Just got an answer to my question from the other day.

“Is some other purpose of the university that subsumes the need for credentials, that doesn’t conflict with the agreed restrictions on publicly funded organizations (e.g. the BBC), and that allows for a principled discussion on what is too extreme to be allowed?”

Marduk neatly shows why the second constraint is inappropriate and why my follow up question comparing universities to city governments is a category error.

Q. “And what is a public university if not a state entity?”
A. An autonomous charity for the furtherance of knowledge and education.

Universities may receive money from governments but that does not make it a sub-department of that government. Rather, it falls into the same grouping as foreign aid. Government grants can become the instruments of policy and oversight bureaucracy attached to it grows over time. This does not prevent us from rejecting the policy that universities are directly responsible to the government, and by extension the public at large.

Also from the same thread, StillGjenganger gives a succinct summary of the liberal view on speech in a pluralistic society that’s worth reading.