<p>^^ taxguy,
It’s politics, plain and simple. There’s a popular misconception that public universities get most of their budgets from state legislative appropriations. That’s generally not true anymore, certainly not at the better publics where state support has been shrinking as a share of total revenue for decades now. They’ve become much more dependent on endowments, on annual alumni giving, on external research grants, on tuition (including in some cases a heavy dose of OOS tuition), and various other non-tax-based revenue streams. In extreme cases, e.g., the University of Michigan, state funding amounts to a paltry 6 to 7% of the university’s total budget. Still, the $300 million or so the university gets from the state is an important revenue source, all the more so because it comes with no strings attached. OOS tuition and fees are already high at Michigan, just a little lower than at top privates; but that’s a market niche the university can comfortably occupy with OOS kids as a high-quality but slightly value-priced alternative to their own, generally weaker in-state publics and more costly privates. But OOS tuition and fees probably can’t rise much there if the university is to remain competitive for those applicants. </p>
<p>On the other hand, there probably is some room for in-state tuition to grow. But too-rapid growth in in-state tuition comes with the risk of loss of market share to cheaper in-state alternatives (e.g., Michigan State), as well as political risk—the danger that the legislature, in a fit of political grandstanding, will further slash appropriations or move to impose statutory restrictions on the university’s budgeting process and tuition levels. So it all involves a fine political balancing act.</p>