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

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?

Year-to-Year Change in State Appropriations for Higher Education, 1960-2007

State Appropriations for Higher Education in All States, 1951-2007

Appropriations for MA

Year-to-Year Changes in Appropriations for Higher Education, 1951-2007

Year-to-Year Changes for MA

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

Good and Bad Budget Years y: Higher education appropriations x: Spending in all other categories

Good and Bad Budget Years y: Higher education appropriations Good Times x: Spending in all other categories Bad Times

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.

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). 12

Balance Wheel Pattern y: Higher education appropriations Good Times x: Spending in all other categories Bad Times 13

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

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

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.

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

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.

Contact Jennifer Delaney jdelaney@education.wisc.edu