1 For more details on assumptions underlying the baseline forecasts, see The Outlook
for State and Local Finances (Washington, D.C.: National Education Association, 1998).
Some of the workload assumptions are interactive with policies assumed in current
policy projections. For example, higher education enrollment is not independent of
tuition and access policies. The current service projections presume no change in
the percentage of public higher education costs defrayed by tuition payments.
2 A long line of academic studies shows state tax and spending levels, overall
and for individual programs, to be insensitive to political variables such as party
control of governors' offices and legislatures.
3 See for example, Financing State Government in the 1990s (Denver: National Conference
of State Legislatures, 1993) and Is the New Global Economy Leaving State-Local Tax
Structures Behind? (Washington, D.C.: National League of Cities, 1998). Both of these
studies were endorsed by large numbers of organizations of state and local officials.
4 Because of productivity gains in the economy, private sector wages and salaries
rise in real terms. That is, the purchasing power of workers increases, as it historically
has. To maintain the alignment of public and private compensation, public sector
compensation also must rise somewhat faster than inflation. Specifically, in the
projections inflation occurs at about 2.5% and all wages, private and public, rise
just over 3.5% annually, providing a real purchasing power increase of about 1%.
The real world implication of this is that simply matching inflation and workload
increases is not a tenable long-term policy for governments. Good examples of why
this is not good policy can be found in Colorado and Washington, both of which have
limits on state spending growth tied to the sum of inflation and population growth.
Those limits, approved as a result of voter-initiated measures on state ballots,
have forced these states into tight budgets and ultimately to return to voters with
requests for waivers of the limits. Such requests were on the November 1998 ballots
in both states.
5 These projections obviously depend on the validity of the underlying demo-graphic
forecasts, both for higher education enrollment and the other drivers of workloads
in government programs. These projections are most reliable for states with large
populations and diversified economic bases, and least reliable for states with the
reverse, such as Hawaii, Idaho, Vermont, and Wyoming.
6 Higher education is not unique as a balance wheel. Other institutions with similar
characteristics, such as state arts agencies and Medicaid providers, also serve this
function. In the case of Medicaid providers, the cuts often take the form of shifting
billing cycles, for example, creating large one-time savings by moving from payment
within 15 days to payment within 60 days.
7 To the author, who works daily with data on the budgets of 50 states, this is
an empirically based statement. However, because the adjustments associated with
(1) the use of higher education as a balance wheel, (2) federal mandates, (3) workload
growth, and (4) uncontrollable cost changes are all difficult to make and controversial,
the extent to which higher education's relative unpopularity has been a factor in
declining budget shares cannot be easily demonstrated empirically.
8 This conclusion implies that public K–12 education spending will continue to
command strong support among elected officials. This support was strongly in evidence
in 1998 in congressional actions on education funding in 1998 and in campaign positions
of candidates for state office, despite ample criticism of "throwing money at
the problem" aimed at elected officials supporting major spending increases.
9 The default is that queues form which in and of themselves impose a cost in
waiting times. National health services in Canada and Europe are illustrations. Free
operations are available to all, but waiting periods for non-emergency procedures
are months and sometimes years. Another type of queue arises when insufficient quantities
of services are provided to meet demand in particular geographic areas. Many state
highway programs have this characteristic.
10 One of the likely solutions to financing Social Security will come from mandatory
coverage of all state and local workers. In a practice dating from the beginnings
of Social Security, some states and local governments are exempt from Social Security
coverage. Including them will raise their payroll costs by roughly 15% with sizeable
fiscal impacts on the affected states and local governments.
11 The discussion of individual spending categories uses shares of general fund
budgets as compiled by the National Association of State Budget Officers in their
annual series called State Expenditure Report. In most states, the general fund is
the primary component of the state budget and the one usually containing all major
outlays for higher education, except capital outlays supported by bond issues. The
concept typically excludes from total spending and revenues: (1) trust funds such
as those for unemployment compensation; (2) revenues earmarked for particular purposes,
such as highways, and the spending of those revenues; and often, (3) large categories
of spending not financed by taxes, such as spending financed by university tuition
and federal aid.