State universities' annual budgets are public record, and available to all their citizens. I strongly recommend that any concerned student--and uni staff/faculty, whom with the exception of administrators are usually just as much in the dark as their students--look them up and read over them.
With the exception of Virginia, Texas, Michigan and North Dakota who do it differently, that budget-setting process works like this: once a year, the chancellors of your state colleges go before the state legislature to present their proposed budgets for the next fiscal year, in line-item format, with every last dime earmarked for something specific--employee salaries and healthcare for the various personnel divisions; academic, residential, and recreational facilities; laboratory and information technology; student aid; librairies; etc. etc. They begin by presenting a detailed breakdown of where they've cut costs, and by which methods (outsourcing, layoffs, elimination of certain extracurriculars etc.), and conclude with a reminder that reduced appropriations mean higher tuitions and therefore further damage to their mission of providing an affordable in-state education for citizens, particularly the poor whose enrollment and retention rates keep dropping. The legislators then pore over the proposed budget line-by-line and decide exactly how much they'll provide for each breakdown. They then make their 'counteroffer,' at which the administrators respond: Okay, but realize we'll need to increase tuition by Y dollars to cover the difference. The legislators will then respond: Not good enough; trim a further X dollars per student by consolidating these three departments and outsourcing that one, then raise tuitions by Y minus X instead. The administrators reply, Okay--it's a deal, and both parties then sign off on the finalized budget. So, the process of securing a public college's revenue stream is a negotiation between administrators and legislators: administrators do not have the power to dictate tuitions, and legislators are constrained not just by how much money state tax policies currently provide, but also by what (if any) pressures their constituents--who, unlike public universities, vote and pay taxes--are putting on them to keep tuition costs down, without declines in academic quality.
As mentioned, a handful of states don't follow this process. As state appropriations for higher education progressively declined over the last three decades, a few of the hardest-hit university systems negotiated for--and got--freedom from both tuition negotations and out-of-state student caps in return for permanently minimized state funding. The latter freedom is significant, because out-of-state students, though expensive to attract, make up for that by paying a lot more in tuition. As a result, U-VA, for example, is now 40% out-of-state enrollment (compared to figures in the low-to-mid teens at most state schools), despite its ostensible primary mission to serve Virginia citizens.
Tuition costs since the late 1970s have grown and fluctuated in lockstep with declines in state higher-ed appropriations, both as a share of state budgets (a one-third decline) and as a share of public universities' revenue streams (a two-thirds decline). Increasing state Medicaid costs and a decline in the post-WWII civic ethos of strong government support for higher ed--epitomized by the GI Bill--are in turn the main reasons for (proportionately) shrinking public support. To make matters worse, federal support, which of course almost exclusively takes the form of student aid, has gone during the same time period from being 20% loan-based to 80% loan-based. The steepest declines in state spending came during the 90s (my college and grad-school years, so I remember the panicked climate vividly), and most analysts of the problem agree that this is when the real paradigm shift occurred: regrettably, but inevitably, public colleges and universities started thinking much more like businesses--in terms of competition for students, as much as service to them. The best in-state students increasingly found their state's public colleges no longer enough of a bargain to justify not spending a little more to attend prestigious private colleges boasting superior academic facilities, more nationally distinguished research scholars on their faculties, and more vibrant extracurricular scenes. So, you hike tuitions at unprecedented rates, and enter into research-supporting "partnerships" with industry (Californians may recall the numerous scandals during this time concerning untenured faculty being fired for publicly criticizing certain effects of U-Cal's biotech partnerships), to acquire more of those desirable attributes, and thus bring your cost-benefit appeal back into the ballpark for those top-tier students--and, as a bonus, wind up attracting more out-of-$tate and foreign $tudent$ (who, thanks to rapid growth in the developing world, were seeking American diplomas in record numbers at that time).
On the bright side, all this has much to do with why the quality--NOT the cost-effectiveness!--of US undergraduate and especially graduate education is routinely ranked near or at the top internationally. On the downside...well, that's a no-brainer.
One response some education experts have suggested is for states to experiment by creating "alternative" universities with some or all the "frills" removed--no extracurriculars; minimal lab and info-tech facilities; no physical libraries; minimalist dorms and student centers; consolidated academic departments; forego tenured faculty in favor of letting administrators determine curriculum, major-track options, internship programs and so on for multiple majors at once, while part-time adjuncts handle the actual teaching; strong focus on online-based degree options; outsource maintenance, accounting and other such operations; etc. etc. etc. A somewhat similar idea is to transform your existing 4-year colleges and universities into primarily "junior/senior + grad" institutions, while overhauling your existing community college system to make it mandatory point-of-entry for most students seeking a BA or higher.
Of course, there's also the option of raising state taxes, while simultaneously requiring universities to make much deeper spending cuts than they have been in areas considered lower-priority by the electorate. But that ain't gonna happen unless and until said electorate stops passively submitting, starts networking with concerned voters in other states, and takes their grievances where they belong--the state assembly, where the deals are being cut.
