It has become a yearly refrain from lawmakers: With state budgets in crisis mode, this year as a result of the recession and shrinking revenue, funding for higher education is once again in serious trouble. Education professor Jennifer A. Delaney, an expert in higher education funding, discusses volatility in higher education funding with News Bureau Education Editor Phil Ciciora.
Like the rest of the economy, higher education is suffering the effects of the recession. How will the ever-increasing ambiguity of state budgets affect funding?
Lately, it seems that the only constant in state funding for higher education is change.
Predictability of funding matters for institutions, especially public institutions that are dependent on state support. This volatility in state spending is difficult for institutions since it limits long-range planning and causes uncertainty. Institutions often make up for cuts in state funding through tuition increases.
By extension, since tuition increases can be sudden, unpredictable and sometimes large, volatility in state budgeting for higher education is also hard on students and families. Unfortunately, sometimes even those families who have done everything right in saving for college can’t cope with unexpected tuition increases.
How are universities the “balance wheel” for state budgets, and why isn’t that money seen as untouchable?
The term itself was first proposed by Harold Hovey, a long-time state budget analyst.
This idea is, in good budget times, higher education is a very attractive area for states to spend. States invest in higher education hoping to gain economic and social benefits by increasing their educational capital and creating a well-educated citizenry. The public typically views colleges and universities in a favorable light, which makes higher education a politically desirable area to allocate funds.
In bad budget times, however, higher education is one of the first state spending categories on the chopping block. This is because higher education can raise outside revenues through tuition increases – an ability that most other state budget categories lack – making it an attractive target during an economic downturn. The state can cut in this area, but understands that institutions will be able to survive the cut because they can tap into alternative revenue sources.
Higher education also enjoys more flexibility than other state budget areas in changing its spending patterns. Of course, this often means passing along a cut in state funding to students and families.
What can policymakers do to help states and institutions make better plans for the future?
One step is for institutions and state legislatures to explicitly discuss volatility when they evaluate state appropriations for higher education. Discussions that only consider the level of funding are inadequate to address predictability in funding over the long term.
Institutions need to engage the legislature in multi-year discussions on how volatility can be smoothed over to make for more predictable funding. The best institutional policies would reflect the unfortunate reality that the good times will not last forever. Volatility should now be considered the “new normal” in state funding for higher education. New funds added to budgets should not be considered a return to normal, but a means to prepare for the inevitable bad times to come.
This may entail smaller increases in funding in good budget years so that cuts in bad budget years will not be as deep. In states where carry-forwards are permitted, the establishment of rainy-day funds would also give institutions more control over resources and an increased ability to weather state-funding volatility.
When the recession ends, what can be expected in terms of state spending?
Many states face structural budget deficits, which makes it likely that higher education will face more “bad budget years” in the future. However, state spending for higher education has been volatile long enough now that it can no longer be considered extraordinary. If this trend persists, the funding environment for higher education is likely to become increasingly unpredictable in the years to come.
The costs of an increasingly volatile system, with unpredictable finances for institutions and unexpected tuition increases for students and families, are too great to continue to ignore.
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