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KEY FINDINGS
Continuing financial pressure on state legislatures to limit appropriations for higher education will affect all 50 states through 2013.
Even starting with balanced budgets, all states face fiscal imbalances that will make it impossible to maintain current public service levels.
The result for higher education will be increased competition for what resources remain, intensified by greater growth in demand for state services other than higher education.
For all states, the projection for the next eight years is continued fiscal stress.


This Policy Alert updates a 1999 report by Harold Hovey, State Spending for Higher Education in the Next Decade: The Battle to Sustain Current Support, and two earlier Policy Alerts: State Shortfalls Projected Despite Current Fiscal Prosperity (February 2000) and State Shortfalls Projected Throughout the Decade (February 2003), all available at www.highereducation.org.

Projections for this Policy Alert were developed for the National Center for Higher Education Management Systems by the Rockefeller Institute of Government, updating a 2002 Institute analysis. Find both studies, as well as more detailed state-by-state data, at www.higheredinfo.org.

For more information on states' projected budget deficits, see Federal Funds Information for States, "Another Take on State Structural Deficits" (May 2005, Volume 23, Issue 10).

STATE SHORTFALLS PROJECTED
TO CONTINUE DESPITE
ECONOMIC GAINS

LONG-TERM PROSPECTS FOR
HIGHER EDUCATION NO BRIGHTER

By Dennis Jones
Although most state budgets for 2006 have improved, the long-term prognosis for state finances is poor, according to an analysis by the National Center for Higher Education Management Systems (NCHEMS).

The analysis projects state spending and revenues for eight years, from 2005 to 2013, and concludes that all states face potential budget deficits that will serve to limit the funding of higher education.

In a similar study conducted in 2002—at the height of the states' fiscal crises—44 out of 50 states indicated budget shortfalls that would create continuing pressure on legislatures to limit appropriations to higher education.

In contrast, the update outlined here comes at a time of brightened economic prospects. By 2005, the budget outlook was hopeful: short-term fixes (e.g., tapping reserves, reducing spending, allowing extraordinary increases in tuition, using nonrecurring sources of revenue), and rebounding tax revenues had eased the fiscal crisis in many states.

The question was: "What will happen after states restore financial equilibrium?" Would state and local finances return to the prosperity of the late 1990s, allowing state governments to increase spending, reduce taxes, and build reserves? Or would new gaps appear due to a disparity between underlying revenue structures and expenditure patterns?


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