Higher Education Spending in State Budgets

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Higher Education Spending in State Budgets

• Jennifer A. Delaney
• Assistant Professor
• Educational Leadership and Policy Analysis
• WISCAPE Scholar
• University of Wisconsin

William R. Doyle Assistant Professor Higher
Education Vanderbilt University
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Volatility in State Support for Higher Education

• Change seems to be the only constant in state
  funding of higher education.
• Volatility in higher education appropriations is
  difficult on institutions.
• This volatility often results in tuition
  increases, which pose difficulties for students
  and parents.
• Is this rollercoaster ride typical of state
  funding for higher education?

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Year-to-Year Change in State Appropriations for
Higher Education, 1960-2007
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State Appropriations for Higher Education in All
States, 1951-2007
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Appropriations for MA
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Year-to-Year Changes in Appropriations for Higher
Education, 1951-2007
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Year-to-Year Changes for MA
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Patterns of Volatility

• Does the volatility of funding fall into an
  identifiable pattern (or patterns)?
• In relation to all other state budget categories.
• Specific to higher education
• Not a general budgeting principal

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Good and Bad Budget Years
y Higher education appropriations
x Spending in all other categories
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Good and Bad Budget Years
y Higher education appropriations
Good Times
x Spending in all other categories
Bad Times
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Possible Patterns of Volatility

• Linear
• Funding for all other state budget categories and
  funding for higher education increases (or
  decreases) in a similar manner.
• Incremental budgeting.
• Funding in the previous year would be the best
  predictor for funding in a subsequent year.
• Quadratic
• Spending for higher education would be
  countercyclical.

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Balance Wheel Pattern

• When states revenues are low, higher education
  is an attractive option for heavy cuts, because
  it has the ability to collect fees for its
  services (an ability lacking in most other major
  state spending categories).
• When states revenues are high, higher education
  is a politically attractive area to spend money
  (Hovey, 1999).

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Balance Wheel Pattern
y Higher education appropriations
Good Times
x Spending in all other categories
Bad Times
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Data Sources

• State appropriations for higher education per
  capita
• From 1951 to 1959 Statistical Abstracts of the
  United States.
• From 1960 to 2007 Grapevine (Center for Higher
  Education and Educational Finance, 2002).
• State general expenditures
• US Census Bureau.
• Employment percent
• Bureau of Labor Statistics, State and Area
  Employment, Hours, and Earnings.
• Per capita income
• Bureau of Economic Analysis
• State population
• Statistical Abstracts of the United States

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Estimating Equation

• The model to be estimated is
• Where, in first differences
• y state appropriations for higher education
• i state
• t year
• x state expenditures for all other budget
  categories.
• z employment percent
• w per capita income
• v population

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Summary

• We find that the level of volatility in state
  budgeting has increased over time
• very stable and predictable relationship in the
  1960s
• extremely volatile relationship in the 1990s.
• However, the volatility is not random, but falls
  into discernable patterns that have the ability
  to change over time.
• The results of our study show that the balance
  wheel model of higher education finance is, in
  fact, a quite recent phenomenon.

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Policy Recommendations

• We recommend that higher education discuss not
  only funding levels with their state
  legislatures, but also discuss volatility in
  funding patterns.

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Policy Recommendations

• Both states and institutions should explicitly
  negotiate to reduce volatility in appropriations.
  
• This smoothing would not require additional
  funding.
• One approach is to allow institutions to build
  rainy day funds.
• Both states and institutions would need to
  develop mechanisms to ensure that they will
  follow through on multi-year deals.
• Develop a mechanism to enable institutions to
  insure against the risk inherent in volatility.

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Contact

• Jennifer Delaney
• jdelaney_at_education.wisc.edu