By Cory Weinberg

Joyce Hesselberth for The Chronicle

Just as the economic recovery allowed some colleges to catch their breaths and add some extra padding to their budgets in 2012-13, stagnant endowment returns and tuition revenue made them flinch. And, to make matters worse, there was sequestration—which has pinched research support.

Not all money streams shrank, though. Public colleges got some good news as 30 state governments allotted more tax dollars to higher education in the 2013 fiscal year, which came as a welcome reprieve after repeated budget cuts.

Over all, colleges mirrored industries across the country over the past year: plodding through a slow economic recovery and trying to catch up in their response to technological disruptions while meeting higher expectations for performance.

Colleges got little help from their endowment portfolios, a key source of funds for many of them. Endowment returns stayed mostly flat in 2012, declining 0.3 percent, on average, because of turbulent global markets and the European debt crisis. The stagnation came just a year after many universities saw double-digit returns, which had given many hope of major financial turnarounds.

The continuing volatility has altered many colleges’ expectations for the future, John D. Walda, president of the National Association of College and University Business Officers, told The Chronicle in February. “I would predict that we will continue to have some big swings in performance as we go forward in the next few years,” he said.

Fund-raising returns also came in at a modest pace as colleges took in 2.3 percent more donations, which amounted to just a 0.2-percent rise after adjustment for inflation. Colleges did not expect giving to rise consistently during the economic recovery, but saw slumping momentum last year after taking in 8.2 percent more gifts in 2011, according to the Council for Aid to Education. Stanford University, however, became the first individual institution to rake in more than $1-billion in a single year.

The stream of tuition dollars slowed, too. After years of rising sticker prices, one-third of colleges and universities surveyed in a report released by Moody’s Investors Service in January expected their net tuition to decline or fail to keep up with inflation. At the same time, tuition discounting has increased, reaching an all-time high at private colleges last year.

Private colleges have also continued to spend more on paying faculty and luring away top scholars, as the gap in pay between public and private colleges grew to 24 percent. Faculty at private colleges saw a pay increase of 2.4 percent, on average, for 2012-13, the American Association of University Professors found, while their counterparts at public institutions got a 1.3-percent increase.

Sequestration Effect

The consequences of this year’s $85-billion federal budget cut known as sequestration are still unclear. College researchers and administrators braced for impact in March, but the immediate hit was not as deep as some expected. Federal research agencies lost about 5 percent of their budgets this year. One effect was a cut in the research support going to universities. Though various federal higher-education-related programs were also cut, Pell Grants were spared.

Researchers are still faced with the prospect of about 1,000 fewer National Science Foundation grants annually and a precarious situation for research support overall. Some of the most vulnerable to continuing austerity include graduate students and young faculty who could face an uphill battle in their quest for research grants.

J.R. Haywood, vice president for science policy at the Federation of American Societies for Experimental Biology, told The Chronicle in March that the full effects of sequestration may never be known. “It’s hard for us to project what we’re not going to be able to discover,” he said.

Searching for Solutions

If public colleges and universities saw reasons for hope last year, as lawmakers appropriated more money to state colleges in 30 states, ranging from 0.1 percent in Minnesota and New Mexico to nearly 14 percent in Wyoming, according a report released in January by researchers at Illinois State University and the State Higher Education Executive Officers.

As a positive sign of things to come, the California Legislature passed a bill in June that gave 5-percent increases to the University of California and California State University systems. Universities there say the increase, which had been proposed by Gov. Edmund G. (Jerry) Brown Jr., is a good start, though they had hoped for more after deep cuts since the recession.

Still, the postrecession era has made its mark on state-supported colleges. The state contributes only about 7 percent of the money going to well-known institutions like the Universities of Colorado, Michigan, and Virginia.

And more and more, states are looking for evidence of positive educational outcomes if colleges want more money. In Tennessee, lawmakers now divvy up a portion of tax dollars for state-supported colleges based on credit completions and graduation rates, creating clear winners and losers in the state. States like Ohio and Indiana have been moving in a similar direction by allocating more tax dollars based on educational outcomes.