The Higher Education Finance Squeeze

The association of State Higher Education Executive Officers (SHEEO) has a new report showing how per-student state and local financial support for higher education declined in real dollar terms from $7,121 in 2001 to $5,833 in 2005.

This is an important issue to keep track of. In the realm of public fiscal priorities, higher education is getting squeezed from all sides by the competing demands of national security, Medicaid, public safety, K-12 education, and much more. Unlike those areas, higher education has an independent revenue source (tuition). So when fiscal downturns come along, as they did during the last recession, universities tend to take a harder hit because policymakers reason that tuition can make up the difference.

The result is greater stress on lower-income students and a kind of creeping privatization of higher education. Some of the big-name public universities are becoming quasi-private on the financial side, with public support making up only a small minority of their funding base. That can have real consequences for the attitudes and values that drive those institutions, not all which serve the public interest.

It is, however, also important to interpret these numbers in the context of the economic cycles that drive public finance. SHEEO chose 2001 as the base year of their comparison for a reason: that was the high-water mark for state budgets at the end of the last economic expansion. I worked in a state capitol during the late 1990s, helping write budgets for higher education. Those were giddy fiscal times, with states literally awash in new revenues generated by the long economic expansion and the income taxes on capital gains realized during the stock market boom. Higher education got a big chunk of that money, which is reflected in the peak-year 2001 per-student amount.

So while the decline in real dollar per-student expenditures partly reflects some troubling long-term trends, it's also a natural result of inevitable economic up-ands-downs. And there's some reason to think that in the immediate future, more ups are on the way.

Anyone interested in this issue should also take some time to read this report. Published in 1999 by the National Center for Public Policy and Higher Education, and written by the late Hal Hovey, it predicted with Nostradamus-like accuracy almost exactly what would happen between then and now, with higher education getting squeezed financially by a combination of poor state budget policy, rising Medicaid costs, structural budget deficits, and the aforementioned tendency to shift the burden to students in tough times. It came out a time when nobody but nobody was thinking that way, what with Dow 36,000 and the end of the business cycle etc. etc.. A great example of a brilliant mind carefully examining all the evidence and making predictions that all came true.