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"Old" Habits Meet a "New" Normal
January 16, 2011 - 11:07pm

Despite a slight rise in state revenues, the 2011 budget cycle is likely to be the most difficult yet of the states' ongoing fiscal crisis. That’s because budget shortfalls are epic - $60 billion in budget shortfalls this year and another $50 billion in 2012. Whereas most state revenues will rebound to peak levels by 2013, revenue recovery is not likely in nine states until 2014. The National Association of State Budget Officers’ A New Funding Paradigm for Higher Education says that while a slight rise in revenues will “mitigate the funding squeeze, the environment for state higher education support might be permanently and unalterably different from the past.” What an understatement. Average annual spending growth is projected to be a weak 3 to 4 percent for the next 10-20 years.

How governors navigate these “new normal” budget conditions will have a profound impact on the nation’s economic future. An economic recovery cannot be achieved through cuts alone. Shrinking state budgets must be refocused to grow the economy. Higher education will be front and center in any growth strategy.

According to estimates from the Minneapolis Federal Reserve Bank, if the U.S. could muster the capacity to better match skills with today’s jobs, unemployment would be at 6.5 percent instead of 9.6 percent. That represents millions of good-paying jobs that lead to economic growth.

The Value Imperative in the “New Normal”

It is a myth that public higher education is systematically being dismantled in this country through spending cuts. Paul Lingenfelter of the State Higher Education Executive Officers warned in a recent speech to AFT: “The public perception of higher education being privatized risks becoming a self-fulfilling prophecy.” While half of the states in this country lost ground in per student funding support between 1994 and 2009, 25 states held their own or grew in constant dollar state funding per student; three grew by more than 20 percent, and 13 grew by nine percent or more. What distinguishes gainers (like Kentucky and Maryland) from losers? A clear public agenda focused on attainment and productivity – in other words, giving citizens more value for each dollar spent. This “new normal” creates a real value imperative.

Recent governors’ state of the state and inaugural addresses show that governors understand the “new normal” and its value imperative, albeit slowly and unevenly. Veteran governors seem to “get it” best.

Veteran Governors “Get It”

Second-term Arkansas Gov. Mike Beebe hit a home run with his understanding of the value proposition that higher education needs. The governor proposes a 1 percent increase in postsecondary funding, coupled with warnings against tuition increases. Vowing to double the number of graduates by 2025, Beebe said achieving this bold goal will require changes in state funding formulas to reward course completion and graduation.

Virginia Gov. Robert F. McDonnell and Washington Governor Christine Gregoire show a bi-coastal appetite for tackling an insidious political hot potato and significant driver of higher education costs: pension benefits. Whereas Governor McDonnell proposes $50 million in new funding for higher education -- targeted to undergraduate financial aid and funding incentives for efficiency and economic development, technology, increased four-year graduation rates, and year round use of facilities and degree attainment -- Governor Gregoire is trying to commit colleges to public goals of completion in exchange for flexibility to set tuition.

Nebraska Gov. Dave Heineman also gets credit for aiming to stabilize higher education funding. His new Talent and Innovation Initiative, Innovation Campus at the University of Nebraska, and virtual high school are all funded by redirected existing resources, leveraged private sector funds, and a modest increase in state support.

Freshman Governors’ Learning Curve

Kansas Gov. Sam Brownback distinguishes himself among his peer freshmen for his early understanding of the “new normal.” While declaring that the “days of ever-expanding government are over,” his budget would stabilize support for higher education for the first time since the Great Recession began. In constant dollars, state funding for higher education in Kansas has fallen 10 percent since 1994.

Unfortunately, Brownback misses the chance to include college attainment goals in a set of otherwise precise and long-term social and economic development goals for the state. Reaching the governor’s goals, which include increasing net personal income and private sector employment and reducing child poverty, will certainly require a spike in the number of college graduates in the Sunflower State.

Wyoming Gov. Matthew Mead was silent on the higher education value imperative, perhaps because the robust mining industry provides short-term protection from the “new normal” spreading across the nation.

With $300 million in cuts allocated to higher education, Georgia Gov. Nathan Deal misses the opportunity to better target shrinking higher education funding toward degree completion. For example, many question whether the state’s popular HOPE scholarship is the most cost-effective way to invest in increased college degrees.

Governors’ “state of the state” addresses signal their policy priorities for years to come. The 13 addresses given to date reveal that many chief executives appreciate the “new normal” and its value imperative. But changing old habits will mean relying less on the tuition valve, and instead -- as the Delta Cost Project advises -- setting goals, aligning resources, and increasing degree productivity and accountability.
More on the propensity to feed the revenue beast next week.


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