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State of the States: Navigating a Difficult Road


John L. Pulley


On a Saturday morning in late October, leaders of the country’s largest urban community college systems gathered in Baltimore to compare notes. Geographical differences notwithstanding, they discovered they occupied common—if somewhat shaky—ground. In the wake of the Great Recession and the tepid economic recovery that has ensued, financial pressures are distorting compacts between public institutions of higher education and a cohort of 50 benefactors that heretofore had been more or less steadfast in their support.

“I was surprised, perhaps even shocked, at the degree to which the fundamental relationship between states and colleges is shifting,” says Brice Harris, president of the Los Rios Community College District, in Sacramento, CA.

Harris and his peers described an environment in which state governments are pressing public institutions to do more—bolster graduation rates, maintain access, serve as economic engines, improve efficiency—with less. In some cases, states are cutting appropriations and awarding fewer funds on the basis of institutions’ ability to meet newly enacted performance goals. Essentially, government officials are employing a “stick, carrot, and reduced oats” approach.

“It’s different in every state, but when you’re in a room with 20 folks from across the country and you hear story after story, you’ve got to assume that generally it’s a trend,” says Harris. “I think it’s a pretty seismic shift.”

In Harris’s California, budget cuts have unmoored all three levels of what had been the most envied public system of higher education in the country. In fiscal 2012, the state reduced funding of the University of California and California State University systems by $1.4 billion. That cut followed a $695 million reduction, in fiscal 2010, to the state’s community colleges. The result is higher tuition, a diminished capacity to educate students, and lower enrollment at a time of record demand, particularly among fast-growing populations of Latinos, immigrants, and older students.

By some estimates, California’s elementary students of today will enter college in a few years as the least affluent group of postsecondary students in American history. “When you demand colleges and students be much more accountable and you weaken funding, what is likely to happen is students who are educationally and economically disadvantaged—the ones community colleges serve so well—are the ones who are likely to be pushed out the door,” Harris says.

At present, the Los Rios district enrolls 84,000 students, down from 92,000 just two years ago—the direct result of fewer funds and enrollment caps. An estimate based on prevailing trends suggests that the district’s enrollment should be around 100,000. Academic offerings have contracted 6 percent. If not for efficiencies that have allowed the district to maintain enrollments 9 percent above funding levels, it would be worse.

The severity of the financial crisis, the implications for state funding of higher education, and the policy response of states has given Harris and many of his peers reason to question whether the country’s longstanding commitment to post-secondary education will endure.

“I’ve been through a number of fiscal ups and down and initiatives that would seem to change education, but I have never seen what I believe is an environment where the fundamental structure of American higher education was going to change,” says Harris, who has worked in the post-secondary sector for almost 40 years. “I believe that is where we are now. I don’t know what it will look like on the other side, but I don’t think it will look like it does now.”

Laboratories for Policy
Politicians and policy makers are awakening to higher education’s funding crisis. They have proposed a raft of solutions, from President Obama’s recent executive order seeking to make college loans less expensive and easier to repay to the call by Rep. Ron Paul, a Republican presidential hopeful, to eliminate federal student loans altogether. (According to Paul, government loans have driven up the cost of education.)

At the state level, initiatives are mixed as well. The National Governors Association has embraced an agenda for raising higher education completion rates. Texas Gov. Rick Perry, another Republican presidential contender, has challenged educators to create a $10,000 bachelor’s degree, while his Republican peer in Ohio, Gov. John Kasich, has proposed a system of “charter” universities that would receive less financial support from the state in return for greater autonomy in running their affairs.

“The decline in state funding is having an impact on governance and policy changes,” says Muriel Howard, president of the American Association of State Colleges and Universities.

Frequently, that has meant states adopting de facto policies of cutting higher education support as a means of managing severe financial challenges. Pennsylvania’s governor, Tom Corbett, proposed a budget last year that slashed by half the amount of funds the state would provide to Penn State, the University of Pittsburgh, and other institutions. Between 2005 and 2010, 30 states reduced higher education appropriations.

A database compiled by the National Conference of State Legislatures details proposals and actions to close projected budget gaps of at least $183.4 billion in the 2011 and 2012 fiscal years. At the top of the list, sorted alphabetically, is Alabama, which has cut higher education budgets, increased tuition and eliminated university positions. At the bottom is Wisconsin, which cut $250 million from the University of Wisconsin system in the 2012-2013 biennium. The theme repeats itself across the country.

In addition, states’ policymakers have recommended or enacted proposals to change educational delivery models. The goals are to trim, merge, consolidate, or even eliminate various higher-education functions while imposing stricter accountability measures. Washington and California have eliminated state higher education agencies, and Florida’s board of governors has been diminished.

“The capacity to do the public agenda work is under attack,” says Jane Wellman, executive director of the Delta Project on Post-Secondary Education Costs, Productivity and Accountability.

Many observers blame the sector’s current hardship on the recession that began in 2008. In truth, the economics of higher education have been trending poorly for decades. A deep and protracted downturn simply tipped prevailing circumstances into crisis. Now, once-superficial cuts are nicking budgetary bone and hitting political nerves.

A quarter century ago, state funds covered 78 percent of the cost of college, says Julie Bell, education group director for the National Conference of State Legislatures. Today the figure is 60 percent. At the University of Michigan, state support has been declining for half a century. According to the institution, the state’s contribution to the university’s general fund has declined steadily, from 78 percent in 1960 to 23 percent in 2009. During the same period, the percentage of the general fund derived from tuition and fees crept up from just over 20 percent to 64 percent.

Dwindling financial support notwithstanding, Michigan isn’t inclined to walk away from its universities. They “are one of the few things the state has got going for it,” says Peter McPherson, president of the Association of Public and Land-Grant Universities. “They need those universities to play a big role in the revitalization of the state.”

The long-term trend of reduced state appropriations is largely a story of demographics and entitlement-based funding that have constrained state budgets, says Wellman. During economic downturns, states have spent larger percentages of budgets on legally mandated governments functions such as prisons, K-12 education, and Medicaid. When budgets were tight, discretionary spending shrank and investments in higher education suffered.

During flush times, states have been kinder to public colleges and universities, yet the “make up” appropriations doled out during economic recoveries frequently failed to close the gap. Over time, states’ support of public colleges and universities has eroded. “We got squeezed,” Wellman says.

Other demographic trends have exacerbated the situation. Of late, the United States population has become increasingly skewed toward younger and older age groups that use more government services. An age-distribution graph resembling a “U” illustrates the manifestation of imbalances in what economists call “population dependency ratios.”

At the same time, demand for higher education enrollment has been increasing in most parts of the country. Rapid population growth has driven demand in the mega-states of Florida, Texas, California, Washington and New York. Elsewhere, older adults seeking to become or remain employed in tight labor markets are clamoring to attain new skills and credentials.

“Enrollment in higher education in the first decade of [the 21st century] grew at a faster rate than the past three decades combined,” Wellman says. “Add to that the recession and you have an even steeper challenge.”

“Part of the Political Agenda”
For years, neither politicians, policy makers, nor the public paid much attention to dwindling state support of higher education or commensurate increases in tuition. Public institutions were seen as bargains when compared with the cost of private post-secondary education. If students and their families had to pay more each year to offset states’ divestments in education, reasoned policy makers and others, contended consumers were still getting a deal.

“It’s pretty much been a sellers’ market for the past 25 years,” says Pat Callan, president of the National Center for Public Policy and Higher Education. During that time, “governors and legislatures have been passive. … I think that pattern [of higher cost] is not sustainable. You’ll see some resistance. … The political heat will be on.”By some measures, politicians are already feeling it. A survey taken last year by NCS L asked states’ legislative leaders to identify the issues that are most import to them. Higher education came in third. “It’s never even broken the top 10,” says Bell, noting that lawmakers’ constituents are expressing concern about the affordability of college. “For a long time, they [politicians] weren’t hearing dissatisfaction.”

Callan says polling data confirms that there is “a lot of public angst about the cost of college.” That concern derives, in part, from the perception that postsecondary education is becoming more important. In the past decade, the segment of Americans who told pollsters that college is necessary to be suc-cessful essentially doubled from about 30 percent to 60 percent of people surveyed, Callan says.

As the public’s perception of higher education’s value has grown, so too has its concern about cost. An analysis last fall by USA Today of the New York Federal Reserve’s August report on household debt and credit determined that “student loans taken out last year crossed the $100 billion mark for the first time and total loans outstanding will exceed $1 trillion for the first time this year.” The report noted that American’s student loan debt for the first time exceeds the country’s credit card debt.
“Higher education is becoming part of the political agenda,” says Wellman.

The steady decline in states’ funding of higher education has led some observers to conclude that politicians just don’t get it. Paul Lingenfelter of State Higher Education Executive Officers (SHEEO), rejects the notion that “elected officials don’t understand or appreciate the importance of higher education.”

“I see a lot of concern for K-12 and higher education, but [policy makers] are struggling with the political challenges,” Lingenfelter says. “Politicians are competing for public approval, and raising taxes is not a lot of fun. Nor is cutting programs a lot of fun. It is a very challenging time. … We are sort of frozen politically.”

Covering The Shortfall
States are less able to pay for higher education at a time when they can least afford to abandon it. Appropriations have been stuck at about $85 billion for several years. Per-student spending has declined and the ability to provide instruction has contracted at a time when capacity should be growing. If not for federal stimulus funds, which are expiring, the shortfall would have been more pronounced.

State support of the University of Texas at El Paso (UTEP) declined $37 million during the last two bienniums—a total reduction of nearly 20 percent in consecutive budget cycles. Since about 2003, the state has tweaked the way it appropriates funds, setting minimal tuition by statute and affording the regents of individual institutions the opportunity to request increases above the base amount. Increases are subject to approval by the Texas Higher Education Coordinating Board.

The state “did that in recognition of the fact that they were not able to keep pace with rising higher education costs,” says Diana Natalicio, UTEP’s president. “It was a trade-off, but when institutions raised tuition, there was an outcry. Suddenly it became our burden.”

Trading lower state funding for greater institutional autonomy has become one of state governments’ favored means of making up financial shortfalls. (Deregulation of higher education, says Wellman, is essentially code for increasing tuition.) Intentionally or not, the policy shifts the financial burden to students while shifting blame to institutions. As a result, “boards of regents are far more sensitive to tuition increases than they may have been at the outset, so they have begun to set increase caps,” Natalicio says.
Institutions that serve less-affluent populations, such as UTEP, have requested more modest tuition increases than peer institutions, such as the University of Texas at Dallas, whose constituents can more easily afford to pay higher rates. Capping tuition hikes as a percentage of the prevailing base rate, however, means institutions that have kept tuition low are less able to raise rates in the future.

“We are trying to deliver a high-quality product at a far lower cost. It is extremely challenging,” Natalicio says. The cap “only widens the disparities between institutions.”
In Texas, as elsewhere, states are also demanding greater accountability from institutions, even as they provide them with fewer funds. About half of all states have adopted policies that use performance metrics to distribute a portion of state education funds, typically 5 percent to 10 percent, says Bell. States such as Indiana, Ohio, and Tennessee have moved to eliminate enrollment- based allocations in favor of using performance-funding allocations exclusively, she says.

“We are being challenged much more directly by the legislature on specific accountability measures,” Natalicio says. “The state is becoming much more engaged in trying to strategically shape the direction of universities through incentives.”

Looking Ahead
Historically, public support of higher education has varied wildly among states. In turn, public policies proposed to address current challenges are likely to vary as well. Just as institutions in the eastern part of the country have tended to be more tuition-driven than their counterparts in the west, so too will states tend to adopt policies that embrace one or another basic philosophy, predicts Bell.

“Some states will say ‘We would like to see this [public higher education] be much more market driven.’ Others will say ‘We have to have a strong presence with public higher education,’” she says. “States will go in different directions.”

In Vermont, tuition constituted 84 percent of total revenue for public higher education in fiscal 2010. In energy-rich Wyoming, fees paid by students accounted for about 12 percent of total revenue, according to a report produced by SHEEO.

“The ability of states to solve financial problems by raising tuition varies dramatically,” Lingenfelter says.

The ability of states to raise tuition also varies considerably. Selective public colleges and universities with well-regarded reputations can charge higher prices and enroll larger numbers of international and out-of-state students. “That has been a pattern,” McPherson says. “A lot of schools do it.”

Regional institutions that are not well known beyond their immediate spheres of influence will be less able to rely on price hikes as a means of offsetting dwindling state support. Institutions serving lower socioeconomic markets that raise tuition are at risk of pricing themselves beyond the means of students and their families. The financial squeeze could put some institutions at risk, particularly public maters and two-year colleges.

Unlike many of its peers, the University System of Maryland system took the lead in defining its relationship with state politicians and policymakers. The system took steps to contain costs, reorganize its administrative functions, and alter policies “to improve the effectiveness of operations without damaging quality,” says William “Brit” Kirwan, the system’s chancellor and chief executive officer.

Beginning in 2003 and 2004, the system moved to align its activities with the state’s priorities on economic and workforce development. Over a period of three to four years, university leaders took $200 million out of operations, retooled academic policies, and limited degree programs to 120 credits. The reformers consolidated backroom operations and began making systemwide purchases that leveraged its buying power. A provision of the overhaul required faculty members to spend more time with students.

“That, in particular got the state’s attention,” Kirwan recalls. The new practices “fundamentally changed the relationship between the university system and state government.”

Since 2008, the system’s state funding has increased slightly and tuition charged for in-state students has risen 6 percent. “We don’t have the resources we need to do all the things we want to do, but we have avoided some of the most serious budget cuts and tuition increases that have impacted so many other states,” Kirwan says. “There is a level of communication and interaction and respect and rapport with state government that has served us very well.”

Looking ahead, the system intends to redesign most of its lower division courses, leveraging technology to make them more affordable and effective. It also has become “much more of a partner with the two-year campuses.”

The university system initiated development of “highly articulated” 2+2 programs (in engineering, computer science, teacher education, and nursing) that allow community college students who earn associate degrees to seamlessly transfer to the university system as full-fledged juniors. By way of achieving the state’s goals of improving degree attainment, the university system is lobbying the state to appropriate funds for scholarships that would help students with two-year degrees earn a four-year degree.

At a time when most colleges are fighting not to lose state funds, Maryland’s universities think they have a fighting chance of convincing lawmakers to increase appropriations.

“This is a moment of truth for higher education,” Kirwan says. “If we don’t step up and begin taking seriously the need to find lower-cost means of delivering high-quality education, it will set our nation on perhaps an irreversible course.”

John L. Pulley is a veteran journalist with expertise in education and information technology. In 2006, he founded the Pulley Group, an editorial services agency based in the Washington, D.C. area.