The Big Squeeze: May 2009

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Q and A on Higher Education Financing

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Faced with dwindling funding, state colleges and universities are trying to come up with their own solutions to budget challenges.

By Garry Boulard 

David Gowan says he did not run for the Arizona House to cut higher education funding.

Yet only weeks after the Legislature convened its 2009 session, the newly elected, 36-year-old Gowan voted in the majority to gut support for the big Arizona university system by $141.5 million.

“I don’t think any of us really wanted to make such drastic cuts,” he says. “But at the end of the day, I think we felt that we had no other real choice.”

The massive higher education cuts in Arizona come after a decade of unprecedented enrollment growth, but also against a backdrop of economic calamity that is hitting other states as well, taking money away from their colleges and universities.
“The news is pretty much bad across the board,” says Dan Hurley, director of state relations and a policy analyst with the American Association of State Colleges and Universities.

“It’s no secret that higher education in general is either at or close to the top of the list in terms of cuts when lawmakers are revising their budgets to reflect shortfalls,” he says. “And that’s what we’re seeing in state after state right now.”

Unique Circumstances

While the severity and variety of state cuts to higher education are nearly all—even if indirectly—the offshoot of the national recession, they also reflect the unique economic circumstances of each state.

In Connecticut, the loss of revenue from the state’s capital gains tax has been devastating.

“States such as Connecticut and New Jersey have been seriously affected by the Wall Street fiasco,” says Connecticut Representative Denise Merrill. “We have all of these hedge fund managers here who have no incomes right now.

“We thought we were insulated because we put in a tax for the first time in 1991 that does not tax ordinary incomes, but instead taxes capital gains. That is where we were getting a lot of our money—from the stock people,” she says.

But the late 2008 meltdown on Wall Street, and subsequent losses suffered by individual stockholders, has meant a huge hit to Connecticut coffers.
As a result, by mid-February, Connecticut was looking at a budget deficit of at least $6 billion. In response, Connecticut Governor M. Jodi Rell unveiled a $38.4 billion budget that suspends, for up to a year, borrowing for capital projects by the state’s four-year schools. Although Connecticut schools say the suspension will hurt, Rell says it could save the state up to $300 million.

Despite the objections of higher education leaders in Connecticut to the most recent round of cuts, they at least know the economic lay of the land.

In Florida, it’s anybody’s guess.

“The simple fact is that each and every day state revenues are going down,” says Florida Senator Evelyn Lynn, “so much so that right now we have to worry about further reductions to this year’s budget even as we are starting to do next year’s.”

In January, the Florida Legislature passed a plan that called for reducing the state’s $2.3 billion deficit through both cuts and funding shifts, including taking more than $184 million from Florida’s four-year schools.

But by February, as the budget went into free-fall, that $2.3 billion deficit was expected to increase to nearly $7 billion by spring. And that’s a figure, says Lynn, “that inevitably is going to have a further negative effect on our colleges and universities.”

“None of this is good news, of course,” says Lynn. “But the worst thing is trying to make any kind of plans at all when everything is changing so quickly.”

A Moving Target

Quick, indeed. In Indiana, lawmakers thought that a late 2008 budget cut of 3 percent would easily stave off a projected deficit of $763 million. That cut took 1 percent from Indiana’s colleges and universities, resulting in a loss of nearly $5 million for Indiana University. But because of dwindling revenue collections, new budget projections in January had the state facing an additional shortfall of $300 million.

“You don’t want to panic, and I don’t think the people who elected you want you to panic,” says Indiana Representative Randy Truitt. “But it is difficult to know what to do next, when you think you have reached the bottom and you haven’t.”

Because of such uncertainty, calls have been heard throughout Indiana to tap into the state’s $1.3 billion reserve fund. But many lawmakers, including Truitt, whose district includes Purdue University and Ivy Tech Community College, remain dubious.

“If a person lost 95 percent of his net worth, he would probably pretty closely guard the remaining 5 percent,” says Truitt. “And that’s our situation here. We don’t want to tap into this fund if we absolutely don’t have to.”

Concern About Quality

Although such cuts to higher education vary in scope and character from state to state, the impact is almost always the same, according to Hurley of the state college and university group.
“It comes down to one word—quality, or lack of it,” he says.

 “Positions go unfilled on campuses, some of which are faculty positions, fewer classes are taught, and fewer course sections are offered,” he says. “All of which can increase the time it takes a student to complete a degree.”

And in most states, tuitions are increased, a prospect that Merrill thinks will make it more difficult for “immigrants and people who don’t have money—the largest student growth populations—to go to college.”

Increasingly, says Hurley, colleges and universities are trying to come up with their own solutions to budget challenges, often working with state legislators and governors.

In Utah, after the Legislature cut up to $10 million from its budget, Utah State University decided to impose a five-day unpaid furlough on all employees in an effort to absorb at least 60 percent of the cut, while not laying off any more staff. USU officials said they hoped the move would reduce costs while maintaining the school’s high quality of education.

At the same time, Utah Valley University eliminated nearly two dozen positions and also offered early retirement packages for long-time and older employees.

“I think that these things have gone over very well with us,” says Utah Representative Ron Bigelow. “It shows that the colleges and universities are not complaining about the way things are right now, but are instead trying to be as fiscally responsible as possible.”

In Indiana, Purdue University and Indiana University have formed an alliance to share science research and promote how valuable the innovations from both institutions are to the state.
“The alliance is impressive because it shows the legislature that both these schools know how to leverage dollars,” says Truitt. “They are aware of our state’s budget.”

Meanwhile, Northern Arizona University President Haeger, arguing that state residents are “tired of being in the race for last place in the nation in state funding for K-12 and higher education,” has proposed that lawmakers consider a referendum that would raise the state’s sales and gasoline taxes in order to pay for higher education.

Haeger notes that NAU has imposed a hiring freeze, resulting in the elimination of up to 100 jobs, closed a training center, and stopped the development of an occupational therapy program. “If the citizens understood that education was about to take such severe cuts, I believe they would look to other alternatives.”

It’s an idea that intrigues Arizona’s Gowan. “I would be against the Legislature raising taxes, but if the people want to tax themselves, and they really believe this is what they want to do, then that would be their own business.”

California, facing a massive budget shortfall of $42 billion, has been the scene of an intense lobbying effort on behalf of the state’s community colleges. The 110 two-year schools in December were looking at a budget cut of more than $300 million.

“We worked hard to get the word out that in a recession, two-year schools are more essential than ever because they are the ones doing workforce training as well as retraining people who have lost their jobs,” says Scott Lay, the president and CEO of the Community College League of California.

 The CCLC argued that the proposed budget cuts could mean that more than 260,000 students would be turned away. Governor Arnold Schwarzenegger later unveiled a proposal that not only contained no cuts to the state’s two-year schools, but marginally increased funding.

Part of the Solution

Maryland’s university system has made perhaps the most significant move on the part of the higher education community in response to state budget issues. After the last economic slump there in 2002, the system suffered a 15 percent loss in state support and raised tuition by 15 percent in response.

It was then, recalls University System of Maryland Chancellor Brit Kirwin, “that we decided to do some real soul-searching on where we go from here—how we position ourselves so that we are not caught in this yo-yo world of increases and then cuts compensated by tuition increases.”

Maryland’s college and university leaders dedicated themselves to an array of cost-cutting efforts, called the Effectiveness and Efficiency Initiative. It included centralizing administrative services, increasing faculty contact hours, and requiring students to earn 12 hours outside the classroom through internships or studying on line, which freed needed classroom space.

Kirwin thought it wise to also “make our budget requests more in line with the state’s priorities,” recognizing that legislators and governors are more sympathetic to the needs of schools that practice cost containment, even in the best of economic times.

Maryland’s response has been positive: During the last three fiscal years, the state has increased higher education funding by 33 percent.

That support, in turn, has made it possible for Maryland’s colleges and universities to maintain tuition at a static level for that same period of time.

“I don’t think a carbon copy of what we have done here can work everywhere,” says Kirwin. “But I do think it is very important that higher education goes to the state government with a real sense that we have to be part of the solution.

“We have to both change the way we do business and also be responsive to the state’s needs.”

That approach won the favor of Governor Martin O’Malley as well as lawmakers who continue to buck the national trend by not cutting higher education funding in Maryland.

Although cost-cutting enthusiasts say that the lesson of higher education’s success in Maryland is confined to showing fiscal restraint, Hurley says it is more than that.

“Maryland also made higher education a priority and recognized that it must be near the top of the state’s public agenda,” Hurley says.

Unless the states are willing to make similar commitments, Hurley says, the often contentious and frequently destructive battles over higher education budgets “are very much going to continue for the foreseeable future.”

Garry Boulard is a free-lance writer in albuquerque, N.M., and a frequest contributor to State Legislatures.