‘These Cuts Have Real Consequences’: A New Study Surveys the Damage of State Disinvestment in Public Universities

A new National Bureau of Economic Research working paper examines the effects of a decades-long decline in state funding for public universities. According to the results, the decrease has had, and will continue to have, damaging repercussions, suggesting reason to be concerned about the future of public higher education.

The study behind the paper, “Public Universities: The Supply Side of Building a Skilled Workforce,” was conducted by a team of researchers, who compared trends at public universities in states where cuts in higher-education funding have been steep, such as Michigan and Wisconsin, with those in states where appropriations for public institutions have remained fairly stable, like New York and Texas. The conclusion? That the continuing decline in state funding will very likely lead to a shortage of skilled workers with degrees, as well as the erosion of universities’ “long-term research capacity, which contributes to economic growth.”

It also illustrates how the decrease in funding has led many public institutions to adopt strategies for endowment growth traditionally associated with private universities. For the more elite public universities, that may undermine certain central goals, like funding general research and providing higher education to in-state students. For others, those strategies are simply out of reach.

The Chronicle spoke with two of the study’s authors: John Bound, a professor of economics at the University of Michigan at Ann Arbor; and Sarah Turner, a professor of economics and education at the University of Virginia, who responded to questions via email. The other co-authors are Gaurav Khanna, an assistant professor of economics at the University of California at San Diego, and Breno Braga, a research associate at the Urban Institute. The interview has been condensed and edited for clarity.

Q. What are some of the major causes of the decline in state funding for public universities?

Bound. First of all, the fraction of the state money going to higher education is declining. So, it’s not just that state budgets have declined — cuts to state budgets, they happen. But the fraction of their money that states are spending on higher education has declined. Now, there is some really conventional wisdom of why this is happening that has to do with funding for other programs, the big one being Medicaid. But we found that while that plays some role, it can’t explain anything close to the total. And we really didn’t find strong evidence for any alternative.

If you try and look at political actors influencing these cuts, it doesn’t scream at you that that’s what the major cause is. For example, Michigan has had major cuts, as has Wisconsin. And in Michigan’s political context, there was not the same political revolution as there was in Wisconsin. So, I don’t think it’s simply something you can label as progressives versus conservatives. That makes me think there are fundamental economic factors at work that are pushing states to fund higher education less than they did in the past. Do I think that might be really disastrous in the long run? I would say yes. In some sense, the old model for funding public higher education in the U.S. is breaking down — that state model that resulted from states feeling they had a vested interest, economically.

Q. Your report gives a kind of historical overview of how state funding for public universities greatly contributed to economic growth throughout the 20th century, before declining over the past 30 or so years. Are states investing less in education now mostly because of budget cuts, or does it have to do with how state economies have changed?

Bound. What you’re suggesting is certainly consistent with what I would claim to be both common sense and simple economic models. Both in terms of the education that states provide their students and the return from that education that states experience, states have become less of a closed economy than they were before. The money that Wisconsin spends on higher education, for example, does less for the state of Wisconsin now than it would have 30 years ago. More and more, the best and the brightest high-school graduates are going out of state to go to college. Also, research and development returns less to the state of Michigan than it might have 100 or 50 years ago. The New York Times columnist Thomas Friedman talks about the flattening of the world, but the U.S. is also flattening in the sense that we’re less state-centric and more integrated with each other, and that reduces the viability of the state as an economic beneficiary from education.

Q. Your study also brings up some of the different ways that public universities are dealing with the shortage of funds, and it specifically notes the disparity between what public research universities can do and what other, what you call “broad-access,” public institutions are capable of. What are these differences, and do research institutions have an edge when it comes to adapting?

Bound. Research universities, typically being some higher-profile universities, have various ways to somewhat limit the damage being done to undergraduate education. Increasingly, top state schools are going to out-of-state students or out-of-country students, who pay high fees, to try to replace some of the money from the state coffers.

Public universities are privatizing, depending more on tuition, depending more on private contributions, things like that. And as that happens, it’s reasonable to think that state universities, since more and more money is coming from tuition, will be more and more oriented toward the interest of the people paying those tuitions. And that will have consequences for the nature of the education they provide but also for the research being done. So in a certain way, the consequences to the students at the research universities may be less than at the non-research universities. But the consequences for research may be greater at the research universities just because more research is done there.

Q. What do you mean when you say it’ll have an impact on the kind of research that’s done there?

Bound. There are two parts to that. One is that subsidies given to research will be taken away to some extent and given to the undergraduate program. That’s kind of tilting things away from research toward students, so that the students are less impacted. The other thing you can see happening is that emphasis will be put on research that can be externally funded. With the increasing pressure to get money from external sources, people might have different perspectives on whether that’s good or bad. It’s easier for researchers to get funding for things that have very clear, fairly short-term tangible output. But my own belief is that a lot of unfunded research, in the very long run, produces important developments. Even if the only thing you care about is GDP per capita, it may have long-term positive effects.

Q. Is that difference between top-tier and lower-tier public universities a result of those top-tier public universities’ ability to adopt private universities’ model of endowment growth and funding?

Bound. Yes, partially. But also, an increasingly important source of revenue is tuition from out-of-state students, including foreign students. So, it’s the capacity to attract the people who have enough money to pay. They’ll look at the U.S. News & World Report rankings for the University of Michigan and say, Oh, that’s a great school. It’s not Harvard or Swarthmore or something, but it’s pretty good. So we’ll be willing to pay that money for the University of Michigan. But if you ask, Are they willing to pay for Eastern Michigan? They haven’t even heard of it.

Q. What’s the impact of this decrease in state funding on the ability to bring in students who can’t pay full tuition and on the incentive to populate classes with wealthier students from out of state who can pay full tuition? Is there a worry that the socioeconomic diversity of public institutions will approach the levels of disparity present at private institutions?

Turner. The “affordability” challenges that have gotten so much attention recently are real, and changes in state appropriations are definitely a contributing factor. The increase in tuition levels in response to declines in appropriations tends to increase the challenge of paying for college for all but the most affluent students.

Where the narrative gets complicated is in measuring the impact on “net price” (cost of attendance minus grant aid) for students from different income groups and at different types of institutions. Preliminary work finds that a small group of resource-intensive universities, those that belong to the Association of American Universities, have been able to largely insulate low-income students from increases in tuition by also increasing grant aid. Broad-access institutions, which often lack resources from private philanthropy or out-of-state students, are simply unable to provide additional grant aid.

The representation of students from across the income distribution at public research universities has been a problem for decades; it is not “caused” by the decline in state appropriations. What has happened is in the larger economy — the increase in the stratification of family incomes exacerbates the problem. Declines in appropriations make it difficult for institutions to fund investments to increase the pool of low-income students, and they also make it more difficult for universities to provide the resources to make college affordable for “near poor” and “middle-income” families.

Q. What kind of practical actions can state lawmakers and university administrators take to address the problems that are brought up in your study?

Bound. Well, from the point of view of state legislatures, the answer simply would be more money. But we actually have only a very partial diagnosis of why the money is falling. We weren’t thinking about this as giving advice to people. This is a serious issue, which is not to say that we have a solution. The main point is: These cuts have real consequences for individuals who might get a college education, who might not otherwise or might not get high-quality education because of the decline. And also for the research that is done in the United States, which presumably has an impact in the long run on things like GDP per capita.

In terms of if I have advice or a message for university administrators, my answer would be no. We basically think university administrators are doing the best job they can, given the resources they have. For example, the University of California system, which used to have a very limited number of seats available for out-of-state students, increased the number of out-of-state acceptances dramatically after the Great Recession. And the administrators have to go argue with Sacramento and say, No, we’re not taking it away from the in-state students; what we’re doing is we’re using these people to subsidize them. So, I think that to try to micromanage university administrators is a mistake. What I do think is that an administrator at the University of Michigan has options available to him or her that an administrator at Eastern Michigan does not.

Liam Knox is an editorial intern at The Chronicle. Follow him on Twitter @liamhknox, or email him at liam.knox@chronicle.com.