How Federal Stimulus Spending Plays Out for State Higher Ed

Congress has authorized $6.4 trillion in economic relief over the past 14 months, billions of which was earmarked for or available to spend on colleges, universities and other state higher education programs, according to a new report by the State Higher Education Executive Officers Association.

As a result of the COVID-19 pandemic, many states experienced a decline in state tax revenue between the 2020 and 2021 fiscal years. Without enough money to fund their previously approved budgets, several states passed midyear cuts to higher education spending.

States cannot run a deficit year to year -- all states except Vermont are required by their constitutions to balance their budgets, according to the National Conference of State Legislatures. The federal government, however, can go into the red, and so during times of economic decline Congress has passed massive spending packages to prevent layoffs and disruptions in public services, according to SHEEO.

So far, the three rounds of stimulus funding have largely made up for cuts to state spending on higher education during the pandemic, mirroring what happened more than a decade ago during the Great Recession. While colleges and universities will receive quite a bit more money this time around, questions remain about will happen when the federal dollars run out.

To provide some historical context for those questions, SHEEO published an analysis of federal stimulus funding for higher education during the Great Recession and the recent 2020 recession as part of its annual State Higher Education Finance report. The stimulus funding report details how much stimulus money has been issued for higher education during the two recessions, how states can use the funds and how the money has impacted higher education in a handful of states. Figures are not adjusted for inflation unless otherwise noted.

The CARES Act

The CARES Act, a $2.2 trillion economic relief package that former president Trump signed in March 2020, included $14 billion in direct financial assistance to colleges and universities through the Higher Education Emergency Relief Fund, or HEERF, which was a part of the Education Stabilization Fund. That money went to public and private colleges. Governors could decide to spend money on higher education from a different $3 billion Governor’s Emergency Education Relief Fund or $150 billion Coronavirus Relief Fund. Money from the GEERF could also be spent on K-12 education, and funds from the CRF were directed at state and local governments.

HEERF required that half of allotted funds be distributed to students via emergency grants. The remaining institutional dollars had to be spent on “defraying institutional expenses associated with the coronavirus and/or making additional financial aid grants to students,” according to SHEEO.

In fiscal years 2020 and 2021, state tax appropriations for higher education declined by 2.3 percent. Stimulus money largely offset that decline -- after accounting for the federal dollars, the decline in the amount of money states routed to higher education was 0.6 percent.

During that time, states allocated $2.38 billion in federal funding to higher education. States spent $428 million during fiscal year 2020, even though they received much more, according to SHEEO.

Michigan ranked first for fiscal year 2020 CARES Act dollars dedicated to higher education, putting $200 million toward the sector. Montana dedicated the least, spending only $126,218 of its CARES Act dollars on the sector. The CARES Act funding made up 9.8 percent of state appropriations for higher education in fiscal year 2020 in Vermont, 10.1 percent in Michigan, 12.8 percent in Wyoming and 17.3 percent in New Hampshire.

States upped their spending on higher education during fiscal year 2021, SHEEO found. Thirty-two states allocated a total of $1.95 billion to the sector. Alaska and South Carolina each allocated less than $1 million, putting $200,000 and $632,397 toward higher education, respectively. Colorado, Louisiana, Missouri, New Jersey and Ohio put more than $100 million each in stimulus money toward higher education in fiscal year 2021.

Colorado -- where state tax appropriations declined by 46.5 percent between fiscal years 2020 and 2021 -- spent stimulus money on public health, testing, remote learning and general institutional support for instruction, student services and academic support functions. The state also used $8.4 million to help three institutions improve student learning and close equity gaps.

Missouri experienced a 13.6 percent decline in state tax appropriations during the same time frame. The state reduced funding for each institution, as well as merit and need-based financial aid programs, by 12 percent. Missouri spent $135 million in CARES Act funds on remote learning and safety precautions for returning to in-person instruction, among other institutional needs, SHEEO found.

Washington State put all of its $56.8 million from the Governor’s Emergency Education Relief Fund toward higher education. Most of that sum, $44.03 million, went to community colleges in the state. The federal dollars made up 4.5 percent of state support for two-year colleges in fiscal year 2021, according to SHEEO.

Washington also put some money toward restarting professional and technical degree and certificate programs that had been disrupted by the pandemic.

Since the CARES Act was passed, two other spending bills have been signed into law. In December, Trump signed the $2.3 trillion Coronavirus Response and Relief Supplemental Appropriations Act, which included $23 billion for a second Higher Education Emergency Relief Fund and $4 billion for a second Governor’s Emergency Education Relief Fund. Most recently, in March, President Joe Biden signed the $1.9 trillion American Rescue Plan. That spending bill contained $40 billion in relief for colleges and universities through a third Higher Education Emergency Relief Fund.

It's too soon to tell how states and higher education institutions will apply money from the most recent two spending bills. Experts are still waiting to see whether additional stimulus will be needed to ensure that state higher education budgets don't tank in future years, said Sophia Laderman, a senior policy analyst at SHEEO and lead author of the organization's new report. While some states are rebounding from the recent recession, revenues have not yet recovered in all states.

"We know higher education is the largest discretionary area in most state budgets and, as a result, often takes longer to recover, if it recovers at all," Laderman said. "This also depends on what happens with student enrollment in the fall and whether institutions start to see an increase in net tuition revenue this year, which could help stabilize total revenues when federal stimulus funding runs out."

Stimulus During the Great Recession

Higher education also saw an influx of federal dollars a decade ago during the Great Recession.

Then president Obama signed a $787 billion stimulus package in February 2009 called the American Recovery and Reinvestment Act. The goal of the spending bill was to mitigate the economic impacts of the 2008 market crash. The bill included $53.6 billion for state education budgets, $48.6 billion of which funded state grants for K-12 and higher education and $5 billion of which funded competitive grants.

Most of the $48.6 billion -- 81.8 percent -- went toward operating expenses for schools and colleges. Meanwhile, 18.2 percent was spent on K-12 and higher education facilities.

The ARRA included a maintenance-of-effort provision as part of the state application for funds, according to SHEEO. The provision required that governors ensure their states would maintain, at minimum, 2006 levels of support for elementary, secondary and postsecondary education through fiscal years 2009, 2010 and 2011.

Similar provisions were included as part of the pandemic-era spending packages.

The maintenance-of-effort provisions are not as restrictive for states as they could be, said Tom Harnisch, vice president for government relations at SHEEO.

"Overall, the MOE provision is fairly modest; lawmakers could have set a much higher bar," Harnisch said in an email.

It's not guaranteed that states won't try to break the rules outlined in the maintenance-of-effort provisions.

"Another issue are states that may be in decent shape financially but haven’t prioritized higher education funding in their budget," Harnisch said. "Unfortunately, there have been a few state lawmakers that seem to be dismissive of the MOE provision and whether the Department [of Education] will actually enforce it."

The maintenance-of-effort provisions in the ARRA and the three recent spending bills differ somewhat, but all include an option for the secretary of education to waive the provision for some states.

In the four years following the Great Recession, state tax appropriations declined by 11.5 percent -- from $77.7 billion in 2008 to a low of $68.8 billion in 2012. From 2008 through 2011, states allocated $9.76 billion in federal stimulus funding to higher education. Federal dollars made up 7.1 percent of state support in 2010.

By 2012, the stimulus money had mostly been spent, according to SHEEO. That created a fiscal cliff of sorts through the following two years. It's likely that at least some states will face another fiscal cliff when current stimulus funding runs out, Laderman said.

"In all likelihood, some states will face a fiscal cliff when federal funding runs out, and this would lead to substantial declines in public institutional revenue, which could take years to recover," she said.