The most recent news about the national economy and the status of state
budgets is a grim reminder of the state of affairs higher education experienced a
decade ago. Projections of slowdowns in state revenue growth, which are expected to lead
to cuts in spending, may be a harbinger of things to come for public higher education. Or in
the words of New York Yankees catcher and worldly philosopher Yogi Berra, "It's déjà vu
all over again."
In the early 1990s, colleges and universities saw cuts in state spending on higher
education. Data gathered by the Grapevine project at Illinois State University indicate
that state budget expenditures on higher education nationally decreased at an annual rate
of 2.1 percent in real (inflation-adjusted) dollars from 1991 to 1994. After the national
economy recovered in the mid-1990s, however, state appropriations on higher education
saw large gains. From fiscal year 1994 to 2001, state spending in support of colleges,
universities, and student aid increased at a rate in excess of three percent annually in
constant dollars.
Over the last two decades, higher education's share of state spending has declined.
Other priorities-especially Medicaid, corrections, and K-12 education-have gained at
the expense of higher education. Since the mid-1990s this trend has accelerated, and
observers see little change in higher education's status in the future. Since 1980, the share of
the total current fund revenues for public institutions provided by state appropriations has
decreased from 44 percent to 33 percent (in fiscal year 1997, the most recent figures
available from the Department of Education).
A recent report by the American Association of State Colleges and Universities,
"AASCU Special Report: State Fiscal Conditions," warned that:
A number of indicators reveal that while residents are more affluent than ever
before and state governments are spending more than ever before, the portion of
state funds allocated to colleges and universities has not recovered the levels posted
before the recession of 1990-92.The question
of fiscal priority is an increasingly important
one, given that institutions in many states will
face unprecedented demands for higher
education access at the same time that
demands in other areas, especially those
related to health care, are likely to grow. As
the competition for state resources intensifies,
the pressure on institutions to raise
revenues via tuition and other means will
undoubtedly mount, raising a number of
difficult questions for state policymakers.
A recent survey conducted by the National
Governors Association and National Association
of State Budget Officers found that the
budgets proposed by governors nationwide for
the 2001-'02 fiscal year included increases in
spending of only 3.6 percent, less than half of the
increase proposed the previous year. Another survey conducted by the National
Conference of State Legislatures found that a third of the states had budget deficits in
2001, and appropriations in the 2002 fiscal year are expected to grow only 2.3 percent, less
than the expected rate of inflation.
The National Governors Association report also indicated that eleven states were
forced to enact mid-year budget cuts in fiscal 2001 (only one state had done so the previous
year).These cuts had a direct impact on higher education in at least two states. Governor
Ronnie Musgrove of Mississippi announced in February that he was reducing the state's
spending on higher education by five percent, or $35 million, through the end of the state's
fiscal year in June. Governor Don Siegelman of Alabama announced a cut of 6.2 percent in
state spending for all levels of education.
While it is impossible to predict with certainty the state of the economy and how it will
affect state budgets and expenditures in the next few years, the outlook is certainly bleak.
The late Hal Hovey, in a 1999 report for the National Center, predicted:
Based on national averages, state spending for higher education will have to
increase faster than state spending in other areas-just to maintain current
services...Since the percentage of the state budget dedicated to higher education has
actually declined over the past decade, continuing to fund current service levels for
higher education would represent a significant shift in state budget trends.
These fiscal trends-uncertainty in the growth in state revenues, and higher education's
shrinking share of the state budget-will occur in the face of another troubling trend in
higher education: Enrollment is expected to accelerate at a faster pace in the next decade.
A National Center for Education Statistics report, "Projection of Education Statistics to
2010," estimates that public college enrollments will increase at a rate of 1.3 to 1.8 percent
annually. This compares with enrollment
growth of 1.1 percent annually in public
institutions over the most recent ten years.
Most of this projected growth is due to the
"baby boom echo," the children of baby
boomers who will be reaching the traditional
college ages of 18 to 24 years.
The impact of changes in the level of state
appropriations on public higher education institutions
is indisputable. Besides affecting the
level of services that colleges provide, appropriations
have an effect on tuition levels.
There is a very strong relationship between
states' willingness to appropriate funds for
higher education and the rate at which public
colleges and universities increase their tuition
rates. From 1991 to 1994, when states cut real spending on higher education during the
last recession, the average annual increase in tuition averaged more than eight percent
nationally (adjusted for inflation) in both public four-year institutions and community
colleges. Since 1994, when state expenditures have recovered, tuition increases in both
sectors have averaged less than 2.5 percent annually. Over the last decade, there is a very
strong negative correlation between these two measures-the higher the rate of increase
in appropriations for higher education each year, the lower is the average tuition increase.
The budget cuts in 2001 and slower growth of 2002 state budgets have forced higher
education institutions to respond in a predictable manner. Tuition increases for the 2001-
'02 academic year at many institutions have returned to the double-digit levels last
experienced in the early 1990s. Institutions such as the University of Illinois (Urbana-
Champaign), University of Minnesota (Twin Cities) and University of Mississippi all
implemented increases in excess of ten percent this year. Clemson University increased
tuition 25 percent this year; trustees defended the decision in part by citing tuition levels
that historically had been lower than those in neighboring states.
Michigan presents one interesting case study. The state has a tuition tax credit which
allows parents or independent students to claim a credit against state income taxes of eight
percent of tuition and fees, up to a maximum of $375. However, to be eligible for the
credit, students have to attend a public or private institution in the state that agrees to
increase tuition the next year at no more than the rate of inflation. In 1996, students at ten
of the state's 15 public four-year institutions were eligible for the tuition tax credits; by
2000, only one of these institutions met the maximum tuition increase requirement.
Michigan State University, the state's largest institution, implemented a well-publicized
"tuition guarantee" in 1994 to hold the annual tuition increase to the rate of inflation or
less. Since then, tuition increases at Michigan State averaged 2.8 percent annually,
compared to 4.6 percent at the other four-year institutions in the state. This year, however,
Michigan State's guarantee was abandoned, as tuition increased nine percent. Other tuition
increases in the state this year included 18 percent at Eastern Michigan University, 20
percent at Michigan Technological University, and 6.5 percent at the University of
Michigan, Ann Arbor. Overall, the average tuition increase in the state among its four-year
institutions was in excess of ten percent.
The major explanation for the large increases provided by the colleges and universities
was the small expected increase in Michigan's higher education appropriation for the year
(as of the early fall, the higher education budget had not yet been set for the fiscal year
beginning October 1). Indications were that the higher education budget would be only 1.5
percent above the previous year's level, down from an average increase of approximately
five percent annually over the previous three years. Michigan State Trustee Donald Nugent
said, "Raising tuition is the only way to make up for low increases from the state." Paul
Courant, associate provost at the University of Michigan, said, "We have worked hard to
restrain our tuition increase despite the difficult state funding environment and rapidly
rising costs in areas such as utilities, employee benefits and information technology."
While Michigan and other states have implemented large tuition increases, there are
some silver linings. In California, which has the country's largest public higher education
system, spending on higher education will increase six percent this year (following a 12
percent boost last year). Included in this amount is an increase of almost 28 percent in
student aid spending in support of last year's large expansion of the CalGrant program.
The state's commitment to higher education is especially noteworthy given that total state
expenditures are expected to increase only 1.7 percent this fiscal year.
California's commitment to continue to increase funding for the state's systems of
higher education, which suffered unprecedented cuts in the recession of the early 1990s,
has allowed the University of California and California State University systems to keep
student fees the same, or cut them, every year since 1994.
Are the trends in Michigan and other states an indication that we are returning to
conditions we experienced a decade ago? Or is the good news out of California this year
an indication that there may be at least some parts of the country that will weather an
economic downturn? Only time will tell for sure. But Mr. Berra provides sage advice in the
form of the title of his recent book: "When You Come to a Fork in the Road, Take it!" State
policymakers face such a fork, and have a choice to make. One option is to slash state
support for higher education, leading us back to an era of large tuition increases, cuts in
services, and constraints on enrollment at a time when demand for higher education will be
increasing. The other option is to maintain the state's commitment to public colleges and
universities, recognizing the potential for higher education to contribute to economic
growth and recovery. It is up to those policymakers-governors and legislators alike-to
choose the right path.
