Executive Summary
The Outlook for State Finances
Prospects for Funding Higher Education
Fiscal Impacts on Higher Education Policy
Increasing Spending Outside of Higher Education
Cutting Spending Outside of Higher Education
Raising Taxes
Sensitivity Analyses
Participants, Symposium on Emerging State Policy Issues
About the Author
About the National Center

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State Spending for Higher Education
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State Spending for Higher Education in the Next Decade is the second report published by The National Center for Public Policy and Higher Education that explicitly addresses the future financing of higher education. State Spending, like its predecessor, Federal Tax Credits and State Higher Education Policy, focuses primarily on the states and presents state-by-state data on important trends. The earlier report offered guidance to state leaders on the implications of new federal funding. In contrast, State Spending predicts a quite different policy issue: despite the favorable state fiscal environment of the moment, many states will experience significant difficulties in maintaining their current levels of public services over the next decade. And -- all too likely -- state fiscal difficulties will pose even greater problems for publicly supported colleges and universities.

The National Center was very fortunate to engage Harold A. Hovey to undertake this analysis of the prospects of state support of higher education. Mr. Hovey, president of State Policy Research, Inc., brings unique experience and authoritative expertise to this analysis. Whether or not readers will accept his findings and conclusions, they will assuredly understand why Mr. Hovey's talents are so frequently in demand by states, the federal government and national organizations that seek analytical insight on issues of public finance and public policy.

Using economic assumptions and empirical methods that are widely accepted in the public and private sectors, Mr. Hovey assesses the outlook for state finances and, in the context of the ongoing needs of other major state services, for state support of higher education. Despite the fact that "the last five years have been about as good as it gets in state funding of higher education," he finds that the fiscal circumstances of many states are likely to erode over the next few years. Many states will find it impossible to maintain current public services within existing tax structures. Continuing support for other services will place enormous pressure on higher education budgets. Recently, colleges and universities have done disproportionately well in times of good state budgets and disproportionately poorly in tight budgetary times. In addition, demographic and economic factors in some states will require that higher education actually do better than other public sector activities just to maintain current service levels in the future. Directing a greater share of state budgets to higher education would mean reversing trends of the past decade.

If Hovey's analysis is correct, there is much room for discussion and debate about its policy implications. His message is that difficult times are ahead for both states and higher education. In these flush economic times, this is not a message that will be easily accepted by either elected officials or higher education leaders. As Hovey points out, elected officials are likely in good times to assume that the future will be like the immediate past. Higher education leaders are equally vulnerable to overly optimistic assumptions in similar circumstances. History suggests that this short-term tendency for optimism usually prevails over both experience (Remember the recession of the early 1990s?) and even the best long-term analyses. The results: both the states and the colleges and universities are found to be unprepared for cyclical downturns, and unnecessary damage is created by adverse state fiscal circumstances.

This report does not offer recommendations to state or college and university policy leaders, but its implications are clear. Both sets of leaders should realize that permanent tax cuts may have even more severe implications for higher education than for other public services. In addition, higher education budgets that increase the state cost per student in good times usually add to the cost of maintaining services in hard times. And in their current heady financial circumstances, some states may be increasing their higher education expenditures in ways that will increase the difficulty of maintaining essential, core services in the future.

The National Center extends its appreciation to Harold Hovey for this important analysis. The initial draft was reviewed at a symposium on emerging state higher education policy issues convened in early 1999. The symposium was chaired by Robert Atwell, president emeritus of the American Council on Education, and the participants are listed in Appendix E. David Breneman of the University of Virginia and D. Bruce Johnstone of the State University of New York at Buffalo also reviewed early drafts. Our thanks to all of these reviewers.

Patrick M. Callan

The National Center for Public Policy and Higher Education


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© 1999 The National Center for Public Policy and Higher Education

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