CHAMPAIGN, Ill. — With rampant inflation and some financial gurus forecasting an economic recession in the U.S. this year, officials at postsecondary institutions – and college-going families – have reasons to be concerned, as a shaky economy often portends cuts in higher education funding, researchers say in a new book.
Experts in higher education, public policy and other disciplines examine the implications of precarity in state appropriations for higher education and explore possible solutions in the new book “Volatility in State Spending for Higher Education,” published by the American Educational Research Association and released at its recent conference in Chicago.
During recessions and other economic downturns, states’ funding for higher education is particularly vulnerable because it is the largest or second-largest discretionary spending category, averaging about 9.6% of states’ budgets, said book editor Jennifer Delaney, a professor of education policy, organization and leadership at the University of Illinois Urbana-Champaign.
“With the exception of Vermont, every state also has a balanced-budget mandate, so when we hit downturns, higher education spending is almost always cut,” Delaney said. “Currently, higher education is still benefitting from COVID-19 relief funding, and when that dries up, many states will face a financial cliff for higher education.”
Studies by various experts in the book examine how volatility in state funding affects college affordability through increased tuition and fees, graduation rates and institutional decisions such as hiring contingent instructors rather than tenure-line professors.
With colleges and universities under increased pressure to find predictable revenue streams to shore up their budgets, there are potential adverse effects on the public good, Delaney said.
“Institutions are more likely to start a revenue-generating MBA program than to develop one in a humanities field that supports an important social good, like teacher training,” Delaney said. “Uncertainty in state budgeting shifts the nature of what public institutions do and shifts it in a way that tends to lessen the contributions that education makes to society and democratization – and that is typically not the direction that states are hoping to go in. We should worry about that.”
A study in the book by Delaney and co-author William R. Doyle, a professor of higher education and public policy at Vanderbilt University, looks at the length of time it takes for higher education funding to be restored to previous levels when state appropriations are cut.
In the past, institutional leaders might expect their state revenue to rebound quickly, and they could implement stopgap measures such as curtailing travel and salary increases and deferring maintenance on campus buildings for a short time. However, “it has become clear in many states that this approach will no longer suffice,” Delaney and Doyle wrote. “It is taking longer and longer to recover from cuts, if a recovery comes at all.”
They looked at funding cuts of 1%, 3%, 5% and 10% in state appropriations for higher education during the period 1984-2015. They selected that period because it included the Great Recession but excluded the economic downturn precipitated by the COVID-19 pandemic.
During the 1980s, cuts of 5% or more were rare, and “most states – about 75% – restored higher education funding to its prior levels within four years,” Delaney said. “But in the 1990s, of the 41 states that cut higher education appropriations, only 45% restored that funding within six years. And more recently – from 2000-2015 – recovery became increasingly unlikely. Only 5% of the states in the risk set had their state revenue restored to the previous level within five years.”
States with higher levels of financial aid restored postsecondary funding more quickly, the researchers found, while restoration took the longest in Southern and Western states and in those with higher tuition at their public colleges and universities.
Dramatic fluctuations in state revenue and increased costs of attendance not only affect access, they could shift students’ choice of majors, prompting students to opt for those with higher earning potential to repay their loan debt rather than fields such as education or social work that pay less but benefit the public good, Delaney said.
When weighing the consequences of reducing funding for higher education and the politically unfavorable prospect of raising taxes, state leaders are left seeking alternative revenue sources, the authors said. With these sources limited, some scholars have suggested earmarking states’ lottery revenue for higher education.
A study in the book by researchers Christopher R. Marsicano of Davidson College, Jenna W. Kramer of RAND Corporation and Steven Pittenger Gentile of the Tennessee Higher Education Commission examines 25 years of data on lottery earmarks for higher education and the effects on state appropriations. Concluding that the effects on volatility were “mostly null,” the group cautioned, however, that earmarks and lottery revenues are limited resources that “are not silver bullets for shoring up funding uncertainty.”
Also among the alternative funding mechanisms examined by scholars in the book are counter-cyclical sources such as the creation of federal-state partnerships. Other researchers examine whether state finance policies protect against unpredictability in higher education funding, investigate whether the gender composition and political affiliations of governors and lawmakers affect appropriations and explore potential links between states’ economic performances and their higher education subsidies.
Although the COVID-19 pandemic is waning, the economic chaos it wrought has exacerbated volatility and stretched the resources needed to serve vulnerable student populations, increasing their risks of not completing their degrees, Delaney wrote.
“Volatility is likely to remain a perennial issue or ‘wicked problem’ that will require creative and dedicated minds to manage and research,” she said. “But it has the potential to be improved through carefully crafted public policy. Emphasizing funding stability is important, especially given the public good produced by higher education.”