Long ago Jim promised a series on law schools as public utilities. It's a great idea and current budget crunches make the parallel even clearer. One basic comparison is that in regulated industries, regulators are not that interested in how much a utility spends. Instead it is how much is passed along to rate payers. In higher education, the question is not how much a unit spends but how much is passed onto to taxpayers.
My own school is dealing with the budget crunch by reducing the size of the entering class (lowering the pass through) and raising tuition (to offset the loss) in order to avoid downsizing the budget itself. I hasten to add that our tuition is way, way below the average for public schools so we anticipate little reaction on the demand side of the market. The key point of the plan is that we keep the extra tuition so, as my dean puts it. " substantially all of the dollars generated are returned to the benefit of the college whose students paid those dollars." As my prior posts indicate and Rick Matasar has also said, it's not all that clear that the funds are used for the benefit of students as opposed to avoiding faculty sacrifices, but that is a different matter.
In various regulatory structures, cross subsidization refers to the idea that some revenue raising ventures earn enough to subsidize other activities. In a university, it is possible to see professional schools as those responsible for cross subsidizing those activities that are necessary to have a top university but which do not generate comparable revenues. For example, is it possible that medical schools and law schools should be the cash cows for the humanities? In a regular business we might cut loose a product line that does not carry its weight. Is the same logic applied to higher education? And from a slightly different perspective, if the rationale for public law schools their "public good" character and the positive externalities they produce, why should the students pay more?
In any case, the move to keeping what we bring in is obviously a step toward privatization. My hunch that that most faculty at public law schools would regard that as a bad idea. But then they seem to like semi-privatizing and not being part of the University when times are bad.