State and local government financial commitment to higher education has increased substantially over the past twenty-five years. In 1986, state and local governments combined provided $31.4 billion in direct support for general operating expenses of public and independent higher education institutions. This investment increased to $47.8 billion in 1996, $77 billion in 2006, and $88.8 billion by 2008.
A recession beginning in 2008 dramatically reduced state revenue and ended the growth in state and local support achieved between 2004 and 2008. In response, the American Recovery and Reinvestment Act approved February 17, 2009 provided funding to stabilize state support for education among other interventions to achieve economic recovery. With the approval of the Secretary of Education, funds allocated to the states by Congress could be used to supplement state and local funding for education in 2009, 2010, and 2011.
In 2011, 31 states provided ARRA funding to their higher education systems totaling $2.8 billion, helping to offset reductions in state and local support since 2008. State and local support in 2011 including ARRA funds totaled $87.5 billion, actually showing a 2.5 percent increase in funding for higher education over 2010 (although still below 2008 and 2009). The stability in support for higher education is an indicator that ARRA funding has served its purpose in minimizing the negative effects of the economic recession on higher education.1
In addition to state and local revenue, public institutions collected net tuition revenue of $56.3 billion in 2011, for a total of about $143.8 billion available to support the general operating expenses of higher education (see Figures 1 and 2).
The share of total revenue for general operating expenses for higher education originating from net tuition revenue showed an increase from 32.2 percent in 2008 to 39.0 percent in 2011. Tuition revenue collected by independent (private, not-for-profit) and for-profit institutions is not included in this total.
Of the $87.5 billion in state and local support during 2011, about 78 percent was allocated to the general operating expenses of public higher education. Special purpose or restricted state appropriations for research, agricultural extension, and medical education accounted for another 12 percent of the total. The percent of total support allocated for financial aid to students attending public institutions increased to 7.1 percent in 2011. This is up from 5.6 percent in 2006. The remaining three percent supported students attending independent institutions and independent institutions’ operating expenses.
Analysis of the data indicates that constant (adjusted for the impact of inflation over time) dollar per student state and local funding for public colleges and universities continued to decrease between 2010 and 2011. State and local support (excluding appropriations for research, agricultural extension, and medical education) per full-time-equivalent student was $6,532 in 2010, a $500 constant dollar (or 7 percent) decrease from 2009, and the lowest in the last 25 years. This trend continued in 2011 with state and local support per FTE at $6,290, an additional 3.7 percent decrease. This decrease in per student support, despite relatively stable state support, was driven by an increase in enrollment of more than 8 percent in the two years between 2009 and 2011.
Higher education has historically experienced large increases in enrollment during times of economic recession, and this tendency has been accentuated by the growing economic importance of postsecondary education. Nationally, FTE enrollment grew 5.4 percent between 2009 and 2010, 2.4 percent between 2010 and 2011, and 33 percent between 2001 and 2011.
Long-Term Revenue and Enrollment Patterns
Changes Over the Past Five Years in the States
Total public higher education enrollment has increased substantially in recent years. Following dramatic increases nationally from 2002 through 2005, FTE enrollment at public institutions of higher education slowed somewhat, only to increase sharply again between 2007 and 2011. These enrollment trends significantly affected the per student revenue available to support higher education. Across states both enrollment and appropriations growth varied widely from the national average.
Wealth, Taxes, and Allocations for Higher Education
Each state’s unique combination of policy choices and fiscal and environmental conditions provides the context within which higher education funding occurs. The national trends outlined below give a sense of general conditions, but individual state contexts vary widely. The available data are from 1999 to 2009, lagging two years behind appropriations data reported elsewhere in this report. The effects of the recession beginning in 2008 on state and local revenues are evident in these data.
Economic Recessions and Higher Education
During periods of economic recession, enrollment demand tends to grow more rapidly at a time when state revenue falls or fails to grow. This tendency exacerbates the effects of a parallel tendency (as noted by Harold Hovey in 1999) for higher education funding to become the "balance wheel" for state finance, declining faster than the rest of the state budget in recessions, and then growing faster when state revenues recover.
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