Where has state funding for public colleges gone?


Where has state funding for public colleges gone?
New analysis points to its displacement by soaring spending on public-welfare, particularly Medicaid

April 26, 2018—Over the last thirty years, the average net price of a four-year degree at a public college, including room and board, has more than doubled to nearly $60,000, in part due to falling state support for higher education. What is driving this decline in state support? In a new analysis, Douglas Webber of Temple University finds that increased state for public-welfare programs—in particular, Medicaid—is the single biggest contributor to the decline in higher-education funding, with a $1 increase in per capita public-welfare spending associated with a $2.44 decrease in per-student higher-education funding.

Although states are spending more overall on higher education today than in 1987, these increases have not kept pace with student enrollment growth. State funding for higher education has declined by roughly a quarter, to $7,152 per student enrolled in a public two- or four-year school in 2015, down from $9,489 per student in 1987. Using data from the Integrated Postsecondary Education Data System (IPEDS) and the Annual Survey of State and Local Government Finances from 1987 through 2015, Webber finds that:

Spending is increasing in other categories. As state investments in higher education have declined on a per-resident basis, spending has grown in other categories, most notably in K–12 education (from $1,378 per resident in 1987 to $1,946 in 2015) and public welfare (from $645 per resident in 1987 to $1,930 in 2015), but also in health and hospitals, police and fire protection, and corrections.

Not all increases lead to higher-ed cuts. For example, though K–12 education is the spending category with the second-largest overall increase nationwide, there is no evidence that it has contributed to the decline in higher education funding. Rather, increases in K–12 spending are positively associated with changes in higher-ed spending.

The dominant factor displacing higher-ed funding is public-welfare spending. Using a statistical model to track changes within states over time, Webber finds that increased public-welfare spending explains more than half of the decline in higher-education appropriations. Other spending categories contributing to the decline are health (23 percent), and police and fire (13 percent). Webber notes that spending on Medicaid, which has risen more than $1,000 per capita since 1987, accounts for a significant portion of both public-welfare and health spending.

Essentially a zero-sum game, state budgets create a dilemma for policymakers. “This finding highlights the struggle state legislators face to balance the immediate needs of today against investments in the future. Most important, it illustrates that constraining the rise of health-care costs is critical not just for those who care about health-care reform but for the public-higher-education landscape as well,” Webber says.

To receive an embargoed copy of “Higher Ed, Lower Spending: As states cut back, where has the money gone?” or to speak with the author, please contact Jackie Kerstetter at jackie.kerstetter@educationnext.org. The article will be available Tuesday, May 1 on www.educationnext.org and will appear in the Summer 2018 issue of Education Next, available in print on May 24, 2018.

About the Author: Douglas Webber is associate professor in the Temple University Department of Economics and a research fellow at the Institute of Labor Economics.

About Education Next: Education Next is a scholarly journal committed to careful examination of evidence relating to school reform, published by the Education Next Institute and the Harvard Program on Education Policy and Governance at the Harvard Kennedy School. For more information, please visit www.educationnext.org.

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