Decentralized University Budgeting, United with a More Flexible Tuition Structure

With tuition revenues replacing state appropriations as the primary source of public university funding, it becomes difficult for universities to use historically based budget allocations and inflexible tuition structures to subsidize high-cost programs. It is argued here that combining targeted subsidies with a flexible tuition structure and decentralized budgeting can increase enrollment, reduce average tuition, increase welfare, and accommodate lower taxpayer support. Effective changes in the structure of tuition can be implemented with legislators required to know only average tuition. These results are illustrated using data from two major public universities: the University of Iowa and the University of Florida.