Funding Analysis: States Too Quick to Use Higher Ed as 'Budgetary Release Valve'

State and local resources are the primary source of funding for public higher education, yet those funds have steadily diminished in recent years.

• By Dian Schaffhauser
• 06/02/21

If you think the federal government has bailed out colleges and universities with its massive amounts of relief funding, you'd be wrong. Add up state and local allocations of about $108 billion in fiscal year 2020, generated through taxes, lottery receipts, mineral and resource extraction revenue and state-funded endowments, and you'd get a more accurate idea about the primary sources of funding for public higher education, as laid out in a new analysis by the State Higher Education Executive Officers Association.

According to "State Higher Education Finance" (SHEF), which primarily examines state and local investments for higher ed, states contributed a total of $97 billion in funding for fiscal year 2020; local governments in 31 states provided another $12 billion. Over the same period, the federal government's stimulus funding, $428 million, made up just 0.4 percent of the total support.

As the report noted, "While federal stimulus and relief funds are helpful, they are not a replacement for long-term state investments as stimulus funds are time limited and often restricted in their use."

Over the past 25 years, the proportion of general funds from any source allocated to post-secondary education has steadily declined, from 13 percent in 1995 to 9 percent in 2020. The difference in most cases is being made up by increases in student tuition, making for a "substantial shift of responsibility" for financing public higher ed toward net tuition revenue, particularly in the four-year sector. In 1980 (the earliest available data), the student share was 21 percent. By 2020, the average share was 44 percent. However, that varied by institutional type. At two-year institutions, the average student share in 2020 was less than a quarter (24 percent). At four-year institutions, the average student share was over half (53 percent).

The report asserted that the downward slide in public funding was expected to continue, noting that public institutions could face "a more precarious financial situation than at any other time in recent history." A big part of the problem is that even after eight years of increases in state support for colleges and universities, states are still recovering from prior recessionary cuts in state funding, and higher ed provides for an easy target to make up budget shortfalls. Nationally, the study found, inflation-adjusted education appropriations per full-time equivalent (FTE) student remain 6 percent and 15 percent below 2008 and 2001 levels.

State and local governments provided an average of $8,636 per FTE student to public institutions. However, due to the pandemic, the sector will most probably experience several years of cuts to state funding, the report asserted, "and early estimates of 2021 funding show a decline in most states."

Two-year colleges received $4,969 per FTE in state general operating appropriations, compared to $7,352 at four-year schools. Four-year institutions also received $1,697 per FTE in research and medical appropriations.

Local appropriations, the primary support for two-year institutions, partially made up for the gap in state funding. In 2020, two-year institutions received $2,727 per FTE in local support.

As the association warned, "Continuing to use higher education as a budgetary release valve as state economies recover from the pandemic recession may undermine student affordability and harm public institutions' ability to provide quality educational opportunities."

"These findings paint a concerning picture as the impacts of the 2020 recession continue to affect higher education," the report stated. "With declining revenue from both states and students and after a year of increased costs due to the pandemic, state support is crucial for the continued success of our public institutions."

The full report and related resources are openly available on the association's website.