Hans P. L’Orange Director, SHEEO/NCES Network and Director of Data and Information Management

Hans P. L’OrangeDirector, SHEEO/NCES Network andDirector of Data and Information Management

David L. WrightSenior Research Analyst

AIR National ForumAIR National ForumSan Diego, CaliforniaSan Diego, California

May 30, 2005May 30, 2005

SState tate HHigher igher

EEducation ducation FFinanceinance

FY 2004FY 2004

SState tate HHigher igher

EEducation ducation FFinanceinance

FY 2004FY 2004

State Higher Education Executive Officers

Making Sense of Interstate Higher Education Finance Data

SHEF can help educators and policy makers:SHEF can 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 state’s higher education system in the context of other states; and

Assess the capacity of their state economy to generate revenues to support public priorities.

Diverse Perspectives on State Higher Education Finance Data

What SHEF contributes to the national What SHEF contributes to the national conversation: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.

Higher Education Cost Adjustment (HECA):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

“As Valid As Possible”

Enrollment Mix Index (EMI):Enrollment Mix Index (EMI):

Average instructional expenses per student vary by institution type.


Enrollments are distributed differently across states’ public HE systems.

The EMI adjusts operating revenues to account for both factors.

Average Instructional Expenses per FTE, Fiscal 2001

State Cost of Living Adjustment (COLA):State Cost of Living Adjustment (COLA):

Driven primarily by housing costs.

Adopted index developed by Berry et al (2000).

One value per state, ranging from 0.88 to 1.16.

Hawaii and Alaska assigned value of the next highest state (Massachusetts)


State Cost of Living and Public Higher Education System Enrollment Mix Index Values

Source: SHEEO SHEF

Dollars per FTE are adjusted upward the most in states with an inexpensive enrollment mix and low cost of living.

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.


US

WY

WI

WV

WA

VA

VT

UT

TX

TN

SD

SC

RI

PA

OROK

OH

NDNC

NY

NM

NJ

NH

NV

NEMT

MO

MS

MN

MI

MA

MDME

LA KY

KSIA

IN

IL

IDHI

GA

FL

DE

CT

CO

CA

AR

AZ

AK

AL

0.90

0.95

1.00

1.05

1.10

1.15

1.20

0.85 0.90 0.95 1.00 1.05 1.10 1.15 1.20

State Cost of Living Index (US Avg = 1.0)

En

roll

men

t M

ix I

nd

ex (

US

Avg

= 1

.0)

COST OF LIVING: below avgCOST OF PUBLIC H.E. SYSTEM ENROLLMENT MIX: above avg

COST OF LIVING: above avgCOST OF PUBLIC H.E. SYSTEM ENROLLMENT MIX: above avg

COST OF LIVING: below avgCOST OF PUBLIC H.E. SYSTEM ENROLLMENT MIX: below avg

COST OF LIVING: above avgCOST OF PUBLIC H.E. SYSTEM ENROLLMENT MIX: below avg

6.7%

31.2%62.1%

Current Status

Distribution of State, Local, and Net Tuition Revenue, U.S.Fiscal 2004

Net Tuition

Local Taxes

State Support

(Tax and Non-Tax)

Source: SHEEO SHEF

State and local governments provided $69.4 billion for public and independent higher education in 2004.

An additional $31.5 billion in net tuition revenue brought the amount available from state, local, and student sources for general operating expenses to $100.9 billion.

From fiscal 2001 to 2004:From fiscal 2001 to 2004:

“The fiscal 2004 SHEF study documents a 4-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 near their lowest levels nationally in 25 years.”

Recent Trends

State & local appropriations for general educational expenses in public colleges and universities were essentially flat, while:

enrollments grew by 11.8% and

higher education costs grew by 10.3% as estimated by HECA.

In inflation-adjusted terms,

Educational appropriations per FTE decreased 16.8%, from $6,874 to $5,721;

Net tuition revenue per FTE increased 10.7%, from $2,879 to $3,187; and

Total educational revenues per FTE decreased 8.7%, from $9,753 to $8,908.

$6,094

$5,721$5,702

$6,874

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

Pu

bli

c F

TE

En

roll

men

t

$5,000

$5,500

$6,000

$6,500

$7,000

Ed

uca

tio

nal

Ap

pro

pri

atio

ns

per

FT

E

5M

6M

7M

8M

9M

10M = Recession

National Trends since 1980

FTE enrollment in public institutions has grown by more than 40% since 1980.

Enrollment growth since 2001 has already outstripped that of each of the previous two decades.

+ 11.8%

+ 6.2%

+ 8.5%

Source: SHEEO SHEF

Educational Appropriations per FTE, U.S.,Fiscal 1980-2004, Constant 2004 Dollars Adjusted by SHEEO

HECA

$6,094

$5,721$5,702

$6,874

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

Pu

bli

c F

TE

En

roll

men

t

$5,000

$5,500

$6,000

$6,500

$7,000

Ed

uca

tio

nal

Ap

pro

pri

atio

ns

per

FT

E

5M

6M

7M

8M

9M

10M = Recession

Over the long term, state and local government funding per student has been narrowly outpaced by enrollment and inflation as estimated by the HECA, decreasing on average one-fourth of one percent annually.

The level of support has varied from year to year, at times dramatically.


Source: SHEEO SHEF


HECA

Economic downturns tend to depress state funding per student because budgets are constrained while enrollment grows rapidly.

In the past, state support per FTE has rebounded following a downturn.


The Rockefeller Institute reports that state tax revenue in the 4th quarter of 2004 grew 7.8% compared to the same period in 2003 (the strongest fourth-quarter growth since 1991), but warns of continuing cost pressures in Medicaid, elementary & secondary education, and other areas.

According to Grapevine, state tax appropriations for higher education, unadjusted for enrollment or inflation, were down 2.1% in fiscal 2004 (the first such nominal decrease in 11 years) but up 3.8% in 2005.

A SHEEO early look at FY 2006 state tax appropriations for higher education in 30 states indicated that 25 anticipated increases; only one expected a decrease.

Signs that things may be turning around:Signs that things may be turning around:

Will it be enough to offset enrollment growth and inflation?Will it be enough to offset enrollment growth and inflation?

$6,094

$5,721$5,702

$6,874

Pu

bli

c F

TE

En

roll

men

t

$5,000

$5,500

$6,000

$6,500

$7,000

Ed

uca

tio

nal

Ap

pro

pri

atio

ns

per

FT

E

5M

6M

7M

8M

9M

10M = Recession


HECA

The choice of baseline year is fundamental to any analysis of long-term funding trends.

Choosing a “peak” or “valley” would lead to dramatically different conclusions about trends in revenues per student.


Source: SHEEO SHEF

Baseline year chosen for remaining analyses

Net Tuition as a Percentage of Total Educational Revenues, U.S., Fiscal 1991-2004

Source: SHEEO SHEF

In public institutions, net tuition tends to grow as a percentage of total revenues when the state appropriation per student decreases in economic downturns.

Nationally, net tuition accounted for 26% of total educational revenues in 1991; remained fairly constant at about 30% from 1993 to 2002, then increased each of the last two years to its current level of 36%.

National Trends from 1991-2004

26.2%

30.9% 31.4% 31.2% 31.7% 31.2% 30.7% 30.2%29.4% 29.5%

30.3%

33.1%

35.8%

28.9%

0%

5%

10%

15%

20%

25%

30%

35%

40%

1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

Total Educational Revenues per FTE, by Component, U.S., Fiscal 1991-2004

Source: SHEEO SHEF

In constant 2004 dollars adjusted by the HECA, educational appropriations per FTE in public institutions dipped during the early 1990s recession but had recovered by the end of that decade.

However, recent constant dollar decreases in educational appropriations result in a net decrease of 12% for the period, from $6,499 in 1991 to $5,721 in 2004.

National Trends from 1991-2004

Figure 2Total Educational Revenues per FTE by Component, U.S., Fiscal 1991-2004

(Constant 2004 dollars adjusted by SHEEO Higher Education Cost Adjustment)

6,4996,126 5,917 5,985 6,185 6,258 6,451 6,648 6,815 6,854 6,874 6,639

6,0765,721

2,487 2,646 2,7342,808 2,907

2,9302,944

2,948 2,858 2,8792,892

3,0033,187

2,307

$-

$1,000

$2,000

$3,000

$4,000

$5,000

$6,000

$7,000

$8,000

$9,000

$10,000

1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

Net TuitionEducational Appropriations $8,908$8,805

$9,753

In the post-recession periods of the early 1990s and early 2000s, increases in net tuition per student have been unable to offset decreasing levels of state & local government support.

Full-Time Equivalent Enrollment, Percent Change by State, Fiscal 1991-2004

Source: SHEEO SHEF

Enrollments in public institutions increased 21.8% from 1991 to 2004. Over half of this increase occurred since 2001, the beginning of the current downturn.

Changes in enrollment ranged from an 86.9% increase in Nevada to a decline of 8.5% in Missouri.

Interstate Comparisons from 1991-2004

Figure 5Full-Time Equivalent Enrollment in Public Higher Education,

Percent Change by State, Fiscal 1991-2004

-8.5%

86.9%

21.8%

-10%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

Educational Appropriations per FTE, Percent Change by State, Fiscal 1991-2004

Source: SHEEO SHEF

In constant dollars, educational appropriations per FTE in public institutions declined by an average of 12% from 1991 to 2004.

The change in educational appropriations ranged from 27.3% growth in Georgia to a decrease of 42.2% in Vermont.


-12.0%

-42.2%

27.3%

-50%

-40%

-30%

-20%

-10%

0%

10%

20%

30%

Net Tuition Revenue per FTE, Percent Change by State, Fiscal 1991-2004

Source: SHEEO SHEF

In constant dollars, net tuition per FTE increased by an average of 38.2% from 1991 to 2004, and all but six 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.


132.5%

-30.4%

38.2%

-35%

-25%

-15%

-5%

5%

15%

25%

35%

45%

55%

65%

75%

85%

95%

105%

115%

125%

135%

Net Tuition as a Percentage of Total Educational Revenues, by State, Fiscal 2004

Source: SHEEO SHEF

The average share of educational revenues represented by net tuition in 2004 was 35.8%, ranging from a high of 79% in Vermont to a low of 16% in Georgia.

New England and Midwestern states tended to exceed the national average on this measure, and Western states were beneath it.


15.5%

78.7%

35.8%

0%

10%

20%

30%

40%

50%

60%

70%

80%

Net Tuition Increase Needed to Offset a 1% Decrease in State Government Support for Public Higher Education, by State, Fiscal

2004

Source: SHEEO SHEF

Notes: State dollars include Research-Ag-Med. Net tuition revenues are from all levels (undergraduate, graduate, first professional) except medical schools.

A state’s vulnerability to state appropriation decreases is largely determined by its reliance on tuition as a revenue stream.

Based on 2004 SHEF data, net tuition revenues would have had to increase 1.9% on average to offset a one percent decrease in state support.


Figure_ Net Tuition Increase Needed to Offset a One Percent Decrease in State Government Support

for Public Higher Education, by State, Fiscal 2004

1.9%

5.8%

0.4%

0%

1%

2%

3%

4%

5%

6%

Total Educational Revenues per FTE, Percent Change by State, Fiscal 1991-2004

Source: SHEEO SHEF

When aggregated nationally, increases in net tuition revenue offset decreases in state appropriations to yield an average 1.2% increase in total educational funding per FTE.

Individual state circumstances, however, varied substantially around that mean.


1.2%

-25.9%

37.1%

-30%

-25%

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

30%

35%

40%

Percent Change by State in Enrollment and in Educational Appropriations per FTE, Fiscal 1991-2004

Source: SHEEO SHEF

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 1991-2004. The horizontal axis shows each state’s percent change in educational appropriations per student over the same period.

Putting the Pieces Together

Of the 27 states with above average enrollment growth from 1991 to 2004, only three – Louisiana, Kentucky, and Nevada – increased educational appropriations per student on a constant dollar basis for the period.

Figure 8Percent Change by State in Enrollment and in Educational Appropriations per FTE,

Fiscal 1991-2004

ALAK

AZ

AR

CA

CO

CTDE

FL

GAHI

ID

IL

IN

IA

KS

KY

LA

ME

MD

MA

MIMN

MS

MO

MT

NE

NV

NH

NJNM

NY

NC

ND

OH

OK

OR

PA

RI

SC

SD

TN

TX

UT

VTVA

WA

WVWI

WY

US

-10%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

-45% -40% -35% -30% -25% -20% -15% -10% -5% 0% 5% 10% 15% 20% 25% 30%

Percent Change in Educational Appropriations per FTE

Per

cen

t C

han

ge

in P

ub

lic H

igh

er E

d E

nro

llmen

t

APPROPS CHANGE: below avgFTE CHANGE: above avg

APPROPS CHANGE: above avgFTE CHANGE: above avg

APPROPS CHANGE: below avgFTE CHANGE: below avg

APPROPS CHANGE: above avgFTE CHANGE: below avg

Total Educational Revenues per FTE by State: Percent Change and Current Standing Relative to U.S.

Average

Source: SHEEO SHEF

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 six states in the upper left quadrant lag the U.S. average but have been catching up. The six in the lower right quadrant exceed the national average but are losing ground.


Total Educational Revenues per FTE by State:Percent Change and Current Standing Relative to U.S. Average

AL

AK

AZ

ARCA

CO

CT

DE

FL

GA

HI

ID

IL

IN

IA

KSKY

LA

ME

MD

MAMI

MN

MS

MO

MT

NE NV

NH

NJ

NM

NY

NC

ND

OH

OK

OR

PA

RI

SC

SD TNTX

UT

VTVA

WA

WV

WI

WY

US

-40%

-30%

-20%

-10%

0%

10%

20%

30%

40%

0.6 0.7 0.8 0.9 1.0 1.1 1.2 1.3 1.4 1.5 1.6

Indexed to the U.S. Average in FY 2004

Per

cen

t C

han

ge,

FY

199

1 -

2004

% CHANGE: above avgCURRENT: below avg

% CHANGE: below avgCURRENT: below avg

% CHANGE: below avgCURRENT: above avg

% CHANGE: above avgCURRENT: above avg

Percent Change by State in Educational Appropriationsand Net Tuition Revenues per FTE, Fiscal 1991-2004

Source: SHEEO SHEF


This figure shows each state’s 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.

US

WY

WI

WV

WA

VA

VT UT

TXTN

SD

SC

RI

PA

OR

OK

OH

ND

NC

NY

NM

NJ

NH

NV

NE

MT

MO

MS

MN

MI

MA

MD

ME

LA

KY

KS

IA IN

IL

ID

HI

GA

FL

DE

CT

CO

CA

ARAZ

AK

AL

-30%

-20%

-10%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

110%

120%

130%

-45% -40% -35% -30% -25% -20% -15% -10% -5% 0% 5% 10% 15% 20% 25% 30%

Percent Change in Educational Appropriations per FTE

Per

cen

t C

han

ge

in N

et T

uit

ion

Rev

enu

e p

er F

TE

APPROPS % CHANGE: below avgNET TUIT % CHANGE: above avg

APPROPS % CHANGE: above avgNET TUIT % CHANGE: above avg

APPROPS % CHANGE: below avgNET TUIT % CHANGE: below avg

APPROPS % CHANGE: above avgNET TUIT % CHANGE: below avg

Net Tuition Revenue per FTE and Total State Student Grant Aid per FTE, Fiscal 2004

Sources: SHEEO SHEF

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 FY04 net tuition revenue per FTE for each state. The vertical axis shows FY04 state-funded financial aid per FTE. States in the upper right quadrant exceed the U.S. average on both.


US

WY

WI

WVWA

VA

VT

UT TX

TN

SDSC RI

PA

OR

OK OH

ND

NC

NY

NM

NJ

NHNV NE MT

MO

MS

MN

MI

MA

MD

ME

LA

KY

KS

IA

IN

IL

ID

HI

GA

FL

DE

CT

CO

CA

ARAZ

AK

AL

$-

$100

$200

$300

$400

$500

$600

$700

$800

$900

$1,000

$1,100

$1,200

$1,300

$1,000 $2,000 $3,000 $4,000 $5,000 $6,000 $7,000 $8,000

Fiscal 2004 Net Tuition Revenue per FTE

Fis

cal 2

004

Tuit

ion

Aid

per

FT

E

TUITION AID: above avgNET TUITION: below avg

TUITION AID: below avgNET TUITION: below avg

TUITION AID: below avgNET TUITION: above avg

TUITION AID: above avgNET TUITION: above avg

Net Tuition Revenue per FTE and Total State Student Grant Aid per FTE, Fiscal 2004

Sources: SHEEO SHEF and NASSGAP

According to NASSGAP, 72.9% of all state grant aid dollars were awarded on the basis of student financial need in 2002-03.

The 29 states displayed in green exceeded the U.S. average on this measure.


AL

AKAZ

AR

CA

CO

CT

DE

FL

GA

HI

ID

IL

IN

IAKS

KY

LA

ME

MD

MA

MI

MN

MS

MO

MTNENV NH

NJ

NM

NY

NC

ND

OHOK

OR

PA

RISC SD

TN

TXUTVT

VA

WA WV

WI

WY

US

$-

$100

$200

$300

$400

$500

$600

$700

$800

$900

$1,000

$1,100

$1,200

$1,300

$1,000 $2,000 $3,000 $4,000 $5,000 $6,000 $7,000 $8,000

Fiscal 2004 Net Tuition Revenue per FTE

Fis

cal 2

004

Tuit

ion

Aid

per

FT

E

TUITION AID: above avgNET TUITION: below avg

TUITION AID: below avgNET TUITION: below avg

TUITION AID: below avgNET TUITION: above avg

TUITION AID: above avgNET TUITION: above avg

Perspectives on Taxes and State Support of Higher Education

Taxable Resources and Effective Tax Rate Indexed to the U.S. Average,

by State, Fiscal 2002

Source: SHEEO SHEF

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.

US WY

WIWV

WA

VA

VT

UT

TX

TNSD

SC

RI

PA

OR

OKOH

ND

NC

NY

NM

NJ

NH

NV

NEMT

MO

MSMN

MI

MA

MD

ME

LA

KY

KSIAIN

ILID

HI

GAFL

DE

CT

CO

CAAR

AZ

AK

AL

0.6

0.7

0.8

0.9

1.0

1.1

1.2

1.3

0.6 0.7 0.8 0.9 1.0 1.1 1.2 1.3 1.4 1.5 1.6 1.7

Total Taxable Resources Index (US Avg = 1.0)

Eff

ecti

ve T

ax R

ate

Ind

ex (

US

Avg

= 1

.0)

STATE WEALTH: below avgEFFECTIVE TAX RATE: above avg

STATE WEALTH: above avgEFFECTIVE TAX RATE: above avg

STATE WEALTH: below avgEFFECTIVE TAX RATE: below avg

STATE WEALTH: above avgEFFECTIVE TAX RATE: below avg

Shaded states have actual tax revenues per capita within +/-10% of the national average.

In making funding decisions, a state must In making funding decisions, a state must answer the following key questions:answer the following key questions:

What kind of higher education system do we want?

What will it take, given our circumstances, to obtain and sustain such a system?

Are we making effective use of our current investments?

What can we afford to invest in order to meet our goals?

Conclusion

REPORTS & PRESENTATIONS:www.sheeo.org

DATA:www.higheredinfo.org

CONTACT:[email protected]

David Wright,Senior Research Analyst

(303) 299-3677

http://www.sheeo.org/

http://www.higheredinfo.org/

mailto:[email protected]

mailto:[email protected]

Documents

Hans P. L’Orange Director, SHEEO/NCES Network and Director of Data and Information Management