July 27, 1999

LAST FIVE YEARS ARE "AS GOOD AS IT GETS"
IN FUNDING OF HIGHER EDUCATION

EMBARGOED FOR RELEASE:		CONTACT: Heather Jack
TUESDAY, JULY 27, 1999		(408) 792-3144

SAN JOSE, CA. -- Although higher education is enjoying prosperous times, they are not likely to last, Harold A. Hovey, an expert in public finance and president of State Policy Research, Inc., warns in a report released today by the National Center for Public Policy and Higher Education.

"The last five years have been about as good as it gets in state funding of higher education," Hovey writes in a report titled, State Spending for Higher Education in the Next Decade.

State appropriations have increased more than the inflation rate; tuition has been frozen in some states and reduced in others; new campuses have been built or planned; and new state scholarship programs have been started.

According to Hovey’s national budget projections, however, "this environment will not continue." Even without a major economic downturn, Hovey projects, 39 states will experience gaps between the cost of maintaining public services now in place and the revenues they can expect without tax increases (see Table 1).

On top of this, Hovey projects that, largely due to enrollment increases, state spending for higher education will have to increase faster than state spending in other areas -- just to maintain current service levels. On average, state support of higher education would need to increase by nearly six percent a year, whereas support for all services would need to increase by about five percent per year, an "annual average advantage for higher education" of one percent (see Table 2 for a state-by-state breakdown).

This chart projects the percentage increase in state spending needed to maintain current services.

The right two columns show the projected increases in state and local spending needed for all programs and for higher education over the next eight years. The "Annual Average Advantage for Higher Education" shows the "extra" percentage growth needed for higher education annually.

Positive numbers in this middle column mean that in order to maintain current services, these states will need to increase spending for higher education faster than for other programs. States with negative numbers will be able to maintain current services by increasing spending.

For most states, maintaining current support for higher education will require either raising taxes substantially or favoring higher education over competing public service demands, such as elementary and secondary education, health, welfare, or prisons. Hovey does not believe either of these possibilities is likely.

"If extraordinarily good times were followed by normal times, it might be possible for states to make fiscal adjustments in less than a crisis environment," Hovey writes. "However, extraordinarily good times are usually followed by corrections in the private economy called recessions. When they occur, states often are caught in a situation where their budgets are hugely out of balance."

When that happens, states tend to cut higher education budgets, which represent the largest discretionary spending item in most state budgets. One consequence is steep tuition increases, according to Patrick M. Callan, President of the National Center for Public Policy and Higher Education, which commissioned the Hovey report.

"For the past quarter century," Callan stated, "the pattern the states have followed has been to cut higher education budgets and raise tuition sharply (or permit colleges to raise tuition) in times of economic hardship.The 39 states that Hovey projects to encounter gaps between revenues and expenditures are the likely candidates to repeat this pattern."

The report also finds that in the current environment of generous appropriations for higher education, governors and legislators have exerted little pressure for efficiencies or cost containment in public colleges and universities.

"The currently relatively generous increases in state support of higher education do not reflect changes in patterns and practices in state budgeting," Hovey concludes."They only reflect the standard responses to extraordinarily strong fiscal conditions. They will disappear when those fiscal conditions disappear. Both will disappear soon."

Additional copies of the report are available from the National Center for Public Policy and Higher Education (fax requests to 408-271-2697 or visit our web site: www.highereducation.org).

The National Center for Public Policy and Higher Education was established in 1998 to promote opportunity, affordability and quality in American higher education. As an independent, nonprofit, nonpartisan organization, the National Center provides action-oriented analyses of state and federal policies affecting education beyond high school. The National Center receives financial support from a consortium of national philanthropic organizations, and is not affiliated with any institution of higher education or with any government agency.