Budgets Half Empty, Glass Half Full

While many public colleges will see state appropriations cut upwards of 10 percent, officials say the cuts aren't as bad as they could have been given the pressures facing lawmakers.
July 1, 2011

The lasting image from the 2011 state budget process might be higher education leaders in Pennsylvania asking lawmakers to accept cuts to college and university budgets of “only 19 percent."

While in any other year 19 percent would seem like an astronomical cut, it is several steps back from the governor’s original proposal of a 50 percent cut in state appropriations.

2011 was the year everything was supposed to fall apart for state budgets. Lawmakers, higher education leaders, and policy researchers expected massive cuts to all state agencies, including public colleges and universities, as a result of evaporating federal stimulus funds, sagging revenues, more fiscally conservative lawmakers, and ballooning structural deficits created by medical and other entitlement obligations. Cuts were supposed to hit every level of public institution, from the research universities to community colleges.

These predictions seem to have come true in several states. Colleges and universities saw their state appropriations cut by more than 10 percent in states such as Arizona (24 percent), Colorado (20.9 percent), Michigan (15 percent), and Texas (14 percent). These cuts, and the smaller reductions in other states, seem even worse when one considers the enrollment increases happening at many institutions.

College and university officials are already discussing ways to cope with the cuts, including tuition increases, salary and hiring freezes, enrollment caps, recruitment of more out-of-state students, and layoffs.

But over all, with most legislatures having completed state budgets and the fiscal year for most states starting today, many higher education leaders said the cuts they’re facing for the 2011-12 academic year are not as bad as they could have been or as they were predicting in January. They were planning for the worst, but improved revenues or supportive lawmakers help stave off apocalyptic cuts. A handful of states, including North Dakota and Wyoming, even increased appropriations for higher education.

“The revenues are not overflowing and plentiful,” said George Reid, executive director of the Illinois Board of Higher Education. “However, many of us were expecting a much greater reduction than the one we actually received." Across the board, lawmakers cut the budgets for Illinois colleges and universities by about 1.3 percent from last year.

While officials seem optimistic about what happened this year, they recognize that the third consecutive year of shrinking appropriations, especially when looked at on a per-student basis, will not be good for the sector. And with economists forecasting that revenues are unlikely to pick up for several years, and many structural deficits continuing to grow, observers said state institutions should be bracing for another year of budget battles and possible cuts.

“We can deal with shortfall if we have a plan and political leadership," said Joni Finney, a professor at the University of Pennsylvania's Graduate School of Education and a state policy veteran. "But in the absence of that, it seems like people are just grasping at straws making decisions to get through the fiscal year. But then next year rolls around and they have to deal with the same problems."

In most states, the cuts did not result from decreases in revenue. Most states are beginning to see revenues return, though not to 2008 levels. Instead, the state budget deficits are being created as a result of entitlement programs, notably pension and Medicaid payments, as well as other competing priorities, such as prisons and elementary and secondary education.

On top of those obligations, this budgeting cycle also was the first in several years without meaningful federal stimulus funding. While the most pertinent piece of the fund for higher education was the portion of the State Fiscal Stabilization Fund directed toward colleges and universities, which amounted to $48.6 billion over the last three years, various stimulus funds helped buoy multiple components of states' budgets for the past three years. With that money gone, states had to reallocate funds to meet obligations, many of which are outside higher education.

In terms of percentage, the most dramatic cuts came in New Hampshire, where lawmakers almost halved state appropriations for the University of New Hampshire system. For the past few years, the state appropriated $100 million for the university. Based on this year's budget, which passed the legislature without the governor's signature, the university will only receive about $52 million. However, New Hampshire had kept state appropriations relatively stable for the past three years while other states cut spending. State appropriations for community colleges in New Hampshire were cut by 20 percent.

David Proulx, associate vice president for finance and assistant vice president for human resources at the University of New Hampshire, said lawmakers had to deal with a budget deficit between $600 million and $1 billion before creating the final $10 billion budget.

Proulx said the university will cope with the cuts by reducing its work force through attrition and increasing tuition.

In sheer dollar terms, California higher education institutions saw the largest cut. State appropriations for both the University of California and California State University systems were slashed $650 million under a budget Governor Jerry Brown signed Thursday. Both could also see larger cuts if future revenue projections don't materialize. Higher education officials said they will probably increase tuition, possibly for the spring semester, to offset the cuts. That increase will come on top of an 8 percent increase that goes into effect in a few weeks.

That won't be a viable solution in Michigan, which slashed higher education appropriations 15 percent, because lawmakers also capped tuition increases at 7 percent. The governor has threatened to enact larger cuts If colleges and universities go over that cap.

In some states, the shift away from funding higher education to other priorities was more philosophical than fiscally necessary, especially considering the slate of conservative lawmakers who won seats in 2010 with promises to balance budgets through cuts, not higher taxes. In Texas, Gov. Rick Perry pressured the state's lawmakers to leave a $6 billion rainy-day fund untapped while making 14 percent cuts to the state's higher education institutions.

James C. Palmer, editor of the Grapevine project, which tracks state higher education spending, said one major question his group will explore when it begins collecting data on state budgets will be how competing obligations affected higher education appropriations. "The big question mark lies in the question of how underfunded pension and health care obligations weighed on lawmakers," he said.

Cuts for about a dozen states hung between 1 percent and 5 percent or held steady from last year. Iowa and Massachusetts have not finalized budgets yet.

Bucking the general trend, a few state legislatures increased appropriations for higher education. North Dakota upped higher education institutions' state appropriations by 12 percent, and Wyoming, which is seeing revenues come in at 5.2 percent greater than expected, doled out more than $50 million in one-time funds while holding general appropriations steady. Idaho and Alabama increased higher education spending by about 3.5 and 5 percent, respectively. Virginia lawmakers appropriated an extra $65 million to expand higher education and encourage students to study science, engineering and math.

Frank Ballmann, director of federal relations for the New York State higher education services corporation and spokesman for the National Association of State Student Grant and Aid Programs, said his group is still surveying states to determine how aid programs fared in budget cuts. Ohio and Michigan have both cut their aid programs in recent years. For the most part, he said, aid programs didn't see tremendous cuts, and a couple of states, such as Indiana, actually increased spending on aid.

"There's pretty broad bipartisan support for student aid programs, which I think keeps them from getting cut too bad," he said. "On one hand, you're helping needy students. On the other hand, you're creating qualified employees, which businesses want."

Finney said one of the unseen casualties of the past few budget cycles has been long-term planning. Washington cut state appropriations for colleges and universities by about 24 percent and allowed tuition hikes higher than 10 percent for several institutions, moves that Finney said take it off of the path laid out in the Strategic Master Plan the state adopted in 2007. "There's no rationale or strategy for the long term," she said. "I think that's a greater problem than the budget problems."

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