In 1874, the state of Colorado opened a School of Mines to support the industry that had sprung up with the discovery of gold. For generations, the school educated the geologists who were vital to the state's most lucrative business. Today, the gold mines are mostly closed, and graduates of the college are more likely to end up writing software than assaying precious metals in the Rockies.

But over the years, while the resource-extraction business was changing beyond recognition, the relationship between the School of Mines and the state of Colorado remained the same. In essence, the school was treated like a government agency. The Colorado General Assembly set the university's tuition levels, and every year, the legislature determined how much tuition could rise. Even purely academic decisions, such as what programs the School could offer, were decided by bureaucrats in Denver.

All of that is about to change. Last year, the Colorado School of Mines signed an unusual "performance contract" with the state. Under the terms of the contract, the school has promised to meet an impressive set of performance goals--a 55 percent five-year graduation rate, an 80 percent freshman retention rate, and 90 percent placement of all graduates in a relevant job or graduate program within one year. In exchange, the legislature has granted the school an unprecedented degree of freedom to manage its own affairs and set its own tuition levels. In effect, the Colorado School of Mines will become something exotic in the world of higher education--a "charter college."

Such institutions currently exist mainly in the dreams of educational reformers; Colorado School of Mines will be only the second institution to win approval of a full-blown charter program. But the idea behind charter colleges--more flexibility combined with greater accountability--is fast emerging as the focus of one of the most far- ranging discussions about American higher education since the 1950s. According to Brown University's Futures Project, approximately 18 states have recently implemented or are now considering some sort of accountability-for-flexibility arrangement. The ideas under discussion in such states as Colorado, Florida and Ohio may mean drastic change for colleges and universities over the next decade.

This dialogue between universities and state governments has been brewing for several years now. In the 1990s, as secondary school reformers began to explore system-wide performance measurement at the K-12 level, there was inevitable speculation about bringing similar discipline to the nation's 1,700 public four-year colleges, universities and community colleges. Initially, the leaders of these institutions seemed more intent on resisting these efforts than on addressing the concerns that motivated them. But with state revenues continuing to fall and educators waking up to the fact that demands for accountability aren't going away, there is a new willingness to talk on both sides.

College administrators nervous about rigid, system-wide accountability rules find the prospect of added flexibility intriguing. There's a good reason for that: The lives of many college and university presidents are exercises in bureaucratic frustration. "When I came here, I was crazy," says Florida State University President T.K. Wetherell. "I thought I was going to be running this institution." He quickly learned otherwise. A plan to tack a $100-a- semester surcharge on students' bills to modernize the school's IT infrastructure--approved by FSU's board, the student government and the faculty senate--was blocked by the state board of governors. So was a revision to the school retirement plan that would have saved millions. "They said, 'No, you can't do that, we do that,'" recalls Wetherell bitterly. "But if a school superintendent can do it, surely a university president ought to be able to do it."

Those are large frustrations. Countless small ones come up at every public institution every day. At many state colleges and universities, simple tasks such as purchasing office furniture or new computers that might be handled by a local office supply store require time-consuming interactions with state procurement agencies. Filling a vacant faculty position can take months of dealing with a state personnel agency. Approval for new academic programs can require prolonged negotiation with a state board of higher education or with the legislature. The reward for administrators who do persevere and manage to save money or reduce costs is often a reduction in funding in the next biennium.

But if college presidents are frustrated by the bureaucratic hoops they are required to jump through, state legislators are frustrated by something equally fundamental: They say they have no idea what students at most state institutions are learning. In the last fiscal year, state and local governments in the United States spent $66 billion on higher education, but policy makers who start asking questions about what governments get for their investment soon make a startling discovery: No one really knows. College and university students don't take a nationwide test, nor is there a sampling system that would allow the federal government or state governments to measure the value added by a public education. "It is," says Roger Benjamin, president of the Rand Corp.'s Council for Aid to Education, "somewhat astonishing to be in this situation in 2003."


What numbers do exist on the performance of public education are not particularly encouraging. Nationwide, only 50 percent of college and university students now graduate in five years. Only 6 percent of the lowest-income students ever graduate. According to the National Science Foundation, few of the students who do graduate emerge with marketable math or science skills. And while time-to-diploma has been getting longer, tuition has been getting higher. Between 1982 and 2002, the cost of college tuition increased by 118 percent more than the rate of inflation, and most education experts expect steep tuition increases for the foreseeable future.

In the 1990s, amid multiplying complaints about this problem--not enough data, and most of it depressing--many states began to consider addressing higher education's perceived ills in much the same way that they addressed the problems of secondary education, by tracking "performance indicators" such as number and percentage of accredited programs, degrees awarded, faculty workload and productivity, student satisfaction, pass rates on licensing exams and placement data on graduates. Between 1999 and 2002, the number of states with some form of higher education performance measurement increased from 25 to 44. Moreover, many states sought to create performance funding systems that automatically steered public money to schools that improved their results.

But this effort has not been very successful. The reason can be put very simply: College-level performance funding is a very difficult thing to implement. To understand why, consider the case of South Carolina. In 1996, that state's legislature passed a law that created the country's most ambitious performance funding system for higher education. Act 359 established 37 different performance indicators for South Carolina's 33 public colleges, universities, and technical and community colleges. By fiscal year 1999-2000, the state's Commission on Higher Education was supposed to begin allocating money based on how the schools had performed.

Almost immediately, the system ran into problems. For example, many of the indicators sounded arbitrary, or even contradictory. Measures that seemed appropriate to one school didn't fit other institutions particularly well. A high faculty-to- student ratio, for example, might seem cost-effective at a big undergraduate state school like Clemson, but raise doubts if applied to the Medical University of Charleston.

An equally serious problem was that once measurements were in place, South Carolina's flagship institutions didn't come out looking very good. Data from the second year of the program showed that the Citadel, the best-funded public four-year college in South Carolina, received a performance score of only 78 percent, while the unheralded University of South Carolina-Winthrop received 91 percent.

Given the stated goal of shifting public dollars into the most effective institutions, these results suggested that South Carolina would be better off diverting resources away from the Citadel and toward Winthrop. In practice, however, legislators weren't willing to let favorite institutions suffer. When 2000 rolled around, only 3 percent of state higher dollars were being allocated in a way that reflected institutional performance. Since then, the percentage of public funds allocated on a performance basis has fallen to zero. The best-performing institutions--schools such as Winthrop--have continued to receive far less generous funding than those such as the Citadel with more political clout.

"The system essentially doesn't work," says George Schroeder, the director of South Carolina's Legislative Audit Council, the investigative watchdog for the South Carolina General Assembly. "If you take the outcomes from indicators and look at schools and how they were funded, there doesn't seem to be a rhyme or reason in relationship to performance indicator."

Not every state has had such a bad experience with performance funding. Surveys by the Rockefeller Institute of Government's Higher Education Project show that policy makers in Missouri, Ohio, South Dakota, Tennessee and Connecticut all believe that linking money to performance-measurement indicators has improved higher education in their states. Florida is currently pressing ahead with ambitious performance funding plans. However, legislators in most states now seem hesitant to lay on new demands for public colleges and universities while simultaneously slashing their funding, particularly in light of the growing awareness that performance funding is hard to do. As a result, even states that remain committed to accountability have become interested in exploring other approaches.

One of those ideas is the notion of charter colleges. Eleven years ago, St. Mary's College, in rural southern Maryland, became the first public institution of higher learning to operate under a charter arrangement. St. Mary's struck an unusual bargain with the Maryland legislature. The school agreed to accept a yearly block grant that would rise only by the rate of inflation for government goods and services. In exchange, it won the flexibility to manage its affairs-- including the level of its tuition--as it saw fit. In effect, St. Mary's was acquiring freedom in exchange for a promise to take on greater responsibility for financing itself.

The agreement between St. Mary's and the state of Maryland was more about saving money than about improving academic performance. But as charter college advocates point out, a flexibility/accountability deal can be used for either purpose--or both. Colorado lawmakers decided to give the School of Mines charter status in part because the school, with the high overhead expenses of a scientific research institution, was difficult to fit into any conventional measurement category. Its arrangement with the state was thus a tailored solution to a fairly specific problem.

According to Robert Berdahl, a professor emeritus at the University of Maryland who has studied St. Mary's, the "$64,000 question" in higher ed is whether the same model can or should be applied to much larger schools. John Trefny, the president at Colorado School of Mines, is unsure. "There is certainly a potential for a new relationship between states and their institutions," he says. "I just would caution other schools to consider the differences if they move forward."

Among the obvious differences in schools seeking flexibility is what they ultimately want to use the flexibility for. At the moment, the item at the top of the list for most public institutions is the freedom to set their own rates of tuition. Currently, only 16 states permit public colleges and universities to do this. In most states, tuitions are established either by an executive branch agency or by a system-wide board of regents. Some critics complain that the entire flexibility movement is ultimately little more than a tuition-raising ploy.


But whatever the motivation might be in any individual case, the fact is that a growing number of public colleges believe individual agreements with state officials offer a new and promising model for government-gown relations. Last summer, the presidents of Oregon's seven four-year public universities wrote to the state board of higher education demanding greater freedom to conduct their own affairs. "If the state is going to withdraw its support," the presidents wrote, "it also has to withdraw the handcuffs and shackles that keep us from operating efficiently in an environment where we have to earn most of our revenue." Public institutions in Colorado, Florida, Oregon and Wisconsin have made similar requests.

None of these efforts have borne fruit so far, but that may be because the university presidents were slow to offer commitments in exchange for the freedom. Now some of the same schools are returning with new proposals that go further on the accountability front. Last year, the presidents of the University of Florida and Florida State sent Governor Jeb Bush a letter proposing a five-year "contract" under which both institutions would gain a large measure of autonomy while also agreeing to meet specific performance and enrollment targets. Florida's education commissioner is now considering the idea.

But at other state universities, presidents worry about where the movement for autonomy might ultimately lead. Richard Jarvis, the chancellor of the University of Oregon, supported last year's push for flexibility, but now he has decided it was a mistake and has scaled back the quest for more freedom. "It looked as though we were trying to stop being a state agency," says Jarvis. "What we've got to do is BECOME a state agency." In Jarvis' opinion, what Oregon universities need is a stronger relationship with political power, not a looser one. "When you look around the country at what public systems have done well in the last five to seven years, to me, it's always been on the initiative of the governor--it's gubernatorial leadership," says Jarvis. As far as he's concerned, breaking away from state control is no way to keep a governor interested.

The experiences of St. Mary's College, while widely seen as positive, offer some support for Jarvis' concerns. Two years after St. Mary's struck its bargain with the Maryland legislature in 1992, voters in Maryland elected as their governor a former University of Maryland professor--Parris N. Glendening. As governor, Glendening lavished money on the higher ed system. During his eight years in office, state contributions rose by more than 50 percent. St. Mary's, which had broken away from the conventional funding stream, largely missed out on that money.

The college's administrators consoled themselves with the thought that at least their exposure in hard times would be limited. However, that turned out not to be true. When Maryland's general revenues plummeted in late 2001, St. Mary's had to take cuts along with all the other state institutions. In short, St. Mary's missed the boom but caught the bust.

Was charter status a bad deal, then? Administrators at St. Mary's say no. "In fact," argues St. Mary's provost Larry Vote, "what is happening to the rest of the publics is that the percentage of public support is consistently dropping. Whether they want to be like us or not, the ability of the state to support higher education at the levels that were there 10 or 15 years ago is really being affected... We would much rather be in the driver's seat."

St. Mary's experience does raise a question about whether public colleges and universities, which ultimately remain subordinate to elected officials, are in a position to strike permanently enforceable deals with states. However, barring an unlikely reversal in state finances, the number of experiments along similar lines in public higher education seems certain to accelerate.

And that is bound to trigger a long-standing debate on what the words "public" and "private" in higher education actually mean. "We have all the ideals of public higher education," insists Torre Meringolo, St. Mary's vice president for development, "and yet we are more and more funded and governed like a private school. When someone asks me how do you describe St. Mary's, I say, 'We have a public mission but we act like a private college.'"