Washington, DC, USA. In Michigan, where many enterprises are struggling to survive, the renowned University of Michigan is in the midst of a construction boom and hiring spree.

Michigan State University, on the other hand, plans to lay off faculty and cut programs, blaming state funding that is lower than it was a decade ago.

Flagship universities in other states, including Colorado, Virginia, Vermont and Wisconsin, are also prospering, while their lesser-known counterparts suffer from vanishing state appropriations.

So, why not change the arrangement and require big-name universities to responsibility for their own financing, leaving more state money to support the other state schools? As legislatures face their toughest budget year since the recession began, the idea of giving a few universities autonomy to control their own finances has some appeal.

“Maybe we’ve lived beyond a time when states can continue to fund the big institutions. There’s so much mobility across state lines, we may want to rethink this,” says Sandy Baum, senior policy analyst with The College Board, which tracks college tuition and finances.

But as the recession squeezes more people out of the job market and onto college campuses, those opposed to privatizing state universities argue that states must continue to support all levels of higher education, including community colleges, research institutions and four-year colleges, or risk losing their competitive edge when it comes to attracting new businesses. The fiscal health of the entire state system would suffer even more, they say, if the prestigious universities were taken out of the equation.

“There’s a political argument that you don’t want to pull all of your cherries out of the bowl,” says Jane Wellman, executive director of the Delta Project, which analyzes higher education financing. “State universities have benefited for years from public investment and they have a public responsibility to serve that state,” she says.

In general, governors and lawmakers have been loath to loosen ties with the research institutions that capture the imaginations of voters and fuel economic development. But even when autonomy has been granted, the results have been mixed.

In 2004, Miami University of Ohio became the first public institution to eliminate lower in-state tuition and replace the subsidy with automatic scholarships for state residents. But enrollment suffered and the program was discontinued in 2007. A year later, Virginia’s top schools — University of Virginia, the College of William and Mary and Virginia Polytechnic Institute — were granted permission to raise tuition and make other administrative decisions without legislative approval, with some success. Colorado, Massachusetts and Pennsylvania have also eased restrictions on some state schools.

This year, lawmakers are proposing an increase in out-of-state tuition for the State University of New York (SUNY) system where rates are lower than in most states. But economists at the Nelson A. Rockefeller Institute for Government are cautioning such a tuition hike could hurt enrollment and the local economies at certain campuses.

None of these experiments eliminated state funding or state control altogether, but if a state were to make such an offer, experts say no state institution would want to give up its dwindling share of state money, no matter how much it could raise from out-of-state tuition, private donations and federal grants.

“If a state proposed a deal to any of the universities that are complaining about lack of flexibility — no more state rules and no more state money — they’d turn down the offer,” says Scott Pattison, executive director of the National Association of State Budget Officers.

One big reason is that even when institutions like the University of Virginia, for example, are able to raise enough outside funding that state appropriations represent only a minority share, the university can’t use the outside funding for basic undergraduate education.

The federal government and corporate donors tend to earmark their money for specific research projects and programs, while individuals typically give money for scholarships, new dormitories and other facilities that may bear their names. That leaves these colleges in the same boat with others who use tuition and state money to cover basic undergraduate teaching staff and operations. And because raising tuition is a fallback for replacing revenue, states are more inclined to consider cutting state funding to colleges and universities when state revenues run short.

This year, fiscal experts predict higher education will take an even bigger budget blow than last year when 33 states slashed funding to four-year colleges. State support for higher education — the third largest general fund expenditure after health care and K-12 education — has risen steadily over the last 30 years, but total costs per student have gone up more. And although higher education costs are rising faster than health care costs, its proportion of the budget has shrunk as health care, pensions, corrections and other costs have grown.

As is typical during a recession, policymakers are approving tuition hikes and cutting back scholarship funds. In California, where the university system has historically been the best-funded in the nation, University of California’s Board of Regents approved a plan last year to raise tuition 32 percent. Florida students may face 15 percent annual tuition increases for the next several years. University of Illinois plans to charge at least 9 percent more than it did last year, and University of Washington may charge 14 percent more at certain campuses. Many universities also are laying off staff, limiting incoming freshman classes and eliminating programs and curriculums that don’t pay for themselves.

Rather than continue to pass on more costs to students, the National Governor’s Association recommends that states leverage their investments to force universities to cut costs and increase degree completion.

To that end, several states — including Florida, Indiana, Ohio, Texas and Washington state — are or are proposing to base a portion of funding on degree completion, rather than enrollment.

And to make diplomas a little easier to get, 17 states last week formed a pact to ensure that course credits can be transferred from one university to another when students transfer.

Stateline.org is a nonprofit, nonpartisan online news site, with funding from The Pew Charitable Trusts. TS-Si thanks Pew for its support and cooperation.

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