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
Page 7 of 14

Appendix A: Increasing Spending Outside of Higher Education


This is one of two appendices designed to turn the unappealing category of "other programs" (those competing with higher education for state funds) into the appealing realities seen by state elected officials. This appendix deals with proposals to increase spending on other programs above the baseline levels defined in the text of the report. Appendix B focuses on the difficulties of cutting baseline spending in the other programs. Reading these two appendices is not necessary for those who believe that, for political or substantive reasons or both, higher education will have a difficult time competing for funds with other programs.

Those who believe that proposals to increase baseline spending in higher education can, or should, compete successfully with similar proposals in other fields should consider the details of the proposals in other fields found in this appendix. Those who believe that proposals to maintain baseline spending in higher education without tax increases is simply a matter of making easy cuts in other programs should read Appendix B.

The basic approach of this appendix is to canvass each major area of state spending that competes with higher education for state general funds. Within each area, readers will find a brief description of major proposals for new initiatives. Given the baseline budget projections for each state, there will be no funding for any of these initiatives in all but a few states. In fact, there would have to be cuts in current service spending in those programs just to avoid tax increases.

In order to maintain current services in most states, higher education must hope that state officials turn down every one of these new initiatives or fund them only by increases in taxes. To expand from their current services base, higher education interests will have to develop proposed uses for additional funds that can compete successfully with the programs described in this appendix.


The education situation implied by current services funding of K12 education is seriously out of synch with expectations for and likely policies concerning public schools.

Regular School Programs
The level of dissatisfaction with public K12 education is extremely high. While many citizens express satisfaction with the public education being provided to their own children, they share the attitudes of the general public about public schools. At an absolute minimum, this includes the view that American education is performing poorly relative to education in many other countries, a view fortified by comparative international test scores.

Popular across-the-board remedies include smaller class sizes, better teacher qualifications, longer school days, and longer school years. Among elected officials, there is widespread interest in increasing the technology applied in the classroom, such as wiring all schools to the Internet. In parts of the country where teacher salaries are well below the national average, the view is widely accepted that salaries should be increased.

Disadvantaged Children
There are extra concerns associated with the schooling provided to disad-vantaged segments of the population, particularly inner-city children. There is widespread recognition of the basic concept that more intensive (and thus expensive) efforts are required to deal with these children than current budgets provide, though little agreement on exactly what should be done.

New Emphasis on Early Childhood
Of even more financial significance is the increasing conviction, particularly among the nation's governors, that education between birth and age 3 or 4 is much more important than had been previously understood. This point is financially significant as there is little state and local funding of any public programs for this age group. The prevailing view among elected officials is that much more can and should be done in this age group (including permitting heavy outlays) so that schooling in later years can be reasonably productive.

Options include moving down the age of entry in public schools to include universal kindergarten for full days and part-day schooling at even earlier ages. In addition, there are many equivalents to the extremely popular Head Start program extending its concepts to earlier ages and more children. For those who are reluctant to see the public education model brought to earlier ages at the potential expense of family-provided training of young children, there are many attractive alternatives, including training parents in better parenting techniques.

School Choice
A substantial and, according to opinion surveys, growing segment of the public believes that educational choices should be expanded, particularly in situations such as central cities, where a strong case can be made that the public schools are failing. This has produced support in every legislature for voucher plans, though the concept now affects fewer than 10,000 children through public funding, plus at least an equal number through the increasingly popular programs funded by donations.

This interest in choice is linked with the long-felt unfairness associated with support of low- and middle-income children in parochial schools. Many people accept the view that if those schools meet or exceed the targets for education applied to the public schools, parents who send children to such schools are deserving of some level of support, even if not exactly the amount saved by governments by not having to educate their children in public school systems.

The combination of these two factors is encouraging states to consider expanding voucher plans and tax credits for school expenses, such as those already found in Iowa and Minnesota. These plans are inherently expensive because they entail spending public funds for the over 10% of K12 pupils now receiving education at no public expense.

The compromise between advocates of choice and those oriented to basic reliance on traditional school models is charter schools. Although in theory these publicly chartered institutions should not cost more money, in practice, budgets for existing public schools are not decreasing enough to offset spending for adding the charter schools.

Special Problems In Some States
On top of these substantial arguments for going beyond current services in the funding of public elementary and secondary education, two closely related expenditures of state governments will likely increase over the next decade, with some states much more affected than others.

Equalization of School Funding. The first issue is known as school finance equalization. With local property taxes being the primary source of support for education in many states, differences in the per-student tax bases of individual districts create: (1) much more spending per pupil in rich districts, given equal tax efforts, or (2) huge differentials in local taxes, as much as five times in some situations, as poor districts seek to match the spending levels (and thus class sizes, teacher salaries, equipment, etc.) of the more affluent ones, or (3) often, combinations of higher taxes and lower spending in the poorer districts. In about half the states, advocates of the poor districts have obtained state supreme court decisions to the effect that state constitutions require some form of equality among districts, so that roughly equal tax rates produce roughly equal education spending per pupil. In all the states, there is sympathy with the argument that state policy should move toward more equality in financial support.

As a practical matter, equalization does not mean leveling, which could be accomplished at no state cost by taking from the rich and giving to the poor, thereby forcing the rich districts to reduce their level of spending. Instead, it means equalizing up: raising the spending levels of the poorer districts by providing additional state aid.

School Construction and Renovation. Many states face extraordinary challenges in capital outlays for schools. In rapidly growing states, this is a challenge of accommodating rising enrollment. In the Northeast and older areas elsewhere, it means replacing or substantially modernizing existing schools. Everywhere, it means dealing with huge mismatches of school facilities and students. Young couples with school-age children typically turn to newer housing, often remote from central cities and inner suburbs, leaving a shortage of classrooms in the remote areas. At the same time, the population of central cities and inner suburbs is aging, leading to reduced enrollment in schools in those areas, and the closing of many adequate school buildings that are no longer needed.

States are often heavily involved financially in meeting construction needs because the arguments for school finance equalization applied to operating costs can appropriately be applied to costs of school construction as well. Also, state support of local school construction has the same perceived benefit in tax policy as support of operating costs -- reducing burdens on the local property tax.


Growth of Aged Population
As is well known, an increasing percentage of the population is over age 65, and over age 85, each year. These numbers will begin to increase even more dramatically as the baby boom (persons born shortly after the end of World War II in 1945) hits age 65, which it will begin to do in 2010. The most widely understood impact of the aging population is the effect on the Social Security system, not a matter of significant state concern,10 and the burdens on mature adults increasingly being faced with the time demands and costs associated with caring for aging parents. The effects on state finances, while less well known, are also huge.

Providing Care for the Aged
Most Americans reach age 65 with few resources to deal with needs for intensive care that cannot be defined as health care in the traditional sense. These individuals may have mental problems, diseases such as Alzheimer's, and general declines in physical capabilities such as the ability to bathe themselves, to shop, and to clean and maintain their housing. Eventually, significant percentages of them go to nursing homes at annual costs from $40,000 to $100,000 per year. No federal program covers these costs of aging, even for the poorest of the poor. Social Security and income-tested Supplemental Security Income (SSI) benefits cover cash requirements for ordinary living, but not extraordinary costs such as nursing homes and homemaker services. Medicare does not cover nursing home stays, with the minor exception of short stays associated with specific treatments, such as recuperating from operations.

As a result, using a mix of federal and state funds (averaging 57% federal, 43% state), state governments deal with these situations through Medicaid. Medicaid now pays for well over 50% of all nursing home days in the United States. Besides covering nursing home costs of Americans who qualify as low-income when they enter nursing homes, it is common for middle-class Americans to exhaust their savings in a few years of nursing home residence, so they, too, qualify.

States have sought to divert patients from costly nursing homes by offering in-home services, but have not experienced significant savings by providing this service. The reason is understandable. When services are offered, participation is widespread by both the target group, those who would otherwise enter nursing homes, and a group which would never enter such homes but cannot be distinguished from the first group.


Rising Costs
Costs of health care are continuing to grow as a percentage of American purchasing power, as measured either by personal income or Gross Domestic Product. The reasons are well beyond the control of state governments.

One principal reason is reduction in mortality among persons with extremely high health care costs. For example, advances in saving newborns mean that a larger number of people are born with serious disabilities that require expensive, lifelong care. Improving care and health practices are prolonging life of those over 55, many of whom develop late-in-life chronic problems such as diabetes, prostate and breast cancer, and circulatory and heart problems. Another reason is the availability of new but expensive forms of treatment such as organ transplants and pharmacological management of AIDS.

Costs Being Shifted to Government

Most households do not have the savings necessary to cover even short hospital stays, so private health insurance is the mainstay of coverage for Americans below age 65. But this insurance has become so expensive for employers that the percentage of Americans who have employer-paid health care is declining. Even where employers provide coverage for their employees, they often provide coverage for families only at prices that cause many working Americans to decline this coverage. As a result, the percentage of under-65 Americans without health care coverage has been rising, even in the past seven years of sustained economic growth characterized by increased job holding. The percentage of the population that is without health insurance is likely to soar in recession.

This situation is widely viewed as unacceptable when it affects pregnant women and young children. As a result, Medicaid now finances over a third of births and associated pre- and post-natal care. This percentage is growing as a result of new state and federal initiatives.

Having no care available for adults who are presented with health emergencies is also viewed as unacceptable. As local officials like to put it, it is intolerable for a 911 emergency run to end with a patient in distress turned away at the emergency room door. As a result, such care is provided on an emergency basis. To the extent they can do so, health care providers and state and local governments cover the costs of this care by establishing eligibility for such programs as Medicaid. Where coverage cannot be established, the health care providers treat the patient at their own expense. But because these charity cases are heavily concentrated in a few providers, such as downtown hospitals, the costs are partially reimbursed by public programs.

Spending to Expand Coverage
Although proposals to approach universal coverage through a national health insurance program were rejected by the U.S. Congress in the mid-1980s, the arguments for expanded coverage are leading to ad hoc extensions of coverage. Besides the major expansion of children's coverage mandated by congressional action in 1997, many states have been experimenting with providing health insurance of last resort under a variety of programs.

Fiscal Consequences
Some of the impacts of rising public outlays for health care are reflected in the baseline budget projections described in Chapter One. But many are not. This is particularly true for improved health care for children that is generally believed to be necessary as a part of the extension of public concerns about education to ages zero to four, and filling gaps in providing acute care to low- and middle-income adults.


Public officials mostly think that welfare reform has been working. It has, as measured against an objective of cutting the number of households regularly receiving cash assistance while not working. But it has not, as measured against an objective of having Americans with families working at jobs that provide a standard of living viewed by most Americans as adequate. So with little fanfare, the costs per case being incurred after welfare reform are much greater than those before the system was reformed. Those costs are being incurred by supplements to earned income, such as federal and state earned income tax credits, and by providing benefits that supplement wages and salaries. Those benefits include food stamps (mostly federal outlays), Medicaid, daycare, and various forms of emergency assistance.

There are many reasons to argue that state and local outlays for income-tested programs for the poor, particularly the working poor, should increase in impact and thus cost. These programs likely will increase in costs automatically anytime the economy slows and low-wage jobs are more difficult to find than they are now.

A persuasive case can also be made for further expansion. For example, many people believe that improvements in the education of welfare-prone people can provide the key to ending long-term dependency. Welfare reform has generally ended the practice of having large numbers of people receiving cash assistance who also receive training leading to job readiness.


Despite recent improvements in public safety as measured by crimes reported to police and crimes reported by victims, crime remains a major concern of voters and public officials. The primary outlays competing with higher education are those associated with sentencing changes designed to keep repeat offenders off the streets. Those changes are having a gradual but substantial impact on the number of inmates in correctional institutions, leading to a continuing increase of about 5% a year in the census of jails and state prisons. Many people argue that this increased incarceration is closely associated with the reduced crime rates.



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