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