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From The Chronicle of Higher Education

Stimulus Money Helps Colleges Avoid Slashing Budgets Now, but Big Cuts May Loom

By ERIC KELDERMAN

This year was bleak for state higher-education budgets. But college leaders are even more worried about what comes next.

The billions of dollars in federal stimulus aid to plug shortfalls in state education budgets have helped limit the damage this year, but the money hasn't prevented all of the cuts to college budgets. Most states are spending the bulk of the stimulus money they are receiving for education on elementary and secondary schools, and roughly 20 percent on public colleges. In one state, Wisconsin, none of that federal aid is going to higher education.

And the situation could get worse. Many states are spending all of their education stimulus money to fill gaps in the current and next budget years, leaving nothing for 2011, when many of their economies are still expected to be suffering from the recession.

As lawmakers and campus leaders contend with the budget crises, some higher-education experts believe the severe scope of this recession will force fundamental changes in how public colleges operate as they struggle to maintain both quality and affordability in an environment of increased competition for tax dollars and students.

"The different sectors within higher education will be reshaped, and changes in instructional delivery and program offerings will be dramatically altered by fiscal realities, market forces, and technological enhancements," said Daniel J. Hurley, director of state relations and policy analysis at the American Association of State Colleges and Universities.

Spending Federal Money Fast

The current downturn is the second of the decade and is significantly worse than the one that began in 2001. During the 2003 and 2004 fiscal years, for example, state budget gaps totaled $162.7-billion, according to the National Conference of State Legislatures. States' budget shortfalls for the current and the next budget years are projected to total nearly $224-billion.

Concerns about the economy have overshadowed nearly every other issue in statehouses across the country, but most of the worst-case scenarios for higher education have been averted this year, thanks, in part, to the federal stimulus package. That law includes $40-billion, known as the "state fiscal-stabilization fund," meant specifically to shore up state spending on schools and public colleges.

So far the U.S. Department of Education has approved 23 states to receive their share of the education funds, and most are putting the money to use right away, using nearly $1.8-billion to fill gaps in higher education for the current budget year.

Lawmakers in 17 of the states that have received stimulus money for education had already cut higher-education budgets from last year, with reductions ranging from about 2 percent in Massachusetts to nearly 14 percent in Wisconsin. The federal stimulus money for education erased cuts for colleges in all but four of those states.

The situation is expected to get worse next year, with state-revenue shortfalls estimated to reach more than $121-billion, according to the state-legislatures group. As a result, 10 of the 23 states approved for stabilization dollars are projecting that state aid to higher education for 2010 will fall below 2008 levels, even with the federal stimulus money.

In California, for example, officials are estimating that appropriations for public colleges in the 2010 fiscal year will be 13 percent below the 2008 amount even after including $663-million in stimulus money. And the Golden State's fiscal fortunes could fall even more since voters rejected five ballot measures meant to increase state revenues and help wipe out a $21-billion deficit for the current year.

The damage is not as bad as it could have been in many states. In Nevada, the governor sought to cut higher-education spending by 36 percent as the state faced a shortfall equal to more than 30 percent of its general fund.

Instead, the Nevada Legislature overrode the governor's veto of its budget, which includes $390-million in tax increases and reduces higher-education spending by 15 percent from the 2009 budget year. When federal stimulus money is added, Nevada's higher-education system next year will receive 95 percent of what the state appropriated in 2008, roughly the same amount as it received from the state in 2009.

The budget "puts us a little less than on hold, but it doesn't destroy us," said James E. Rogers, chancellor of the Nevada System of Higher Education.

Nothing Left in 2011

But all bets are off for the year after next, when many states could fall off a financial cliff created by the short time frame during which states plan to use their stimulus money. Ten of the 23 states that have received their stabilization dollars have said they will have spent it all by the 2011 budget year.

That is a problem if most states' tax collections will still be in a slump as is expected: At least 16 states are already estimating gaps that total nearly $45-billion for 2011.

MaryEllen McGuire, who directs the education-policy program at the New America Foundation, a Washington-based, nonprofit public-policy group, said lawmakers are under pressure from the White House as well as constituents to quickly fill budget gaps and save education jobs. "Governors want to be able to respond now," she said.

Some states have resisted that pressure: Mississippi has reserved more than half of its stabilization money for the 2011 budget year. But even there, college officials are concerned that higher education could then face major cuts in 2012.

Timothy D. Letzring, an associate professor of higher education at the University of Mississippi, said worries about how bad things could get are causing some college officials to reconsider their plans: "We have a lot of administrators who are talking about retiring by 2012; they don't want to go through whatever's coming."

Money Problems Lead to Policy Shifts

The severity of the budget problems in some places has already led states to make fundamental changes meant to help public colleges survive on less state aid.

Florida lawmakers approved a bill allowing the state's 11 public universities to increase undergraduate tuition by as much as 15 percent per year, until they charge the national average. Students enrolled at Florida's six public research universities paid an average of $4,127 per year in 2006 compared with the national average of $6,909, according to the Delta Project on Postsecondary Education Costs, Productivity, and Accountability, a nonprofit group that studies how colleges spend their money.

The support for the rate increases marks a reversal among the governor and lawmakers, who had vigorously fought efforts to allow increases in the past. But facing a $6-billion revenue shortfall, equal to about 27 percent of the state's budget, lawmakers agreed to let the institutions raise the money that the state could not provide. Higher education had already taken a $200-million cut, while the new law will generate an estimated $39-million for the institutions if all the state's universities increase tuition by the maximum amount.

Elsewhere, Texas lawmakers passed a bill that will give the University of Texas at Austin more freedom in its admissions policies, including the ability to enroll greater numbers of out-of-state and foreign students, who typically pay higher tuition than state residents.

Gov. Rick Perry, a Republican, is expected to sign the bill, which would place limits on a state law that entitles Texas high-school students who graduate in the top 10 percent of their classes to enroll at any state institution. The legislation allows the university's flagship campus, in Austin, to cap the percentage of those students in its freshman class at 75 percent.

Under the measure, the percentage of nonresident students at Austin also could rise from 7.5 percent to 10 percent. More important, university officials say, the limits on the 10-percent law would prevent the campus from outgrowing its current facilities without having the money to build more classrooms and hire more faculty members. In recent years, the percentage of automatically admitted students had climbed to more than 80 percent of entering freshman at Austin.

A New Reality

Some policy experts suggest that the recession could create a new reality for how colleges operate in the long term.

"We're in a real dynamic shift in higher education, and how we fund things is going to have to change," said Mr. Letzring, of the University of Mississippi. One possibility is for the state to allocate money for universities and student aid year-round instead of just for the fall and spring semesters: A summer semester would help students complete degrees faster and possibly would also improve student retention, he said.

Julie Davis Bell, a higher-education policy analyst for the National Conference of State Legislatures, said lawmakers are gaining interest in paying colleges for the number of students graduating rather than for the number who enroll, to improve efficiency and ensure that institutions are educating skilled workers to bolster states' economies.

While several past proposals have been limited to how only a small percentage of a state's higher-education budget is appropriated, Ohio appears likely to finalize a plan this year to base all of the state's higher-education spending on courseand degree-completion data, which could provide a model for other states, she said.

Ms. McGuire, of the New America Foundation, said this recession will cause a major shift in consumer choice, leading more people to enroll in two-year colleges, which are less expensive than four-year institutions. And with less money to dish out, lawmakers are going to require colleges to do more to prove their quality.

"Policy makers want answers," she said. "They aren't just going to spend dollars unless they're sure the money is being spent well."

STIMULUS FUNDS PROVIDE A BRIEF REPRIEVE FROM STATE CUTS

The Education Department has so far approved applications from 23 states for federal stimulus money for education. That money will make up for most of those states cuts in higher education this year. But that isnt the case for the 2010 fiscal year, which begins on July 1 for most states. And by 2011, that money will be gone in 10 of the states.

NOTE: The figures are the latest estimates available for each fiscal year.
SOURCES: State applications to the U.S. Department of Education for funds under the stimulus laws State Fiscal Stabilization Fund; Chronicle reporting