Higher Ed Grapples With Pandemic, Enrollment… and an Oil Bust

Colleges in states that rely on oil revenue are struggling to hold on after the pandemic collided with an oil bust.

December 16, 2020
A view of Central Wyoming College's campus
(Courtesy of Central Wyoming College)

The Wyoming Community College System was already struggling with budget cuts before the COVID-19 pandemic turned the world upside down.

The system's budget was about $54 million in the hole at $236 million, through a combination of cuts and revenues not keeping pace with inflation. Now, it's down about $94 million, according to Sandra Caldwell, executive director of the Wyoming Community College Commission.

Declines in oil and gas revenue -- among other extraction industries -- are at least partly to blame. As a state, Wyoming is dependent on its extraction industries, which include coal, oil, trona and natural gas. The state's Consensus Revenue Estimating Group doesn't expect oil production will recover enough to offset declines until 2022.

Oil and gas revenue is declining partly due to the pandemic and partly due to this spring's price war between Russia and Saudi Arabia. Many states' budgets are suffering as result, which impacts the funding they provide to higher education.

Wyoming's community colleges are especially sensitive to these fluctuations because of their funding structure. About 20 percent of the system's revenue comes from local property taxes, 58 percent comes from the state general fund and over 20 percent comes from tuition and fees, Caldwell said.

The state gets revenue from mineral royalties. Part of the local tax revenue also comes from taxes on extraction industries.

"It’s really a double whammy on the community colleges," Caldwell said.

The colleges are planning now for future cuts, she said. In the short term, they've been furloughing staff and holding critical vacancies open. The Northern Wyoming Community College District is cutting its athletic programs. The commission is raising tuition next year.

"We’re talking about viability at some point," Caldwell said. "[Colleges are] looking at their composite financial index. Are they going to be able to make requirements for accreditation? We’re at that point."

The commission's sustainable funding workgroup presented recommendations to the governor earlier this month on how the state can remedy the situation. The group recommended the state increase local taxes for the community college system in all counties. Right now, only seven of the state's 23 counties that have a community college pay taxes for it, even though the colleges serve the entire state. The group also recommended that the system get a $304 million budget in 2023 to help recover some of the cuts and losses it has faced.

"At some point, you can’t cut yourself out of the deficit problem. At some point, you cut yourself into decline," Caldwell said. "We don’t have a diversified economy, and we’re paying the price."

A lot is at stake, given the populations that the community colleges serve, said Lori Ridgway, director of marketing and public relations at Central Wyoming College.

"We serve the largest Indian reservation in North America," she said. "We have a population of Eastern Shoshone and Northern Arapahoe tribes that rely heavily on us."

Because of the college's work serving the Wind River Indian Reservation, the college has been recognized as a Native American-serving nontribal institution. It has an Institute of Tribal Learning and offers an associate degree in Native American studies.

But it's already experiencing cuts. Since fiscal year 2016, the college has eliminated 27 employee positions and several academic programs. A proposed cut of 10 percent from the state would result in eight fewer employees and another program cut.

A Magnified Impact

Higher education institutions in other states are facing similar battles, to varying degrees.

Oil revenue declines in New Mexico led to a multibillion-dollar budget deficit, some of which was borne through cuts to a new tuition assistance program and to general higher education funding.

Oil production in North Dakota peaked in 2012 and has tapered off since then, but the recent bust impacted legislative appropriations, which includes higher education, said Billie Jo Lorius, director of communications and media at the North Dakota University System. The system is mostly concerned with the pandemic's overall impact on the state's economy, though its impact on oil and gas doesn't help, she said.

Texas has a discrete oil revenue fund for higher education, called the Permanent University Fund. This insulates higher education institutions from the sharp ups and downs of the industry. An August 2020 financial report from the fund shows that investments are actually up by more than $1 billion over last year, which more than makes up for a decline in land contributions.

Alaska, however, is another extreme example. The state relies heavily on oil production to fund its programs, including appropriations to the University of Alaska system. As oil production has declined over time, so have the state's appropriations to higher education. Appropriations are down $25 million from fiscal year 2019, and the governor has planned similar reductions for the next two years, said Roberta Graham, associate vice president of public affairs for the system.

"The COVID pandemic magnified the impact of the state reductions," Graham said.

‘Still in the Pandemic’

In Colorado, the declines are impacting the general fund, leaving less for higher education appropriations, said Megan McDermott, director of communications for the Colorado Department of Higher Education. But some colleges are especially impacted.

Colorado Mountain College and Aims Community College both serve areas with local oil revenue (Garfield and Weld Counties, respectively).

About 70 percent of CMC's funding came from property tax revenue in fiscal year 2019, with tuition and fees providing 16 percent and state appropriations providing only 12 percent.

This year, the college received $50 million in property tax revenue, $3.6 million of which is from oil and gas revenue, said Mary Boyd, vice president of fiscal affairs at the college. It's about 5 percent of the college's total operating revenue.

Oil revenue in the area has been trending downward since about 2016, Boyd said. But the college has purposely separated the funds to only be used for one-time purchases, like equipment, rather than relying on it to sustain long-term programs, she said. Typically they spend about $4.5 million on equipment, so this year is a cut.

The funds are still a part of the college's budget balancing, but CMC is hopeful that other items could compensate for a decline in the next few years, Boyd said. Residential property values may go up as people leave urban areas after learning to work remotely, for example. But oil values are assessed every year while property valuations are assessed every two years, so CMC will likely feel some pain before property tax increases.

Boyd expects to see a 35 percent reduction in oil revenue over time, so the college is planning for a reduction in next year's budget revenues.

"It's not something that I plan to rely on any time soon," she said, adding, "it’s hard to see a main economic driver in one of our communities be at risk, because that has impacts on the community itself. We care about that."

Aims Community College has a similar revenue structure to CMC. It receives about 12 percent of its revenues from tuition and fees, 14 percent from state appropriations, and 66 percent from property values. About 65 percent of the property valuation comes from oil and gas, said Chuck Jensen, chief financial officer and vice president of administrative services at Aims.

Because oil and gas is assessed every year and the college is currently in fiscal year 2021, Jensen doesn't expect any major changes until 2022 or 2023. Beyond the impacts of the pandemic, the state has also made regulatory changes to the industry that he expects will impact their revenue.

The college is protected, though, he said. It carries no debt and has $35 million in reserves it's yet to dip into.

"We’re still in the pandemic," said Leah Bornstein, president of Aims. "So we’re not really going to see the effects of that, financially and otherwise, for another six, seven, eight months to a year."

College leaders are planning for the future now, she said. There are many strategies they could use, from tapping into reserves (with permission from the Board of Trustees), but they likely would take other approaches first.

Right now, Aims is holding the line on its budget, finishing its major projects and holding off on some hiring plans.

"We’re tightening the belt one notch, but not so much so that you’re suffocating," she said. "The college has spent years really building its reserves and preparing for emergency situations."

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