There's been an evolution happening in recent years in the nature of "public" universities. This evolution predates the current economic downturn, and like all evolutions it's hard to watch - sort of like trying to watch grass grow. You just wake up one morning and see that your lawn needs mowing.
In this case, California (always on the leading edge, even downwards!) provides an excellent glimpse into what's happening and where it's headed:
But the underlying dynamic is laid bare here. After years of steadily declining state subsidies, followed by a few years of drastically reduced state dollars, "public" institutions face a choice: cut back on how much they do (meaning how much education they provide), or find ways of raising more revenue. Most can't raise tuition freely - states regulate tuition increases, especially on in-state students. And after decades of above-inflation increases, that's probably not feasible anyway.
Downsizing isn't really an option, either, because the demand for higher education - especially cheaper in-state public higher education - is rising. Students have been shifting from private to public universities for a few years, and are unlikely to reverse that trend in large numbers anytime soon. National leaders in both parties (with President Obama leading the charge) are calling for more students to get college degrees, not less. Of course, none of them says who's going to pay for it...
That some "public" universities should reach an obvious conclusion and start chasing out-of-state students, who pay more tuition, should come as a surprise to no one. This is simply a way of balancing the books, one that businesses engage in all the time - go after the customers willing to pay more for your product.
The argument for why this is bad rests on a premise now more apparent than real. At heart, people believe that state-subsidized public schools should serve their own state first in large part because state taxpayers pay their bills. But what happens when the taxpayers don't pay the bills anymore? Do the taxpayers still get to make the same claim on the university's resources and attention?
I'll use my own institution as an illustration. 20 or so years ago, state subsidy dollars outnumbered tuition dollars 2 to 1. There were few other relevant sources of revenue (not much in the way of research funding or alumni giving), so the state was essentially paying roughly 60 - 65% of the university's cost. At that rate, a reasonable claim can be made that the university should serve the home state's needs first.
Fast forward to today. Tuition has grown, but state subsidies have declined, such that now the ratio is reversed: for every dollar we get in tuition, we get maybe 50 cents from the state. Combine that with more robust fund-raising and grant-chasing activities, and the money we get from the state now accounts for about 20% of the university's total budget. At that rate, how much claim do the state's taxpayers have in our efforts? How "public" are we?
I am deeply sympathetic to the position my colleagues in California have been put in, because there the drop has been much steeper and much faster. But the underlying problem is the same. States no longer have the wherewithal to support genuinely "public" institutions of higher learning. The Federal government supplies support primarily on the demand side, through student aid, which by many accounts has simply allowed universities to raise their tuition to eat up the extra money. There is little stomach either in higher education or in DC for a "national higher education policy", much less for federalizing the existing system.
What all of this means is that leaders of "public" universities now look at their balance sheets and budgets, and realize that they are running mildly subsidized private institutions - that they are, in effect, on their own. No one expects public funding to increase anytime soon. And so public university presidents, in an effort to keep the doors open and the lights on, increasingly think and act in ways their private counterparts have done for years. This will undoubtedly anger some people. But until those people pressure their state legislators into restoring state funding to truly "public" levels, that anger isn't going anywhere - because anger doesn't pay salaries and utility bills.