of peptic ulcers and gastric cancer. Marshall holds dual appointments at U.Va.. and the University of Western Australia - but lives in Perth, Australia, and travels to Charlottesville only once a year. "That kind of global movement in faculty is the marketplace that we work in and to be able to meet the market in terms of how much people are worth is an important step," Casteen says.

Casteen makes another point about how the research game is played at major institutions. Up-and-coming researchers today are younger than they were 20 years ago, and their research projects often have a shorter duration, making scientists more mobile. It is important to be able to attract cutting-edge researchers even if they don't plan on spending their career at the university. "What the [restructuring] legislation does is provide a platform for developing some competitiveness with regard to hiring and preparing these people," Casteen says.

In exchange for these new freedoms, U.Va. has agreed to work closely with Virginia primary and secondary schools in improving their quality of education, to help stimulate economic development in some distressed regions, to take more transfer students from the state's community colleges and to provide more financial assistance to Virginia students.

During the next 10 years, the university intends to expand its enrollment by 1,500 students (including 1,100 undergraduates). While tuition will rise, Farrell says it will still be significantly lower than the top-ranked private institutions that U.Va. measures itself against. "I think we will continue to charge in-state students far below market tuition," he says. "I think our state is getting one hell of a bargain."

The university's in-state tuition for Virginia residents in 2006 is $7,703. That's well below tuition at highly ranked private schools such as Duke ($33,963), Stanford ($32,994) and Princeton University ($33,000). U.Va.'s out-of-state tuition is $25,945.

Although the restructuring legislation was approved by substantial margins in both houses of the Virginia General Assembly, some politicians are concerned about where the state's top-tier public universities are headed. Former Virginia Gov. James S. Gilmore III worries that in-state tuition at U.Va., William & Mary and Virginia Tech might someday be too expensive for middle-class families. "There's a sense that public universities are pricing themselves above the public's ability to pay," says Gilmore, who earned bachelor's and law degrees from U.Va. and has two sons enrolled there now. "The middle class that funded the university with their tax revenue [but] don't get any financial aid can't afford it any more."

Former Del. Mitchell Van Yahres, D-Charlottesville, who retired last year after 24 years in the legislature, says he voted against the restructuring plan because he feared that new employees would be paid less and receive fewer benefits than current employees. Van Yahres also worried about the effect that tuition increases would have on Virginia families, although he saw few alternatives to the restructuring plan in the face of declining state support. "That's the catch-22 situation we have," he says. "My reservations are tempered by the fact that the state isn't meeting its obligations. That is the only recourse they have."

$3 billion campaign
In September, U.Va. announced its goal of raising $3 billion to strengthen academic programs. Robert D. Sweeney, senior vice president for development and public affairs, says U.Va. has not set its sights on competing with the top private research universities across the board, but it does want to develop "selective excellence in science and technology while retaining a strong undergraduate experience." Scientific areas targeted by the university include information technology, regenerative medicine, nanotechnology and the environmental sciences.

This is one of the largest fund-raising campaigns undertaken at a public university in the U.S., but U.Va. demonstrated its development bona fides in the late 1990s when it raised $1.43 billion to offset the decline in state funding. "That was largely a campaign to save the concept of the university here," says Casteen. As soon as that effort had concluded, according to Sweeney, Casteen directed him to prepare for another, bigger campaign. "He said, 'I want to look at the next generation of benefactors,' " recalls Sweeney.

U.Va. hopes to conclude the current campaign by the end of this decade and has already raised $1.1 billion. But to hit the $3 billion mark, Sweeney says, his team will have to secure more than 600 gifts of $1 million or more, 133 gifts of $5 million or more and two of at least $100 million. About 45 percent of the money will come from alumni, 20 percent will come from people who did not attend the university, and the remaining 35 percent will come from corporations and foundations.

Much of Casteen's time during the next several years will be spent on the road asking for money, mostly from large donors. "John Casteen is always the centerpiece of that conversation," says Sweeney. As of mid-October, Casteen was focusing on 10 very large potential benefactors. "If he gets the gifts, we will be in very good shape for the next $1 billion," Sweeney says. Casteen - whose pay and benefits last year totaled $677,980 according to the The Chronicle of Higher Education - has some skin in the game as well: He and his wife, Betsy Foote Casteen, have given the campaign $500,000 with the stipulation that it be used to provide scholarships for the children of U.Va. staff members and faculty.

Ultimately the money from this latest campaign will be spread around much of the university, including a projected $554 million for scholarships and fellowships, $553 million for new and expanded facilities, $402 million for the university's endowment and $422 million for health-care research.

Driving force in local economy
There's no question that making such a large investment will change the university and the community around it. U.Va. is already the driving force behind the local economy - and its growth plan is poised to expand this role even more. Because the university's tax-exempt status shelters a great deal of its operations from real estate taxes, much of the impact comes through other means, such as sales taxes students pay on their purchases or the relatively high property taxes paid by faculty members living in Charlottesville and Albemarle County. When U.Va. expanded its football stadium by 18,500 seats (including luxury skyboxes) a few years ago, Charlottesville officials told Sandridge that it boosted the city's sales tax revenue by $4 million to $5 million a year.

Unquestionably, the most important economic benefit that U.Va. provides to the local economy is stability. "We are always lagging behind a decline in the economy, and we are the first to come out of it," says Albemarle County Executive Robert Tucker. Charlottesville City Manager Gary O'Connell agrees and points to the fact that the city and county have triple-A credit ratings, which he attributes to the university's presence. Charlottesville's rating was recently affirmed by Standard & Poor's Rating Services and Moody's Investors Services, and O'Connell says the agencies were not the least bit concerned by the presence of such a large employer in the community. "If we had a 13,000-employee private employer, they would be concerned," he says. "But there are no concerns about the university."

With U.Va. poised to grow even more, the university, city and county already have a well-coordinated process in place to plan for it. Representatives from all three entities meet quarterly under a 25-year agreement that essentially acknowledges that U.Va. is the 800-pound gorilla in the room when it comes to the local economy. A good example of how they have been able to work together is U.Va.'s new John Paul Jones Arena. Although the facility is in the county (as is the vast majority of the university's property), all of the necessary utilities come from the city over city property. "I've been here 25 years and from my perspective we're probably in as good a place [when it comes to planning] as we've ever been," O'Connell says.

Concerns about accessibility
If there's a potential downside to the university's lofty ambitions, it might be this: The dividing line between being an elite institution and becoming elitist can be hard to discern - particularly for those outside the hothouse enclosure of higher education. Should an increasing number of Virginia parents find that higher tuition costs make the university less accessible, they also may wonder what it means to be a public institution if their children can't go there.

Sandridge says that U.Va. will continue to create as diverse a student population as possible by taking applicants from throughout the state. (State law mandates that U.Va. take approximately 65 percent of its first-year students from Virginia.) The university could raise its average standardized test scores for in-coming students appreciably if it was willing to take a disproportionately large number of students from wealthy Fairfax County, "But that's not what we ought to do," he says. Currently 50 percent of admitted students score in the range of 1220 to 1430 on the combined math and verbal sections of the SAT test.

According to Farrell, U.Va.'s board of visitors is still very much influenced by the history of the place. "Thomas Jefferson had as his founding vision that this would be a public university," he says. "We take that very seriously." For Farrell, being "public" means maintaining the university's strong commitment to professional programs such as education and nursing, which most top-ranked private institutions don't consider to be part of their mission. "You're not going to find a nursing school at Princeton," Sandridge says.

The university also will look to expand its AccessU.Va. financial aid program that is providing $20 million in financial aid to 3,199 undergraduate students this year, including 826 students who are at or below 200 percent of the poverty line and therefore receive a full ride. And Casteen believes that U.Va. has an obligation to Virginia to play a leading role in economic development and to work on important research projects that can ultimately help lead the state's economy in the 21st century.

But mostly what Casteen feels these days is a strong desire to see the new fund-raising campaign through to its conclusion. It could take as long as five years, although the university has not placed a time limit on it. Casteen intends to stay on as president until the goal is met. "I think the work left to be done is at least as important as what we've already done - and maybe more," he says. "I'm 62 years old, so I'm beginning to feel a sense of urgency about getting it done."