Evaluating State Funding Effort for Higher Education

1 MHEC. Evaluating State Funding Effort for Higher Education POLICY BRIEF. David A. Tandberg and JUNE 2018. Sophia A. Laderman H. igher Education makes important contributions to the betterment of society and to the lives of KEY INSIGHTS. individuals. On a societal level, Higher Education JJ The relative Effort of states in Funding Higher Education supplies an educated citizenry and workforce. For can be evaluated using a variety of metrics, such as by individuals, Higher Education provides an opportunity for personal analyzing Higher Education spending relative to personal development, fulfillment, and economic mobility. states play a income, population, or total tax revenue. These metrics large role in helping public colleges and universities fulfill these provide a sense of the extent to which a State supports Higher Education , by allowing analysts to compare Funding promised benefits: in 2017, states spent more than $86 billion on for Higher Education relative to a State 's ability to fund appropriations to Higher Education (Laderman & Carlson, 2018).

2 Higher Education . However, the extent of financial support for Higher Education in JJ State appropriations matter. An institution's financial each State varies greatly. Due to the importance of, and variation in, State Funding for Higher Education , Funding levels have received a resources have a relatively large impact on degree completion rates well as tuition and fees. Past research significant amount of attention both in the scholarly literature and has shown that for every $1,000 per student cut in State in the popular press. appropriations, the average student would pay $257 more in tuition and fees. The relative Effort of states in Funding Higher Education can be JJ Allthree measures show that State Funding Effort has evaluated using a variety of metrics. In the annual State Higher declined over time.

3 states provided, on average, $299 per Education Finance (SHEF) report, several ways of assessing State capita in Higher Education Funding in 2017, which remains Effort are presented, such as by analyzing Higher Education below levels of support prior to the Great Recession. State spending relative to personal income, population, or total Higher Education Funding per $1,000 of personal income tax revenue. Each measure highlights different aspects of the has maintained a fairly steady downward trajectory, general concept of State Higher Education Funding Effort . Within indicating that Higher Education is capturing far fewer the empirical literature, State Effort has been examined using taxable resources within our states than it did in the past. several of these measures.

4 This research has revealed a number The percent of tax and lottery revenue allocated to Higher Education has also declined, with the State spending of factors that help determine an individual State 's Effort , finding in 1990 and only in 2017. that decisions about State Funding for Higher Education are made in the context of multiple external factors, including current JJ Recent research has revealed several significant influences and projected economic conditions, competing priorities across on State support for Higher Education , including various the State , cultural and ideological shifts in the State population, political factors; State Higher Education governance structures; individual actors like governors, legislators, political and Higher Education characteristics of the State , and and State Higher Education executive officers (SHEEOs).

5 State tax structures. In this report, changes in State Funding for other State budgetary demands such as Medicaid; and the Higher Education , the concept of State Effort and how to define business cycle. and measure it, national trends in State Effort , and State trends JJ State leaders should consider using measures of State in State Effort are explored. Then the empirical research on what Effort in Evaluating their fiscal support for Higher impacts State Effort is examined, and the paper concludes with Education , tie their Higher Education finance strategies to policy considerations and recommendations. their long- and short-term goals, and ensure that their tax strategies allow them to adequately fund Higher Education in a manner that will help them achieve their goals.

6 Evaluating State Funding Effort for Higher Education State Appropriations Matter adjusting for inflation, State and local Funding in 1992 was $81. billion compared to $94 billion in 2017, meaning that in constant The ability of Higher Education to deliver on its promised dollars, total Funding increased by 17 percent over the last 25. benefits is, at least in part, determined by the fiscal resources of years. However, after accounting for the 36 percent increase the institutions (Deming & Walters, 2017; Koshal & Koshal, 2000; in full-time equivalent enrollment (FTE), appropriations per Heller, 1999; Volkwein, 1989). For example, Deming and Walters student have decreased by 8 percent in the last 25 years. This (2017) found that when holding tuition and fees constant, an means that states are providing about $660 less per FTE than in institution's financial resources had a relatively large impact on 1992.

7 Figure 1 shows that the decrease in per student support degree completion at two-year and four-year public institutions. has been concentrated in the last 15 years; states kept up with In addition, State appropriations are related to the price enrollment growth during the 1990s, and appropriations reached institutions charge students. Using a very conservative approach, an all-time high in 2001. The combined effect of two recessions Webber (2017) estimated a pass-through rate from cuts in (the tech bust in the early 2000s and the Great Recession in State appropriations to increases in tuition and fee revenue of 2007-2009) led to steadily decreasing appropriations, and the between 25 and 30 percent. Put differently, for every $1,000 per economic recoveries following these recessions did not lead to student cut in State appropriations, the average student would reinvestment in Higher Education at prior levels.

8 As a result, in pay $257 more in tuition and fees. 2017, states provided $1,900 less per FTE than when support was at its highest in 2001. TRENDS IN State Funding . While total Funding for Higher Education has increased, it has not kept pace with both inflation and enrollment. After I FIGURE 1. Public FTE Enrollment, Educational Appropriations, and Net Tuition Revenue, , 1992-2017. NOTES: Net Tuition Revenue per FTE (Inflation Adjusted) 1. FULL-TIME equivalent enrollment Educational Appropriations per FTE (Inflation Adjusted) equates student credit hours to Net Full-Time Equivalent Enrollment (Millions) full-time, academic year students. 14 $16,000. 2. EDUCATIONAL appropriations $14,000 are State and local support 12. available for public Higher Education operating expenses $3,966.

9 $12,000. $4,013. $3,829. $3,981. including ARRA funds, excluding $4,010. $4,784. 10. $6,572. $4,817. $3,984. $6,549. $4,740. Public FTE Enrollment (Millions). $4,071. $6,381. $4,860. $3,927. $3,797. appropriations for independent $4,444. $4,283. $6,190. $5,093. $3,361. $3,700. $5,268. $3,575. $6,019. $10,000. $5,733. institutions, research, hospitals, 8. and medical Education . Dollars per FTE. $8,000 3. NET tuition revenue is calculated 6 by taking the gross amount of $6,000 tuition and fees, less State and $9,540. institutional financial aid, tuition $9,318. $9,281. $9,192. $9,082. $8,794. $8,641. $8,511. $8,489. $8,476. $8,386. $8,301. $8,281. 4. $8,121. $8,078. $8,016. $7,951. $7,887. $7,642. $7,506. waivers or discounts, and medical $7,453. $7,336. $7,180. $4,000.

10 $6,987. $6,658. $6,525. student tuition and fees. 2 $2,000 4. INFLATION adjusted by SHEEO. Higher Education Cost Adjustment (HECA). 0 $- 1992. 1993. 1994. 1995. 1996. 1997. 1998. 1999. 2000. 2001. 2002. 2003. 2004. 2005. 2006. 2007. 2008. 2009. 2010. 2011. 2012. 2013. 2014. 2015. 2016. 2017. Source: State Higher Education Executive Officers 2 Evaluating State Funding Effort for Higher Education MIDWESTERN Higher Education COMPACT. MEASURING State Funding Effort measure assesses Effort because states with larger populations should have a larger tax base (taxable citizens, products, No single standard exists to evaluate public policy decisions commerce, and industries) and therefore may be able to direct with respect to State Effort in Funding Higher Education . greater resources toward Higher Education .