State Tax Fund Appropriations for Higher Education

FY2006 state tax fund appropriations for higher education have been reported by Jim Palmer and his colleagues at Illinois State University (see Grapevine). We have added the control of state personal income to his data to measure state investment effort in higher education. The Grapevine data and our reworking of it present a decidedly mixed picture of state higher education funding.

FY2006 state tax fund appropriations for higher education was $6.89 per $1000 of state personal income. This was the same as FY2005, and slightly above the low of $6.87 for FY2004. While state appropriations increased by 5.90 percent between FY2005 and FY2005, state personal income (the presumed state tax base) increased by 5.96 percent between CY2003 and CY2004.

But overall state investment effort has been ratcheting downward since FY1976 when it peaked at $10.58. The downward lurches have occurred during periods of economic recession in the early 1980s, early 1990s and again in the early 2000s. The current pause awaits the next national economic recession before lurching downward further. Historically corrections and Medicaid have been crowding higher education (and everything else) out of state budgets. The reduction in state investment effort in higher education since about FY1980 has been accompanied by huge increases in the tuition and fees paid by college students. Effectively states have been shifting the costs of higher education from state taxpayers to students enrolled in public colleges and universities.

States vary widely in their state tax investment effort for higher education. In FY2006 the national leaders are New Mexico ($14.42), Wyoming ($12.76), Hawaii ($11.95), North Carolina ($11.69) and North Dakota ($11.60). The national laggards are New Hampshire ($2.46), Massachusetts ($3.40), Colorado ($3.58), Vermont ($4.16) and Missouri ($4.88).

For current management purposes the year-to-year changes are most important. Between FY2005 and FY2006 19 states increased their investment effort, 4 states held steady, and 28 states reduced their higher education investment effort. The largest gainers are Hawaii (+$1.21), Alabama (+$.90), North Dakota (+$.53), Montana (+$.41) and Oklahoma (+$.34). The largest losers are West Virginia (-$.82), Mississippi (-$.79), Iowa (-$.76), Wyoming (-$.41) and Idaho (-$.40).

I have been writing in OPPORTUNITY about the privatization of public higher education since the early 1990s. (My first analyses were from the early 1980s.) Others have recently picked up this theme. While I have watched public institutions struggle with inadequate state appropriations for 25 years a number of things have become obvious to me:

• The problem is not going away. The aging of the population places extraordinary demands on state budgets and higher education cannot compete with old folks. Higher education never could compete with health care and corrections. It probably cannot compete with tax cutting initiatives.
  
• Higher education is far too self-absorbed in its own Ivory Tower world to understand how disengaged it has become from the pressing issues facing elected state officials.
  
• The costs of public higher education have been and will continue to be relentlessly shifted from state taxpayers to students. Very few states have made any provision to cover these tuition increases for students who cannot afford them. The states have taken a walk on this one.
• States are largely responsible for the college affordability crisis. The burden of this failure is born entirely by students born into the bottom half of the family income distribution who are increasingly concentrated in public 2-year colleges while students born into affluent families are increasingly concentrated in 4-year colleges and universities.
  
• Private higher education has used the real financing problems of public higher education as a smokescreen for very large tuition increases of their own that have been used to feather their own nests. The growing compensation differential between private and public higher education faculty is the clearest evidence of this.