The following report was prepared by the Task Force on State Budget Issues, a subcommittee of the Association's Committee on Government Relations, for use in state conference lobbying campaigns. The full committee approved the report for publication in November 2004.
As several articles in the July-August 2004 issue of Academe discuss, recent patterns in state funding have hurt higher education. Although there are some signs that state budgets are beginning to recover from "the worst fiscal crisis in the last sixty years," officials still expect "an uphill battle," according to the Fiscal Survey of the States issued in April 2004 by the National Governors Association and the National Association of State Budget Officers. The survey points out that the expected increase in fiscal 2005 expenditures of 2.8 percent over 2004 expenditures is well below the twenty-six-year average increase of 6.2 percent. This follows an "anemic" 0.6 percent increase in fiscal 2003, which was the smallest increase in the previous twenty years. This budget crisis may have a more dramatic and long-lasting structural effect on public higher education than boom-and-bust cycles of the past, and the short term cuts already have been devastating. The essence of the situation is captured by the headline of the National Governor's Association press release announcing the survey's release: "Potholes Remain on States' Road to Recovery."
Causes of the Crisis
A variety of reasons have been advanced for the collapse in state revenues, but the basic cause lies in the combination of the recession, tax policy, and federal mandates. In August 2004, the Center on Budget and Policy Priorities issued a study entitled Passing Down the Deficit: Federal Policies Contribute to the Severity of the State Fiscal Crisis, which identifies several ways in which federal policies have deepened and prolonged the state fiscal crisis. The largest roles are played by unfunded mandates and sales tax lost when customers shop tax free from catalogs and Web sites. But roles are also played by changes in federal tax policy, revenue lost because of a prohibition placed by the Internet Tax Freedom Act on taxing access fees for Internet service, and costs of prescription medications excluded from federal coverage and assumed by the states. Federal tax cuts reduce revenue not simply for the federal government but also for many states that couple elements of their tax structure to federal policies. While some states have decoupled their tax structures from federal policies in reaction to these cuts, many have not. The center estimates that federal tax policies have cost states $9 billion over the fiscal years 2002-05. By late 2002, the states' fiscal situation had reached crisis proportions and led state governors to band together to lobby the federal government for relief. This resulted in a one-time federal relief payment of $20 billion in 2003, which reduced the net loss of revenues for the states from $175 billion to $155 billion, according to the center.
Some states, especially those whose economies are based on manufacturing, were hit harder by the budget crisis than others. However, during recessions all states have faced major spending pressures from a limited number of areas. Traditionally, policy analysts have focused on prisons, Medicaid, and education as the major areas of state expenditures. In times of economic downturn, the need for spending on prisons and Medicaid seems immediate, while spending on education, generally a long-term investment, can be harder to justify. Moreover, primary and secondary education receive the lion's share of education funding and dominate state-level discussions of education. Every legislative district in every state has primary and secondary schools within its boundaries, as well as students, teachers, and parents of school-age children. Although many districts also contain institutions of higher education, most do not. As a result, legislators' commitment to K-12 education usually overshadows their commitment to higher education, and higher education suffers the most in a crisis.
The Rockefeller Institute of Government, a nonpartisan think tank based at the State University of New York at Albany, has projected that even if states experience normal economic growth over the next eight years, all but a handful will find it impossible, given their existing tax policies, to continue funding their current level of public services.1 The problems already cited in this report have been aggravated by federal mandates. These federal programs increased costs for state governments, and, in the case of some homeland security measures, for colleges and universities as well.
Long-Term Problem
If the current downturn were a normal part of the boom-and-bust business cycle, states and public colleges and universities could ride it out. However, structural problems involving state revenue systems make this a long-term problem that requires long-term solutions. In a March 2004 update on the state fiscal crisis, National Governors' Association executive director Raymond Scheppach wrote that the revenue difficulties are due to what he calls "obsolete state tax systems, which were developed for the manufacturing economy of the 1950s, not the service-oriented, high-technology, global economy that has developed during the last two decades." Scheppach clearly identifies a problem, but he stops short of calling for a specific revenue solution other than implying that a tax system more in line with the new economy should be developed. In the current political climate, few governors have stepped up to argue for tax reform to address adequate funding for public services. Instead, pressure at both the state and federal levels tends to come from tax-cut advocates who are focused on lessening the tax burden for individual citizens, not on providing public services for the citizenry as a whole.
While the focus of this report is on state actions, we must emphasize the interrelationship of federal and state policies. David Breneman, dean of the Curry School of Education at the University of Virginia, describes in the spring 2003 issue of Crosstalk, a publication of the National Center for Public Policy and Higher Education, how the pieces of higher education funding traditionally fit together. "State governments and private philanthropy," he writes, "have combined historically to provide the supply-side of higher education, while the federal role has focused on underwriting student demand through grants, guaranteed loans, and work study." This division of labor between the state and federal levels of government in the United States worked well as long as both levels kept up their end of the bargain. When neither is doing so, however, the quality of education suffers.
Although most commentators have recognized the severity of the problem, there have been discordant voices. In summer 2004, the State Higher Education Executive Officers' Association released a report suggesting that "overall state spending on higher education has generally kept pace with enrollment growth and inflation over the past three decades." The report claims that "the fundamental message of this report is that the sky is not falling." However, a careful look at the report suggests that hard-hats may still be in order. In an analysis of the report, the American Council on Education notes that while the report does present an optimistic funding situation looking back to 1970, it paints a very different picture looking back to 1991: "since 1991, states have reduced per-student funding to higher education by 7 percent in real terms, with ten states making cuts of more than 20 percent." The council argues that the report shows "extreme short-term fluctuations in state funding and variability among states . . . . [a] fiscal boom or bust cycle [that] creates a volatility in higher education financing that presents an enormous challenge to institutions." It also comments that the report recognizes that "structural rather than cyclical budgetary problems may prevent a rebound of state higher education funding as the economy improves."
Perhaps the most important—and certainly the most frightening—prospect posed by the current fiscal crisis is a threat to the long term viability of higher education. Since the time of Thomas Jefferson, the American people have regarded public education as one of the most important public goods. This sentiment has led to a series of important steps to ensure higher education's availability to the people: the creation of land grant institutions, the GI Bill, the Higher Education Acts, and the Pell Grant Program. States traditionally have held their public institutions of higher education in high regard and committed vast resources to them in the realization that these institutions served the interests of their citizens and helped their economies prosper. But this support for the role of the state in higher education may well be eroding.
In the last thirty years, the burden of financing higher education has shifted more and more to the student. While state funding has increased in absolute dollars, the share of institutional budgets funded by states has gone down. In 2002, the National Center for Public Policy and Higher Education issued Losing Ground: A National Report on the Affordability of American Higher Education. The report shows that while state support for higher education increased by 13 percent from 1982 to 1998, tuition and fees increased by 107 percent over the same period. At the federal level, while more than 50 percent of federal financial aid was in the form of grants in 1982-83, by 2002-03 grants made up only 40 percent of such aid, note Ronald Ehrenberg and Michael Rizzo in "Financial Forces and the Future of American Higher Edu-cation," which appeared in the July-August 2004 issue of Academe. They add that "during the mid-1970s, the average Pell Grant covered about 46 percent of the average costs (including room and board) of attending a public college or university. Last year, the average grant paid for less than 30 percent of the costs."
On average, the maximum Pell award today covers 68 percent of the cost of attending a community college, 41 percent of the cost of attending a public four-year institution, and only 16 percent of attending a private, not-for-profit institution.2 The inflation-adjusted value of today's maximum Pell grant is below its value in 1975-76. At the same time, low-income students are being squeezed out by middle- and upper-income students for available school support. While tax-credit programs provide welcome assistance to those fortunate enough to benefit from them, many low-income families and students earn too little to benefit from tax reduction. In addition, during the 1990s, there was a notable increase in the percentage of students in the highest income quartile who received institutional aid. The pro-portion of upper-income students receiving such aid increased from 12 to 18 percent; the proportion awarded to middle income students went from 17 to 23 percent.3
These figures indicate a change in the views of policy makers regarding the nature of higher education. It appears to be seen less as the public good it once was and increasingly as a private good, which students must sacrifice to afford.
Findings
The combination of severe short-term cuts coupled with disastrous long-term outlooks led the AAUP's Committee on Government Relations to create the Task Force on State Budget Issues, which is charged with developing a comprehensive response to the crisis. After extensive analysis of the current crisis in state funding for higher education, the task force makes the following findings:
1. State revenue systems are antiquated, leaving state governments dangerously unable to cope with economic cycles.
2. Today's economic climate requires more than just a high school diploma.
3. Higher education is a public good, not a commercial enterprise. Its benefits accrue to both the individual and society at large, and any funding system should take that into account.
4. We must ensure that higher education, as a public good, is available for everyone who wants it.
5. Federal mandates affecting state expenditures are unlikely to be relaxed in the near future.
6. State and federal finances are inexorably intertwined. Any solution that does not address both state and federal policy will be doomed to fail.
7. It took years to get here; it will take years to correct the situation.
Action Plan
The task force concludes that the current situation represents a challenge that demands faculty action. The AAUP must act at both federal and state levels to ensure that higher education regains the status necessary for it to meet the needs of our society. Based on the our analysis and recent developments at both the state and federal levels, we recommend that the AAUP take the following six steps.
1. Encourage a broad-based public relations campaign to restore public support for college and university education as a public good.
Our first long term priority should be to reverse the notion that higher education is a private good to be borne at the individual's expense. If left unchallenged, this sentiment will not only undermine the future of higher education but prove counterproductive to states struggling to enhance their own economic development. This will not be easy as we face very real competition for tax money for other social goods, including health care, aid to the needy, and K-12 education.
2. Work with the business community and others to develop and publicize the educational requirements of the newly emerging workforce.
In the last half century, much attention has been focused on higher education's economic benefits—an extremely narrow, yet measurable, concern. Studies have revealed the increased earning potential of individuals with college degrees and the direct economic contributions of colleges and universities to their surrounding communities. U.S. Census Bureau figures from 2004, for example, indicate that men who hold a bachelor's degree earn 64 percent more than men who completed only high school; for women, the advantage is 68 percent.4 Colleges and universities return $5 to the state's economy for every $1 invested, a study by the National Association of State Universities and Land Grant Colleges shows.5 These data measure higher education's short-term returns to local economies and the long-term payoff of productive citizens, who augment the tax base.
More broadly, others have argued that social spending benefits economic performance. For example, a recent book by economist Peter Lindert examines the effect of retirement policies and social spending in the areas of health, education, and unemployment on a wide range of modern economies. He challenges the notion that high levels of social spending inhibit economic performance, and even points out that "expenditures on public schooling are the most positively productive in the sense of raising national product per capita."6 Though useful, this argument is somewhat misconceived because it treats higher education expenses as direct costs when they should be properly understood as long-term investments in existing capital. The research of colleges and universities has generated untold numbers of advances in medicine, business, and technology that have improved overall economic performance as well as the quality of life in general.
In recognizing the economic development potential of higher education, it is also necessary to remind lawmakers of the larger purposes of higher education. While higher education does have both short- and long-term economic benefits, assessing its importance in quantifiable measures encourages an overly instrumental view of education that emphasizes the immediate needs of self-interested parties, without proper consideration of the public character and purposes of the endeavor. Higher education is not a short-term market input and a private good. Higher education is, rather, an investment in the future and a public endowment. Its purpose is not primarily job training, but rather to develop students' potentials, to broaden their perspectives, and to help them develop "their own best powers," as social critic Paul Goodman puts it.
3. Lobby the federal government to accept its responsibilities and restore the purchasing power of the Pell Grant and other student aid programs.
The first purpose of higher education in America was to prepare people for citizenship. This purpose, as political theorist Jeff Lustig puts it in a forthcoming article, "was political in the broadest sense of the term, to prepare people to become engaged citizens, and in [the tradition of Aristotle], members of a public capable of governing itself. Higher education is undertaken ultimately, one of its nineteenth-century California promoters explained, 'for the dignity of the commonwealth . . . to furnish the [republican] citizen the means to discharge the duties imposed on him.'7
Those of us involved in higher education have a responsibility to bring the larger contributions of the classroom to the attention of policy makers at all levels of government. And the most basic of those contributions is that higher education is the indisputable precondition—more important than roads, prisons, or tax write-offs—for democracy. Stinting on infrastructural allocations may leave potholes for three years, but stinting on higher education means closing off access for three years and losing a generation.
4. Urge states to update their revenue systems to reflect the structural changes in the economy and to provide a more equitable tax burden and more predictable revenue base for public services.
We must urge lawmakers to rethink traditional approaches to state revenue. The tax base in most states continues to rest on a manufacturing economy that no longer exists, while our high tech economy is increasingly reliant on services, many of which escape taxation. In a new economy, we need a new tax structure that taps new centers of economic activity and spreads the burden more evenly among productive forces. The AAUP should join forces with other stakeholders in the private and public sectors to explore more adequate state financing systems.
Some have called for radical solutions, such as the "Free Higher Education" campaign, which advocates that the federal government pay tuition and fees for all students, part- and full-time, who are enrolled in two- and four-year public institutions in the United States. Not every member of the task force endorses this campaign, but all do oppose the increased reliance on tuition and fees as a means of financing higher education. This short-sighted approach will increase the debt burden of all students, while reducing access to college and university education for many low-income students.
5. Educate all levels of government about the importance of adopting funding policies to restore public support for higher education and avoid burdening future students with overwhelming amounts of debt.
State governments should fund public education through general fund dollars, not high tuitions and fees. With students assuming an in-creasing burden of financing higher education themselves, the nation is reverting to a time when a college or university education was available only to a small slice of the population. Whether that slice is defined by race, gender, ethnicity, or class, it is unacceptable to a globalizing society in which we all de-pend on each other. Today's lack of political will to fund higher education contrasts sharply with the commitment of most states to higher education in the late nineteenth and early twen-tieth centuries. Then, although only a privileged few actually attended college, the public looked on the state university as a treasure. Today, as higher education comes within the reach of almost everyone, states are devaluing their systems and relying much more on individual funding such as tuition and fees.
The faculty needs to broaden our appeal to all sectors of the public. States must provide adequate levels of funding to allow students from low- and middle-income families access to the same college and university education as those with more in-come. The current trend of transferring financial aid resources into merit-based programs and away from need-based programs is an indication that states are placing less value on higher education. The job of the AAUP is to persuade policy makers of the value of higher education and encourage them to make different decisions.
6. Encourage faculty to work within institutional governance structures to assure that colleges and universities deliver quality programs at top efficiency.
Finally, we recognize that the higher education community must do a better job of monitoring and curbing its own costs, while working to preserve the quality of the programs we offer. Working to integrate educational opportunities throughout the state may achieve substantial cost savings. To this end, we support two recommendations made by the National Center for Public Policy and Higher Education in a 2003 report titled Responding to the Crisis in College Opportunity: assure transfer opportunity to four-year colleges for all qualified community college students, and initiate a process to specify and implement long-term higher education goals that would increase college access and completion.8 Assuring transfer opportunity must involve faculty at two- and four-year institutions working together to assure transferability of core program elements while protecting the integrity of curriculum standards at all institutions. Mandates from the federal or state governments to implement this recommendation without a primary role for faculty violate the principle, long held by the AAUP, that faculty have "primary responsibility for such fundamental areas as curriculum, subject matter and methods of instruction, research, faculty status, and those aspects of student life which relate to the educational process."9
A process to specify and implement long-term higher education goals will necessarily differ from state to state depending on the specific circumstances of each state's higher education system. We strongly advocate that the process be undertaken at the state level in order that the specification and implementation of long-term higher education goals realistically reflect the circumstances that faculty, students, and institutions face on a day-to-day basis.
Appropriate faculty input into the governance process as institutions and states develop funding priorities is essential to ensuring that these specific reforms address the concerns while protecting the quality of the education.
JOSEPH A. LOSCO ( Political Science), Ball State University, chair
ARIEL ANDERSON (Early Childhood Education and Human Development), Western Michigan University
PATRICIA W. BENTLEY (Library & Women's Studies), State University of New York at Plattsburgh
CAROL A. BLACKSHIRE-BELAY (Germanic Linguistics), University of Wisconsin-Green Bay
THOMAS GUILD (Legal Studies), University of Central Oklahoma
GLENN HOWZE (Rural Sociology), Auburn University
EDWARD C. MARTH, University of Connecticut AAUP chapter
CECELIA MCCALL (Communications), Bernard M. Baruch College, City University of New York
GERALD M. TURKEL (Sociology), University of Delaware
BEULAH M. WOODFIN (Biochemistry), University of New Mexico
MARK F. SMITH, staff
Endnotes:
1. National Center for Public Policy and Higher Education, Policy Alert, (Washington, DC: February 2003), 1, http://www.highereducation.org/pa_0203/pa_0203.pdf. Back to text
2. American Council on Education, 2003 Status Report on the Pell Grant Program, http://www.acenet.edu/bookstore/pdf/2003_pell_grant.pdf. Back to text
3. U.S. Department of Education, National Center for Education Statistics, What Colleges Contribute: Institutional Aid to Full Time Under-graduates Attending 4 Year Colleges and Universities, http://nces.ed.gov/pubs2003/2003157.pdf. For a comparison of the last twenty years, see the College Board report Trends in College Pricing 2003, page 16, figure 9, http://www.collegeboard.com/prod_downloads/press/cost03/cb_trends_pricing_2003.pdf. Back to text
4. US Census Bureau, Current Population Survey, 2004 Annual Social and Economic Supplement, http://www.bls.census.gov/cps/asec/adsmain.htm, parts 127 and 271. The median 2003 earnings for people twenty-five years and older are: for men with bachelor's degree, $51,507; with high school degree, $31,411; for women with bachelor's degree $35,394; with high school degree $21,118. Back to text
5. Shaping the Future: the Economic Impact of Public Universities, August 2001. http://www.nasulgc.org/publications/EconImpact.pdf Back to text
6. Peter Lindert, Growing Public: Social Spending and Economic Growth Since the Eighteenth Century. Vol. 1, The Story. (New York: Cambridge University Press, 2004), 87. Back to text
7. Jeff Lustig, "The University Reclaimed: An Alternative to Corporate Mis-education." The Review of Education, Pedagogy and Cultural Studies (forthcoming). Back to text
8. The National Center for Public Policy and Higher Education, Responding to the Crisis in College Opportunity, http://www.highereducation.org/reports/crisis/index.shtml. Back to text
9. "Statement on Government of Colleges and Universities." Policy Documents and Reports, 9th ed. (Washington, DC: AAUP, 2001). Back to text
(Posted 01/05)