State Spending on Higher Education Rebounds in Most States After Years of Decline

January 21, 2013

After falling nearly 11 percent since the 2008 fiscal year, state appropriations for higher education are on the rise in most states. But the long-term effects of budget cuts stemming from the economic downturn still could take years to erase, according to an annual survey.

Over all, states spent just 0.4 percent less on higher education in the fiscal year that began last July 1, compared with the previous year, according to the survey, which was compiled by researchers at Illinois State University and the State Higher Education Executive Officers. In the previous fiscal year, in 2011-12, state spending on higher education declined 7.5 percent over all.

But in the current fiscal year, 30 states actually increased their appropriations for colleges and financial aid, ranging from 0.1 percent in New Mexico to nearly 14 percent in Wyoming, according to the survey's data.

The overall drop in this year's budgets stemmed from larger cuts in big states, such as Florida, where state lawmakers have decreased higher-education spending by 8 percent.

In California, where state money for colleges fell nearly 6 percent from the year before, Gov. Jerry Brown, a Democrat, has proposed increasing state funds for the public-college systems by 4 percent to 6 percent in the coming fiscal year. As in many other states, that proposal came with the expectation that state colleges will keep tuition flat and increase their efficiency in producing graduates.

During the past five years, however, all but 12 states have reduced higher-education spending over all, including cuts of nearly 37 percent in Arizona and 36 percent in New Hampshire. More than a dozen states have slashed tax dollars for colleges by more than 20 percent since the 2008 fiscal year.

"Barring a further downturn in the economy, the relatively small overall change ... suggests that higher education may be at the beginning stages of a climb out of the fiscal trough caused by the last recession," says a news release accompanying the survey data.

That small bit of optimism was balanced, however, by a new report from Moody's Investors Service, which issued a negative outlook for the entire higher-education sector in 2013. That assessment includes even the most competitive research universities, which the credit-rating agency had previously given a stable outlook.

"Public universities can expect the share of their operating revenues from state appropriations to continue to stagnate or even decline," the report says.

The change in outlook was also driven, in part, by potential cuts in federal research dollars, says the Moody's analysis, as Congress and the White House continue to haggle over ways to reduce the federal deficit.

Colleges have been cutting costs since the beginning of the economic downturn, the Moody's report says, but will have to continue to consider longer-term strategies for keeping operating costs low.

In addition, revenue from tuition and state appropriations will be constrained as students and families become more sensitive to rising tuition and fees, the report says. The number of high-school graduates is also expected to decline nationally in the coming years.

Correction (6/3/2013, 5:46 p.m.): This article originally provided an incorrect name for a credit-rating agency. It is Moody's Investors Service, not Services. The article has been updated to reflect this correction.