State Higher Education Finance FY 2003

1
Heading South
The State of Higher Education Finance in Fiscal
2005
Takeshi Yanagiura State Higher Education
Executive Officers David Wright Tennessee Higher
Education Commission 2006 SAIR
Conference Arlington, Virginia October 16, 2006
2
Higher education funding flows An overview
Source NCHEMS, www.higheredinfo.org
3
What is the SHEEO State Higher Education Finance
(SHEF) study?
SHEEOs annual State Higher Education Finance
(SHEF) study is intended to help educators and
policy makers

• Understand the extent to which state resources
  for colleges and universities have kept pace with
  enrollment and cost increases
• Examine and compare how state higher education
  spending is allocated for different purposes
• Assess trends in how much students are paying
  for higher education
• Gain a perspective on the funding of their
  states higher education system in the context of
  other states and
• Assess the capacity of their state economy to
  generate revenues to support public priorities.

4
Why should institutional researchers care?

• These data describe the fiscal environment in
  which we do our work.
• Fiscal data not well understood or utilized.
• GASB/FASB changes improved IPEDS finance data
  but made trend analyses more difficult.
• Public higher education funding patterns are
  changing and could impact student attendance
  patterns, time-to-degree, etc.
• In an environment of finite resources,
  policymakers are looking for ways to link inputs
  and outcomes.

5
Diverse perspectives on state higher education
finance data
What SHEF contributes to the national
conversation

• Annual, ongoing continuous time series from FY
  1980 forward
• Captures state tax and non-tax support (lottery
  revenue, lease income, earnings on state
  endowments)
• Adds revenue from local government and student
  sources and
• Interstate comparisons as valid as possible.
• Accounts for inflation and enrollment growth
• Sets aside special purpose appropriations for
  research, agriculture, and medicine and
• Adjusts interstate comparisons for differences
  in state cost of living and public system
  enrollment mix.

6
Goal Comparisons as valid as possible
Higher Education Cost Adjustment (HECA)

• Attempts to reflect provider market basket
  without being self-referent.
• Components federally maintained and routinely
  updated transparent, accessible.
• Serves as a benchmark rather than descriptive
  measure of higher education cost inflation.
• 75 of the index is based on Employment Cost
  Index for white-collar workers (BLS).
• 25 based on GDP Implicit Price Deflator (BEA).
• reflects general price inflation in total U.S.
  economy
• current GDP / constant GDP

7
Goal Comparisons as valid as possible
Enrollment Mix Index (EMI)

• Average instructional expenses per student vary
  by institution type.

Average Instructional Expenses per FTE, Fiscal
2004

• Enrollments are distributed differently across
  states public HE systems.
• The EMI adjusts operating revenues to account
  for both factors.

8
Goal Comparisons as valid as possible
State Cost of Living Adjustment (COLA)

• Driven primarily by housing costs.
• Adopted index developed by Berry et al (2003).
• One value per state, ranging from 0.88 to 1.22.
• Hawaii and Alaska were assigned the value of the
  next highest state (Massachusetts).

9
Goal Comparisons as valid as possible
Dollars per FTE are adjusted upward the most in
states with an inexpensive enrollment mix and low
cost of living (e.g., Arkansas). The reverse is
true for states with a more expensive enrollment
mix and high cost of living. In some states, the
two factors cancel each other (e.g.,
Virginia). Southern states tend to have low cost
of living and high system structure costs.
State Cost of Living and Public Higher Education
System Enrollment Mix Index Values
Source SHEEO SHEF
10
Definitions
SHEFs Core Measures

• Educational Appropriations State tax and
  non-tax support plus local tax appropriations
  minus research, agricultural extension, and
  medical education.
• Net Tuition Revenue Gross assessments for
  tuition and mandatory fees minus institutional
  discounts waivers and state-funded student
  financial aid.
• Total Educational Revenues Educational
  Appropriations plus Net Tuition.

11
Current status
State and local governments provided 72 billion
for public and independent higher education in
2005. An additional 34 billion in net tuition
revenue brought to 105.9 billion the amount
available from state, local, and student sources
for higher educations general operating
expenses.
Distribution of State, Local, and Net Tuition
Revenue, U.S. Fiscal 2005
State Support (Tax Non-Tax) 65.3 billion
Net Tuition 34.0 billion
Total 105.9 Billion
32.1
61.6
6.3
Local Taxes 6.7 billion
Source SHEEO SHEF
12
Current status
Total educational revenues per FTE (educational
appropriations plus net tuition) averaged 9,196
in 2005. Most Western states trail the national
average on this measure, while New England and
Midwest states tend to exceed it. Variation in
the Southern states is demonstrated by the fact
that Delaware ranks 3rd nationally, while Florida
ranks 49th.
Total Educational Revenues per FTE for the
Nation, Regions, and SREB States, Fiscal Year 2005
Source SHEEO SHEF
13
Current status
The national average educational appropriation
per FTE was 5,825 in 2005. Regional averages
cluster more tightly around the U.S. average on
this measure than on net tuition. North Carolina
is the leading SREB state in the level of state
local support per student, ranking 4th
nationally. West Virginia ranks 43rd.
Educational Appropriations per FTE for the
Nation, Regions, and SREB States, Fiscal Year 2005
Source SHEEO SHEF
14
Current status
The national average net tuition revenue per FTE
was 3,371 in 2005. Western states tend to trail
the U.S. average on this measure, while New
England and Midwestern states tend to exceed
it. There is a great deal of variability in the
South Delaware ranks 2nd nationally while
Georgia ranks 48th.
Net Tuition Revenue per FTE for the Nation,
Regions, and SREB States, Fiscal Year 2005
Source SHEEO SHEF
15
Current status
Nationally, the average share of educational
revenues represented by net tuition in 2005 was
36.7. Among SREB states, reliance on tuition as
a major source of operating revenue ranged from
57 in Delaware to 17 in Georgia.
Net Tuition as a Percentage of Total Educational
Revenues for the Nation, Regions, and SREB
States, Fiscal 2005
Source SHEEO SHEF
16
Current status
Net Tuition Increase Needed to Offset a 1
Decrease in State Government Support for Public
Higher Education, by State, Fiscal 2005
Higher education systems that rely heavily on
state support are more vulnerable to decreases in
appropriations. Nationally, net tuition revenues
would have needed to increase 3.0 on average to
offset a one percent decrease in state support
(based on 2005 SHEF data). In the South, this
ranged from 1.8 in Delaware to 6.4 in Georgia.
Source SHEEO SHEF Notes State dollars
include Research-Ag-Med. Net tuition revenues are
from all levels (undergraduate, graduate, first
professional) except medical schools.
17
Recent trends
The fiscal 2005 SHEF study documents a 5-year
period when state funding for higher education
failed to keep pace with normal inflation and
extraordinary enrollment growth in the U.S.,
leaving per student state local funding at
their lowest levels nationally in 25 years.
From fiscal 2001 to 2005

• State local appropriations for general
  educational expenses in public colleges and
  universities increased nominally but
• enrollments grew by 14.4 and
• higher education costs grew by 13.9 as
  estimated by HECA.
• In inflation-adjusted terms,
• Educational appropriations per FTE decreased
  18.2, from 7,124 to 5,825
• Net tuition revenue per FTE increased 11.1,
  from 2,983 to 3,371 and
• Total educational revenues per FTE decreased
  8.4, from 10,106 to 9,196.

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Future outlook
The FY 2006 outlook appears promising

• According to Grapevine, state tax appropriations
  for higher education, unadjusted for enrollment
  or inflation, were flat in fiscal 2004 but up
  3.5 in 2005 and 6.0 in 2006.
• Generally speaking, a nominal dollar increase of
  5 to 6 is necessary to achieve a real-dollar
  increase (after adjustment for inflation and
  enrollment).

but higher education the most discretionary
aspect of state budgeting

• State tax revenue increased 9.9 in the Apr-June
  quarter of 2006 compared to the same quarter the
  year before. Although this is the strongest
  nominal growth in the past year, it is below
  growth rates recorded in the same quarter of 2005
  and 2004. (Rockefeller Inst., 9/2006)
• Tax cuts, along with actions to increase
  spending and replenish reserve funds, enjoyed
  broad support. At the same time, cost pressures
  continue in Medicaid, elementary secondary
  education, and other areas. Were states too
  aggressive in spending the tax collections
  windfall?

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Long-term U.S. trends
FTE enrollment in public institutions has grown
by 44 since 1980. Enrollment growth since 2001
has already outstripped that of each of the
previous two decades.
The chart illustrates a recurring national
pattern of recession, retrenchment, and recovery.
The divergence of the red and blue lines
indicates an increasing reliance on tuition as a
revenue source for operating expenses. The latest
wave of state and local government support
peaked in 2001, and we are currently in the
bottom of a trough.
Educational Appropriations and Net Tuition
Revenue per FTE Fiscal 1980-2005, in Constant
2005 Dollars
Note State and local government support
excludes research, agricultural, and medical.
Source SHEEO SHEF
20
Long-term regional trends
In the SREB states, FTE enrollment in public
institutions has grown by 64 since 1980. The
South exhibits the same pattern of economic
recession, retrenchment, and recovery that is
observed nationally.
Educational Appropriations per FTE for the SREB
StatesFiscal 1980-2005, Constant 2005 Dollars
Note State and local government support,
excluding research, agricultural, and medical.
Source SHEEO SHEF
21
Long-term regional trends
Each region generally mirrors the national trend
in per student operating appropriations from
state and local governments.
Educational Appropriations per FTE, by
RegionFiscal 1980-2005, Constant 2005 Dollars
Source SHEEO SHEF
22
Long-term regional trends
When net tuition is added to state and local
government support, New England and Midwestern
states historically have exceeded the U.S.
average total educational revenues per FTE, while
Western states have operated with less.
Total Educational Revenues per FTE, by
RegionFiscal 1980-2005, Constant 2005 Dollars
Source SHEEO SHEF
23
Long-term regional trends
Nationally, the average share of educational
revenues represented by net tuition in 2005 was
36.7, approximately a 10 point increase since
1991. New England and Midwestern states tended
to exceed the national average on this measure,
while Western states were beneath it.
Net Tuition as a Percentage of Total Educational
Revenues, by Region, Fiscal 1980-2005
Source SHEEO SHEF
24
Shorter-term regional trends Enrollment
Nationally, enrollments in public institutions
increased 13.6 from 2001 to 2005. Within the
SREB region, these increases ranged from 26.2
growth in Florida to 5.5 growth in Delaware.
Full-Time Equivalent Enrollment, Percent Change
by State, Fiscal 2001-2005
Note Georgia, SREB, and US data does not
include GA Department of Technical Adult
Education institutions
Source SHEEO SHEF
25
Shorter-term regional trends Ed approps
Nationally, educational appropriations per FTE in
public institutions declined by an average of
18.0 from 2001 to 2005. Regionally, these
changes ranged from 6.5 growth in Tennessee to a
29.3 decrease in Maryland.
Educational Appropriations per FTE, Percent
Change by State, Fiscal 2001-2005, Constant 2005
Dollars
Note Georgia, SREB, and US data does not
include GA Department of Technical Adult
Education institutions
Source SHEEO SHEF
26
Shorter-term regional trends Net tuition
Nationally, net tuition per FTE increased by an
average of 13.5 from 2001 to 2005, and in the
South, all but three states experienced
increases. Decreases in net tuition revenue may
be associated with institutional discounting,
increases in the state financial aid program, or
student migration to lower-cost institutions.
Net Tuition Revenue per FTE, Percent Change by
State, Fiscal 2001-2005, Constant 2005 Dollars
Source SHEEO SHEF
27
Shorter-term regional trends Total ed revenues
Total Educational Revenues per FTE, Percent
Change by State, Fiscal 2001-2005
When aggregated nationally, total educational
revenues per FTE have decreased by 8.7 since
2005, ranging in the South from a 15 increase in
Tennessee to a 22 decrease in Georgia.
Note GA's data does not include Department of
Technical Adult Education institutions
Source SHEEO SHEF
28
Putting the pieces together
Plotting the SHEF data along two dimensions can
bring state fiscal policy findings and trends
into sharper relief. Here, data points on the
vertical axis represent public higher education
enrollment growth from 1991-2005. The horizontal
axis shows each states percent change in
educational appropriations per student over the
same period.
Of the 9 SREB states with above average
enrollment growth from 1991 to 2005, only Georgia
and Louisiana maintained educational
appropriations per student on a constant dollar
basis for the period. Both states implemented
statewide, lottery-funded merit scholarship
programs in the 1990s.
Percent Change by State in Enrollment and in
Educational Appropriations per FTE, Fiscal
1991-2005
70
CHANGE above avg
CHANGE above avg
GA
CURRENT above avg
CURRENT below avg
60
AR
50
LA
FL
40
SC
NC
Percent Change in FTE Enrollment, FY 1991-2005
TX
SREB
WICHE
30
OK
KY
US
MS
VA
20
MD
DE
TN
WV
NEBHE
Notes
1) Figures are adjusted for inflation,
MHEC
public system enrollment mix, and state
10
cost of living.
2) Funding and FTE data are for public
AL
CHANGE below avg
CHANGE below avg
non-medical students only.
CURRENT below avg
CURRENT above avg
0
-30
-20
-10
0
10
Percent Change in Educational Appropriations per
FTE, FY 1991-2005
Note Georgia's data included Department of
Technical Adult Education institutions for the
first time in FY05
Source SHEEO SHEF
29
Putting the pieces together
The next two-dimensional analysis allows states
to assess total educational revenues per FTE
relative to the national average currently (on
the horizontal axis) and over time (on the
vertical). The three states in the upper left
quadrant lag the U.S. average but have been
catching up. The three states in the lower right
quadrant, exceed the national average but have
lost ground.
Total Educational Revenues per FTE by State
Percent Change and Current Standing Relative to
U.S. Average
Note Georgia's data included Department of
Technical Adult Education institutions for the
first time in FY05
Source SHEEO SHEF
30
Putting the pieces together
This figure shows each states rate of change in
the two components of total educational revenues
per student educational appropriations and net
tuition relative to the national
average. States in the upper right quadrant have
exceeded the national average on both dimensions.
Percent Change by State in Educational
Appropriationsand Net Tuition Revenues per FTE,
Fiscal 1991-2005
120
Tuition CHANGE above avg
Tuition CHANGE above avg
110
MD
Approps change below avg
Approps change above avg
100
90
TN
80
AL
70
KY
NC
60
TX
NEBHE
50
VA
WV
MHEC
WICHE
US
DE
OK
SREB
40
SC
Percent Change in Net Tuition Revenues per FTE
MS
FL
30
20
AR
Notes
10
1) Figures are adjusted for inflation,
public system enrollment mix, and state
0
cost of living.
2) Funding and FTE data are for public
-10
non-medical students only.
-20
GA
Tuition CHANGE below avg
Tuition CHANGE below avg
-30
LA
Approps change above avg
Approps change below avg
-40
-30
-25
-20
-15
-10
-5
0
5
10
Percent Change in Educational Appropriations per
FTE
Note Georgia's data included Department of
Technical Adult Education institutions for the
first time in FY05
Source SHEEO SHEF
31
Putting the pieces together
States that rely heavily on net tuition revenues
might also try to fund a balanced state financial
aid program. In this figure, the horizontal axis
shows FY05 net tuition revenue per FTE for each
state. The vertical axis shows FY05 state-funded
financial aid per FTE. States in the upper right
quadrant exceed the U.S. average on both.
Net Tuition Revenue per FTE and Total State
Student Grant Aid per FTE, Fiscal 2005
Sources SHEEO SHEF
32
Perspectives on taxes and state support of
higher education
States whose effective tax rate exceeds the
national average are plotted above the horizontal
axis, and states with above average wealth (total
taxable resources per capita) are plotted to the
right of the vertical line.
Taxable Resources and Effective Tax Rate Indexed
to the U.S. Average,by State, Fiscal 2003
Shaded states have actual tax revenues per capita
within /-5 of the national average.
Source SHEEO SHEF
33
Summary
The South

• Has outpaced all geographic regions in public
  higher education enrollment growth since the turn
  of the century.
• Mirrors the national recurring patterns of (1)
  recession, retrenchment, and recovery, amid (2)
  increasing reliance on tuition as a revenue
  stream.
• Achieves roughly the national average of
  operating resources per student
• only it does so with slightly
  higher-than-average levels of state local
  government support and lower-than-average levels
  of tuition revenue per student.
• This relative non-reliance on government support
  as a source of operating revenue makes some
  states public higher education systems
  susceptible to state budget cuts.
• States with statewide merit scholarship programs
  are the only ones that have managed to keep ahead
  of enrollment growth and inflation.
• Perhaps the lesson of the previous point is that
  in the future, new funding for higher education
  will be predicated on initiatives that make
  sense and demonstrate tangible benefit to
  legislatures and the public. Funding enrollment
  growth and quality enhancements for their own
  sake is not a given.

34
Conclusion
Wrong ideas about state higher education spending

• There is a right amount
• The only way to get better results is to spend
  more money
• We can get the results we need without spending
  more money

Right questions about state higher education
spending

• What do we need from higher education?
• What will it take, given our circumstances, to
  obtain and sustain such a system?
• What can we do better with the money we have?
• What do we need that justifies additional funds?

35
REPORTS PRESENTATIONS www.sheeo.org
DATA www.higheredinfo.org CONTACT tyanagiu
ra_at_sheeo.org Takeshi Yanagiura, Data
Analyst [phone]
FY 2005