The Impact of State Cuts

A new study finds that states that cut appropriations for higher education see declines in the numbers of bachelor's and doctoral degrees -- with a negative impact on the state's work force.

The study, published as a white paper by the National Bureau of Economic Research titled “Public Universities: The Supply Side of Building a Skilled Workforce,” was written by John Bound, a University of Michigan economics professor; Breno Braga, an Urban Institute research associate; Gaurav Khanna, a University of California, San Diego, economics professor; and Sarah Turner, a University of Virginia professor of economics and education.

The study, according to Braga, found that a 10 percent decrease in state appropriations over time at a public research institution leads to a 3.6 percent decrease in bachelor's degrees awarded. A 10 percent decrease in state appropriations also lead to a 7.2 percent decrease in Ph.D. degrees completed.

“A big highlight that is consistent with other research that has been done is that money matters,” Turner said of the results. “Spending of public universities’ state appropriations impacts degree attainment both at the undergraduate level and at the doctorate level at research universities, and enrollment more broadly at the nonresearch public universities.”

Braga said the research was conducted by comparing institutions across various states where state funding was going up or remaining the same versus states where it was being reduced.

“A couple states like Michigan, Wisconsin or Pennsylvania -- there was a significant decline in state appropriations over the past 25 years,” Braga said. “So we looked at states where the same thing didn’t happen -- Texas or New York State, for example.”

The study also focused on the different methods public research institutions adopted in order to fill the void left by the falling appropriations: many universities began recruiting more out-of-state students, increasing fund-raising or raising tuition. Some institutions recruited more international students, who pay higher fees. However, nonresearch public universities struggled considerably more, according to the study, to replace lost state funding. Those institutions aren't able to recruit nationally or internationally or to raise large sums of private money the way flagships can.

Data showed that at research institutions, as state appropriations declined, in-state tuition was increased while out-of-state tuition remained relatively the same, indicating a higher demand for these types of students who, at the undergraduate level, are typically willing to pay more than in-state students.

Turner said in instances where the lost funding could not be replaced by a new source, there were typically two types of blows to the institution: a reduction in institutional and student support services, as well as instructional resources.

However, Turner said for Association of American Universities public institutions, this frequently didn’t lead to the institution spending less on expenditures per student, while at the broader group of research institutions the study found a 10 percent decline in state appropriations led to a 1.6 percent decline in overall expenditures.

At nonresearch universities, Turner said there’d be a 3 percent decline in total percentages, which goes again into losses for institutional support and instructional resources.

“All institutions are raising prices,” Turner said. “But the price increase in dollar terms tends to be more selective at AAU institutions, and that also is accompanied by a change in the composition of students, which is how those institutions are able to make up for the lost revenues.”

Robert Kelchen, an assistant professor of higher education at Seton Hall University, said the study was an indication that students felt the effects of falling appropriations most, and leaves universities struggling with how to serve in-state students.

“When public colleges see drops in funding without finding methods to replace the lost funding, students can’t get the resources they need,” Kelchen said.

Kelchen also pointed to another issue regarding international students, who are often recruited to help fill these holes in appropriations. Kelchen said international students have been increasingly recruited by other English-speaking countries such as Canada and the United Kingdom, flattening out U.S. recruitment of international students.

One of the most significant factors in the study is the effect reduced appropriations has on a state’s work force as degrees awarded decline in the relevant states.

“At the doctorate level, degrees are negatively tied to state appropriations changes, so there’s a labor force affect,” Turner said.

However, Turner said the results were mixed on whether falling appropriations had a negative effect on a university’s research output.

Turner said there are numerous concerns should trends on decreasing appropriations continue, especially on research.

“You run the risk of both eroding the research capacity at the research universities, and then there are declines in resources at the broad-access institutions,” Turner said. “Those declines are likely to reduce the quality of the programming at those institutions. Ultimately the takeaway is that will have negative effects on the supply of skilled workers in the labor force. A simple way to say this is money matters.”