05 November 2010

Funding Higher Education In Colorado

Colorado's Higher Education system's Higher Education Strategic Planning Steering Committee wants new taxes to pay for its withering budget. They have reason to want the funds:

Colorado ranks 48th in funding for higher education per full-time student, while tuition rates have nearly doubled since 2001, according to the report. Since fiscal year 1989-90, state support for higher education has dropped to 9 percent of the general-fund budget from 20.3 percent.

Over the last several years, state higher education spending has averaged a little under $600 million a year in Colorado. About $50 million goes towards financial aid, about $250 million goes to tuition vochers for students who attend public or private colleges and universities in the State of Colorado, and most of the balance goes towards institutional level support called "fee for service." The "fee for service" share is highest at the state's rural four year colleges and flagship universities. The "fee for service" share is negligble at state's open admissions urban public colleges and universities.

Tuition pays for close to 60% of the cost of higher education in the state. State spending per college student is a little more than $4,000 per student per year.

Deep cuts are planned for the budget in the coming year, because of the way the budget process works in the state of Colorado. While tuition has been almost flat over the last decade net of financial aid nationally, over the last decade, this has not been the case in Colorado.

We have state constitutional protections for P-12 education funding, called Amendment 23, and have earmarked substantial state mineral income for that purpose (on the order of $150 to $350 million per year depending on the state of the energy markets), but Colorado is still 49th in P-12 education funding as a percentage of personal income. Colorado spends $4.14 billion of the state budget on P-12 education, in addition to significant local property tax revenues, and is at about the same inflation adjusted per student spending levels that it was in 1987.

Commission Proposed Funding Options

Some of the funding options proposed by the Higher Education Strategic Planning Steering Committee include:

The options to raise revenue are:

• Restore state income tax, now 4.63 percent of federal taxable income, and sales tax, now 2.9 percent — to 5 percent and 3 percent, respectively, for potential revenues of $445 million.

• Expand sales tax to specific services for potential revenues of $550 million.

• Implement a 1 percent surcharge on natural-resource extraction for potential revenues of $150 million.

• Implement a 4.0 mill levy statewide for potential revenues of $350 million.

• Implement a 4.0 mill levy in counties where an institution of higher education is located for potential revenues of $240 million.

Among other recommendations in the report are better preparation of students for college, and reducing regional, income and ethnic gaps in college admissions, retention and completion.

As a result of TABOR, none of the options are possible without voter approval.

I sympathize, but don't know if it is politically realistic to think that voters will approve more spending for higher education right now.

Spending Smarter

I can think of at least three things we can do to better use the limited funds available for higher education:

1. Stop providing education vouchers for students who attend private colleges. This is a luxury that we can no longer afford when public colleges are starved for funds. Colorado is far more generous for students attending private colleges than most states, despite skimping on support for higher education generally. When our state is not rock bottom in the nation in higher education funding, we can think about returning to this sort of luxury form of higher education support.

2. Provide support to higher education primarily in the form of need based scholarships, rather than in the form of per student vouchers. When higher education funds are scarce, we can't afford to use a large share of higher education funds to provide tuition assistance to students from families with six figures incomes.

3. Provide the bulk of financial assistance to students who, in addition to having financial need, are academically ready to go to college and have a reasonable chance of earning degrees. If you had a C average in high school, mediocre ACT scores, and need remedial work to go to college, your odds of not earning a degree are overwhelming.

The public interest in funding higher education is primarily in increasing the number of college graduates in the state. Affluent students who are academically ready will go to college with or without public tuition assistance. Assisting students with financial need who have a very high likelihood of dropping out is also an inefficient way of achieving this goal.

But, there is a strong public interest, both morally and economically, in providing substantial financial assistance to students who are academically able. The empirical evidence shows that financial resources dramatically increase the rate at which academically able student attend and graduate from college. And, needy students are often too afraid to risk attending college, often as first generation college students, when only student loans are available to fund that education.

It would be far better, in my mind, for our state to provide three times as much tuition assistance to a third of the students it does today, by placing the same kind of academic and financial need conditions on financial assistance that other scholarship providers do.

This is probably too radical a shift to make all at once. Some institutional support to higher educational institutions is for research purposes or to assist non-degree students who are taking part in the life long learning process, and while traditional students in four year degree programs with financial need almost universally fill out financial aid forms (causing a shift to a need based system to be almost entirely administration cost free), the bureaucracy involved may be less appropriate for non-traditional part-time students.

It also doesn't follow that there needs to be a one size fits all academic ability standard. A student who is not academically ready for a traditional four year bachelor's degree program, may be ready for a professional certification or two year degree associate's degree program, or for a program designed to bring students who aren't ready for college back up to that level (although there is merit in funding that kind of remedial education from the K-12 budget, rather than the higher education budget).

But, that also doesn't mean that all high school graduates are ready for even an associate's degree program. The dropout rates at community colleges are astoundingly high, and a true open admissions policy probably doesn't make sense, at least for students who will be receiving financial support from the State of Colorado, even in those programs. Letting utterly unprepared students try to take community college classes for a semester only to get miserable grades and drop out isn't doing anyone any favors.

Developing Long Term Funding Sources

Higher education in Colorado has learned the hard way the relying on general fund appropriations in a state with highly cyclic tax revenues and state constitutional and legal protections for other spending leds to deep budget cuts precisely when the demand for higher educational services is highest. In an ideal world, the state legislature wouldn't have an overconstrained state budget that makes higher education a target, but Colorado is not an ideal world.

Long run funding for higher education in the state should look more like an endowment and should ear mark a specific funding source for higher education, so that it won't perpetually lose future budget battles in hard times.

Of course, any funding source also needs to be big enough to meaningfully support higher education, and any funding source needs to be palatable to voters.

One sensible first step to endow the state's higher education system would be to use the state's mineral income and public land income to support higher education, where it would make a substantial dent in the state's need, rather than P-12 education, which that source is wholely inadequate to fund anyway, without removing the P-12 education spending floors of Amendment 23.

Since Colorado's severance tax rates are about half those of other mineral rich states, this rates could also be increased, not by the 1% suggested by the commission, but from the current 6% overall, to perhaps 10%, which would still be competitive on an interstate basis. Also, after all, sooner or later, the energy industry will have to use every available source, and can't simply offshore this source of revenue. The incidence of these taxes is largely to energy users around the world.

These two steps would provide a baseline endowment worth $850 million a year, give or take, to higher education in the state, which coupled with smarter use of the funds we have to adhere to the goal of producing more Colorado college graduates, would make higher education both more affordable (even in economic downturns), and much less vulnerable to the vagaries of the state budget process.

A third step would be to charge the state P-12 budget with remedial education expenses of higher educational institutions. This would probably be modest, but might amount to tens of millions of dollars a year.

Higher education raises about $2.9 billion a year on its own from tuition and other activities, and about $660 million a year in federal grants and assistance.

This isn't a total solution, and removing mineral and state land revenues from P-12 education would leave a $250 million a year on average hole in the P-12 budget that would have to be filled with general fund revenues like a modest increase in income tax or sales tax rates. But, it would also produce a sustainable financial base for higher education in the state going forward, which has far more to do with our state's long term economic prosperity than the Third World economy approach of lowering taxes and loosening regulation, even when there are important public spending items that are being shorted and important regulatory goals that are being neglected.

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